Poker

Poker is one of the world’s most popular card games and has been played in various forms for centuries. In November 2007, The Economist noted: “there are an estimated 60-80 million regular [poker] players in America and perhaps 80-100 million elsewhere.”¹
 
Poker’s world-wide popularity has grown in recent years for several reasons.  First, its appeal to television audiences has increased substantially, particularly by the coverage of the World Series of Poker’s (‘WSOP’) and the World Poker Tour’s high value tournaments. The money that can be won in these tournaments has made poker one the most valuable professional games in the world and a major draw for TV audiences. For example, in 2008 Peter Eastgate scooped $9 million for winning the WSOP compared with tennis player Rafael Nadal’s total tournament winnings of $6.8 million² and professional golfer Vijay Sing’s winnings of almost $7 million.³ Poker’s popularity as a mainstream form of adult entertainment has also been fuelled by the strong growth in online gaming in many countries and by investment in large poker rooms by land-based casino operators, particularly in the US.

H2GC estimates that $3.7 billion of global gross gaming yield was generated from online poker in 2008, of which $1.5bn came from the US – an indication that the US remains a large and valuable market in spite of the UIGEA. Globally, this represents an increase of 166% on the estimated $1.4 billion that was generated in 2004 (or just $500 million excluding the US).⁴

The shifting regulatory and legislative landscape around the world means that predicting future growth rates is particularly challenging. While the rates of growth are likely to moderate over time, H2GC still estimates that the online poker segment outside the US will grow at a CAGR of 13% per annum between 2008 and 2012.  This rate of growth could be expected to increase substantially if online poker is regulated in the US.

Online poker – market structure
Whilst obtaining market share information for online segments is difficult, PokerSiteScout.com does publish independent data for online poker player traffic.  It analyses the numbers of cash game players on a large number of sites but ignores tournaments, that typically represent around 30% of traffic. It also does not attempt to analyse the value generated by each player. However, on this basis and using data for the week to 8 March 2009, the estimated global market shares of the major poker operators are shown in the chart below.

Market Share *



In spite of the limitations of this data, we believe it is a useful proxy for the overall structure of the online poker market. With PartyGaming and the vast majority of operators complying the UIGEA, PokerStars and Full Tilt Poker have been able to increase their player liquidities substantially by assuming dominant positions in the US which remains the world’s largest online poker market.

Success in online poker
The historic high rates of growth and high margins in online poker initially attracted a large number of online poker operators into the market. However, the Group believes that long-term success requires a number of important attributes:

Player liquidity – players want to be able to find games offering the stakes they want to play for and with plenty of other players to make it interesting. Player liquidity is therefore an important factor in attracting and retaining customers. It also means that operators with the greatest player liquidity are able to offer a wider variety of tournaments with larger cash prizes. The Group’s decision to stop taking deposits and real money wagers from US players on 13 October 2006 resulted in a material reduction in player liquidity on PartyPoker.com, the Group’s flagship poker site. The subsequent migration of a number of non-US players to sites that continued to accept players from the US and therefore were able to offer greater player liquidity, has also had an impact. However, the Group continues to maintain a high level of player liquidity and market share, thereby retaining its appeal as one of the most popular online poker sites.

Marketing expertise – Being able to attract and retain players is critical for long-term success. Whilst historically, television advertising has proven to be one of the most effective routes for attracting new players, restrictions on television advertising for online gaming in certain territories requires operators to develop other marketing channels as well as invest in new, alternative and innovative marketing strategies.

Quality of product – Having attracted a player to the site, being able to offer a quality product is also important. However, software needs to be constantly updated and improved in order to maintain players’ interest through the addition of new games and features, to keep pace with changing consumer tastes and to stay ahead of the competition.  In September 2008 the Group launched its next generation of PartyPoker, featuring several product enhancements and the new software has been well received by players and industry commentators alike.

Payment processing expertise – People want to be able to deposit and withdraw funds quickly and safely. This instils trust and confidence and is a vital part of the overall player experience. By making a number of different options available, an operator can cater for players’ differing payment needs as well as ensure that payment processing options remain competitively priced.

Excellent customer service – If a customer encounters a problem or has a query with the service being provided, the online consumer of today expects to be able to contact someone at a personal level, either via email or phone to address the issue in a timely way. The global nature of the online gaming market means that being able to provide 24-hour support in a variety of different languages is becoming increasingly important.

1 ‘A big deal’ , The Economist -22 November 2007
2 ATP
3 PGA
4 H2GC – January 2009