Party Poker the Evil Empire?

[Cubswin]

Party Poker plans massive spending spree link (http://www.egrmagazine.com/cgi-bin/articles.pl?section=3&id=510&action=display)

Party Poker, the world’s largest online poker site, has hinted at plans to launch a major acquisition drive in 2005.

The poker site’s parent company iGlobalMedia has repeatedly denied rumours it is pursuing an IPO on the London Stock Exchange.

But Vikrant Bhargava, marketing director at iGlobalMedia, suggested the firm is looking to raise funding for new acquisitions in an interview with eGaming Review.

Party Poker has had a hugely successful 2004 with annual profits expected to reach US$500m, but Bhargava said the firm is not satisfied with its market share.

“We have 60% of the industry, but we could be 95% of the industry,” Bhargava said.

“With an influx of capital you can go out and acquire everyone else.

“It could be in this industry, or it could be people in other related businesses, but I see that as definitely a possibility,” he added.

Bhargava also said Party Poker will be looking at stepping up its presence on Television throughout Europe, after trialling TV shows in the region.

“We have been sponsoring a few TV shows, and if it does well we will take it up from one to 10; and if 10 works well we will take it up to 100,” he said.

The full interview can be read in the next issue of eGaming Review, which will be published early next week.
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I figured that expansion of market share would be a top priority for Party but I would never have thought they would be so public about it. You would think they would get their customer service sorted out before shooting for a monopoly.... but i guess not. I smell $4 rakes coming....

cubs

[Cubswin]

We have 60% of the industry...

I love fuzzy math

[gabyyyyy]

[ QUOTE ]
“We have 60% of the industry, but we could be 95% of the industry,” Bhargava said.

[/ QUOTE ]

LMFAO. He must work in the promotions/bonus department.

[DesertCat]

This doesn't make much sense. This guy just painted a bullseye on his company for the EU trade commissioner. And why would acquiring competitors be a good use of capital? If you really own 65% or more of the market, wouldn't you be focused on using marketing and pricing to take market share, and only resort to acquisition if the price was cheap? The only exception I can think of is if the competitor has a technology they need.

Being the dominant poker site that is minting cash daily, why even go public and have all those hassles? If it's to buy competitors, you have cash for that, why dilute your ownership with an IPO? Of course the most common real reason companies go public is, "we're worried about the future and want to sell out to suckers while the market is hot". But I can't see why in this case PartyPoker would be worried.

[gabyyyyy]

[ QUOTE ]
This doesn't make much sense. This guy just painted a bullseye on his company for the EU trade commissioner.

[/ QUOTE ]

Ya, no $hit

I am pretty sure monopolizing an industry is illegal in Europe as well.

[AngryCola]

[ QUOTE ]
I am pretty sure monopolizing an industry is illegal in Europe as well.

[/ QUOTE ]

It's far more illegal in Europe than it is in the US.

*HINT* I'm just agreeing with you. /images/graemlins/smirk.gif

[Cubswin]

[Donald Trump voice] Vikrant Bhargava... your fired [/Donald Trump voice]

[Beavis68]

[ QUOTE ]
[ QUOTE ]
I am pretty sure monopolizing an industry is illegal in Europe as well.

[/ QUOTE ]

It's far more illegal in Europe than it is in the US.

*HINT* I'm just agreeing with you. /images/graemlins/smirk.gif

[/ QUOTE ]

Are any of these companies licensed in Europe?

[realwtf]

I do not see how advertizing to get a bigger market share is bad. Do not see how they are acting like a monopoly either.

[Cubswin]

I do not see how advertizing to get a bigger market share is bad.

It is not bad if you are a publicly held company or plan to go public. Maybe this is why they have announced this game plan? /images/graemlins/confused.gif If your not going public why the heck would you announce your expansion and acquisition plans in this manner? It really doesnt make sense to me. Im not a big finance guy so maybe someone could enlighten us.

Do not see how they are acting like a monopoly either.

You do see how acquisition could lead to a monopoly cant you? Im not saying they are one at the present time but if their market share continues to creep up it could become an issue.

cubs

[gabyyyyy]

[ QUOTE ]
You do see how acquisition could lead to a monopoly cant you? Im not saying they are one at the present time but if their market share continues to creep up it could become an issue.


[/ QUOTE ]

Yep. And especially the case if they plan on using their IPO money to buy out the competition.

[Cubswin]

just a point of clarification.... it is not the advertising that worries me... it is the aquisition

[BusterStacks]

you don't think they have 60%? Seems like they probably do have right around that, but i have no idea.

[largeeyes]

If they wanted to purchase other big players, they woulda taken on Paradise before Sportingbet gobbled it up.

[GrannyMae]

inevitable

[oneeye13]

although, hilariously, insider trading is apparently fine

[Cubswin]

you don't think they have 60%?

I really cant say for certain. Based on total number of players they are well below 60% based on PokerPulse numbers. However, i think a lot more players at party multi-table more then other sites. Also, party has a lot more higher stakes games then many other sites so maybe they do in fact have 60% of internet poker proceeds.

cubs

[Thythe]

In the end Party will announce that two and two make five, and you will have to believe it. It is inevitable that they should make that claim sooner or later: the logic of their position demands it. Not merely the validity of experience, but the very existence of external reality is tacitly denied by their philosophy.

[Cubswin]

OK... i misread poker pulse's stats... i think they do have 60%....

[Cubswin]

the logic of their position demands it. Not merely the validity of experience, but the very existence of external reality is tacitly denied by their philosophy.

My Plato translator is broken... so WTF does that mean? /images/graemlins/wink.gif

[nolanfan34]

[ QUOTE ]
inevitable

[/ QUOTE ]

Who are you, OneWordAnswer guy?

Let's hear some Grannie analysis! <font color="white"> Without the fake plastic hands and fists, please. </font>

[Thythe]

Haha, you know, the universe only exists in the mind. Since Party controls the mind, then they control the universe.

[Cubswin]

wouldn't you be focused on using marketing and pricing to take market share

Im getting a little off topic with this.... but do you think traditional models of pricing to take market share would really apply to online poker sites? If party decreased its max rake to $2 or even $1 for a period of time would this significantly increase traffic? Im not convinced that anyone would take notice except us serious players... though id be interested to hear what others may think about this.

cubs

[Greg J]

I'm more of a public opinion guy than a finance guy, so I feel comfortable in reassuring you here Cubs: no, most people won't give a sh!t.

[GrannyMae]

it has always been inevitable that after the dust clears, there will likely be only 2-3 sites total due to acquisitions. it makes sense and was predicted by many.

for example, party has the resources to purchase pokerstars and ultimate bet at any time. if the offer is good, either site would sell to party in an instant. if we see big mergers, as it appears vikrant is after, they will then proceed to scoop the smaller sites they want as well.

a final landscape might be party (and purchased properties), paradise (which will probably not sell since they are now part of the sports book empire) and prima.

small sites will have been purchased if they are desireable. the rest will be forced to close due to lack of traffic soon after if they were passed up on the buy-outs. there will be NO competing with these supersites, so the places like full-tilt and absolute will sell so as not to be bankrupted.

the money that could be saved on the synergy of these deals is enormous. those savings would be pumped back into product improvement, marketing and profit. that would be good for all.

as it is, party poker is now running 60 second spots on NBC affiliates all day on saturdays and sundays during sports hours. yes, the ads are for .net, but we all know this will drive massive players to .com. party has convinced the cable providers that a commercial advertising the worlds largets pokerschool is kosher. the cable companies insisted on disclaimer black boxes during the commercials that read "this is not a gambling site", and therefore the DOJ won't be able to go after anyone.

when i saw this new blitz for partypoker.net last week on NBC i knew that things were about to change yet again.

[gabyyyyy]

[ QUOTE ]
so the places like full-tilt and absolute will sell so as not to be bankrupted.



[/ QUOTE ]

How can a company with almost zero overhead go bankrupt?

[ QUOTE ]
the cable companies insisted on disclaimer black boxes during the commercials that read "this is not a gambling site", and therefore the DOJ won't be able to go after anyone.



[/ QUOTE ]

I think you are seriously underestimating our current administration.

[Cubswin]

there will likely be only 2-3 sites total due to acquisitions

Im not sure i agree with this given that many poker rooms are attached to major sportsbooks or casinos. There casinos/sportbooks can run a poker room that is barely profitable as a 'service' to their casino/sportsbook patrons. While there are going to be mergers and aquisitions down the road i dont see the likes of a Interpoker or Pacific closing their rooms. I can easily see their being only 2-3 major players in the future (heck, we are prolly there already), but i dont see operations with profitable casinos or sportsbooks throwing in the towel on its poker room even it is barely keeping its head above the water. There is a certain pride issue in being a 'full service' operation.

cubs

[One Word Answer]

insulted

[GrannyMae]

i think a place like pacific, if it stayed under the CON flag, could not attract players if 95% of the base were elsewhere. the mergers will mean the strong get stronger and the weak will really suffer due to the strength gained by each merge.

a place like pacific may just become part of an all new skin-type sytem that we have not even envisioned. if there are some big mergers, i think the landscape will change in many ways. however, any site that takes a stand to remain independant would have a tough time imo.

it will be fascinating to see this unfold, that's all i am certain of.

[GrannyMae]

awesome

[jokerthief]

Granny it seems like your not too worried then. Don't you think that this will eventually lead to a rake comparable to B&amp;M cardrooms without 90% of the players even noticing the hike? Why else would Party be so aggressive with the aquisitions? If they did get 95% like their goal is or even 70-75% this would be an automatic move. Am I missing something here?

jokerthief

[Spidurman]

I'm a finance guy by training....lets see how it stacks up (damn this is harder without good numbers to work from lol).

Party is the biggest producer of their product in the world (online poker being the product). This is extremely important as economies of scale are a major advantage in online poker. A site needs a large number of players in order to generate steadily available tables. Party is the best marketer in online poker and their player acquisition strategies (affliates and television) are again, the best in the industry.

Where Party is weaker is once players are playing. I don't need to detail the overall reputation of their customer service and their generally weaker tournament structure (speaking to consensus as I have seen it, not personal opinion).

Trends worth watching: Pokerstars is gaining alot of momentum in the tournament department. This may lead to players sticking there.

My best prediction for online poker - continued consolidation towards two dominant main sites (Coke and Pepsi) in Party and Stars. Sites such as UB, Paradise, Prima will be able to survive independantly, but they will need to more strongly develop a niche to sustain traffic. They will likely be acquisition targets if they cannot sustain growth. The remainder of the sites are extremely vulnerable and will probably end up as part of larger operations (whether its pure poker or a diversified operation remains to be seen).

As far as an IPO's affect on Party specifically - it would largely depend on how many shares sold at the IPO are coming from insiders vs the company. If it is from insiders, the net effect would be to enrich them. If it is from the company - it could have several uses: paying down debt, acquisitions, or internal improvements being the big three.

Just a few thoughts /images/graemlins/laugh.gif

[GrannyMae]

i think that the rake won't go much higher regardless of the monopoly or oligopoly that party will have.

worst case scenario is $4 max, and that would still make it cheaper than B&amp;M because of the lack of toke and expenses.

i agree with you that it will probably increase the price of poker, but we can't stop the machine. it has taken on a life of its own.

http://users.telenet.be/eforum/emoticons4u/violent/sterb127.gif

[Cubswin]

Party is the best marketer in online poker and their player acquisition strategies

ok... the original article is a little ambiguous... are they talking about player acquistions or are they talking about buying up other poker sites? I guess the former would make more sense seeing as this comment came from the marketing director... but when i read it i thought they were talking about the latter.

cubs

[GrannyMae]

i'll tell you this B, i think the coke/pepsi thing was an awesome example.

i'm not certain of the exact facts involving dr. pepper's creation, but let's assume for this example that they started out on their own as a private company (as MANY soft drink brands did). given that disclaimer of ignorance, here is what happened.

brands like dr. pepper were created independently, and are still marketed on their own etc. however, pepsi came in and bought the brand. they are still a very distinct product that will never go away, but the bottling facilities, accounting, marketing etc are all done with pepsi assets. this makes both brands stronger while never really seeing any change in the flavor of dr. pepper.

party would probably purchase many of these places with no intentions of having everyone suddenly come through the party front door to party software. they would just own the other rooms and use the synergy of combined operations to make all sites stronger. if party went merger crazy, i don't think they would abandon the software from all the sites. the only thing one would see is more uniform banking issues and contact info.

therefore, party could purchase pokerstars without ever shutting down stars or veering from the stars mission of being the premier tourney site. with the larger sites, the changes would probably be mostly invisible.

[Cubswin]

I see what your saying but i just dont see places that have successful casino/sportsbook operations giving up their poker rooms. Its kind of like many full service vegas casinos that run poker rooms even though they might not be all that profitable. I dont see the likes of Luxor, Excal or Monte Carlo raking in the cash with their rooms but they still keep them around anyway. I think the stand-alone rooms might be real targets but i dont see ICP, willhill, and pacific throwing in the towel that easily.

cubs

[gabyyyyy]

Party poker is like Pepsi and Pokerstars is like Coke.

While Party has more customers and is more diverse with their casino holdings and other things, Pokerstars just does poker and does it well.

Pepsi tastes like $hit but they have a larger overall market share. They own taco bell, kfc, and pizza hut on top of their beverage buisness. Coke just sells soda, but it is a far more superior product than Pepsi.

In closing I think a buyout of pokerstars is extremely unlikely.

[emonrad87]

Are you joking? Coke is awful.

[gabyyyyy]

[ QUOTE ]
Are you joking? Coke is awful.

[/ QUOTE ]

I forgot that in your culture, urine is the beverage of choice.

[DesertCat]

[ QUOTE ]
Im getting a little off topic with this.... but do you think traditional models of pricing to take market share would really apply to online poker sites? If party decreased its max rake to $2 or even $1 for a period of time would this significantly increase traffic?


[/ QUOTE ]

I was actually thinking of deposit bonuses, not rake as the price competition. It all comes down to customer acquisition costs, if you can get more players per dollar by running TV ads, or offering bonuses, then that's what you'll do. If the opportunity comes to add players through acquisition, you'll compare the proposed merger price to the cost to add through marketing. It's a little simplistic, since I'm ignoring some strategic benefits of acquisition (technology, brand value) and the fact that some customers are worth much more than others, but that's the basic math.

I don't know that rake will ever be a point of competition, because it seems to me that rake-back is more important. If you have high rake and the fish don't know or care, and it allows you to offer high rake-back to the high volume players (i.e. the pros and semi-pros), then you might have the best of both worlds.