I-Poker Tie-Up Harbinger of Consolidation to Come?

11 August 2008

While Ladbrokes revealed a 21 percent decline in first-half profits, the bookie's deal with Microgaming Software Systems Ltd. came as something of a show-stealer.

Ladbrokes, which, previously, had operated a standalone poker room on Microgaming software, announced Thursday that it would join the Microgaming poker network from the 2009 fiscal year.

"Ladbrokes has been a customer [of Microgaming's] for years," Simon J. Holliday, a partner with Global Betting and Gaming Consultants, told IGamingNews Friday, "and they like the more bespoke service that is offered to them by Microgaming.

"Ladbrokes has a history of being more involved and quicker to embrace technology than their competitors," he said.

Mr. Holliday said the deal, which will feature technology- and development-related savings for Ladbrokes, was primarily done in the interests of boosting liquidity.

Net revenue from poker fell 6.4 percent to £14.7 million during the six months ended June 30, with active customers and yield per unique player down 4.6 percent and 2.1 percent respectively.

Flat -- or worse: downward -- trends in poker revenue have been a frustrating financial fixture in the second quarter for many operators and providers as seasonality, in tandem with the gravity exerted by United States-facing networks, have conspired to negatively impact numbers.

Between April and July, revenue for United States networks was up 44.5 percent, year over year, while revenue for European networks was up just 12 percent during the same period, Mr. Holliday said.

"Interesting, but in revenue terms, we make the listed companies down 6.8 percent sequentially in the second quarter, but up 9.3 percent year over year," he added.

Meanwhile, according to PokerScout.com, a Web site monitoring online poker traffic, Ladbrokes' liquidity -- when taken as a seven-day average -- oscillated between approximately 400 and 600 players across the last six months. Microgaming's seven-day average, by comparison, trended between an estimated 700 and 1,000 players during the same period.

Were these totals the same on Jan. 1, 2009, and assuming the high end of both Ladbrokes' and Microgaming's seven-day averages, the newly formed poker network would boast an average of 1,600 players. This total would move the Microgaming network from 12th place to 7th, just ahead of the Svenska Spel and Boss Media networks -- titanic steps by current standards.

Of interest to the media was Ladbrokes' decision to enter a network where American players, which most companies reluctantly chose to drop in October 2006, are active and serviceable.

"Most of the poker rake is generated by the high-stakes players, and we have taken the decision to offer them U.S. liquidity from the states where there is less of a legal risk," John P. O'Reilly, the company's managing director of remote betting and gaming, was quoted by eGaming Review as saying Thursday. "We have evaluated the legal situation and are happy with our position."

In essence, the merger allows Ladbrokes' poker players the chance to compete against American players in certain tournaments and higher-blind cash games, though Ladbrokes' own tables on the network will not take United States wagers.

In the unlikely event the United States, in the near term, opens its doors to offshore online poker operators, Ladbrokes -- having never taken United States wagers and therefore unburdened by so-called legacy issues -- would certainly be in a strong position to profit from Microgaming's American liquidity.

IGN's Take

Are the current trends in poker revenue in the first two quarters of 2008 -- unchanged or negatively impacted -- simply a product of well-documented seasonality the industry annually trudges through, or are we entering a period when Europe-facing poker networks begin to consolidate?

One chief executive I spoke with recently pointed to the economic advantages of poker-network consolidation: costs fall, balance sheets tidy up and money saved can be put toward other, potentially fecund projects.

With competition increasing over liquidity, and networks like PokerStars running away with high-rolling, cash-doling American players, have maximum returns from European and other player volumes, for the moment, been tapped out?

"The average number of players on the US facing Poker sites during April to July this year is just 0.3% down on the average for January to March, for the non-US the corresponding figure is -12.4%," Mr. Holliday wrote in an e-mail Saturday.

"I agree that liquidity is key, and you only have to see the momentum that Playtech has gained by the Tain/Tribecca deal and the signing of new licensees," he continued. "YoY, April to June, Playtech are up 80.4% and during April to July this year, they are ahead by 1.3% against the falls pretty much everywhere else."

More on this to come.




Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.