Party Poker's Income

[Jax_Grinder]

First post, so if this has been discussed before (did'nt find it using search) I apologize...And if this belongs in another forum, I'm open to suggestions.

- - -

While grinding it out on Party, I noticed that they are up well over 60K players tonight. Recalling all of the posts about how Party takes advantage of its position in the marketplace (which I simply call competetive advantage - what do they owe us?), I got to thinking - just HOW MUCH money do these monkies make?

Assumptions/Facts:
1. Current peak usage appears to be about 8,000 tables/65K players.
2. Including off-peak times, Party averages about 5,000 tables/40K players.
3. Ring/Tourney split is about 45% / 55%.
4. Rake structure is 5% up to $3 per hand at all limits.
5. Avg. rake per hand $1 (may be WILDLY off mark, but I think conservative - low limits weight this WAY down).
6. PP turns about 65 hands per second at ring tables.
7. 1000 SnG tables at any given time turned .8 times per hour (estimating average of time to complete single table SnG and mutli-table SnG).
8. Avg. fee of $5 per SnG. (Again, a complete guess, but should be on the LOW side...).

I counted up the ring games in play, the # of SnG's, etc. and punched in some numbers and came up with $2,500,000,000 per year at their CURRENT usage levels.

Not gonna bother posting my numbers unless someone asks. But I think it is interesting in the sense that PP is not likely to concern itself to greatly with "giving back" to its customers until another site starts to steal players and drive their marketing costs related to sign-up and retention WAY up. Right now they are money press. Think Microsoft (PP) v. Apple (PS).

Thoughts? Flames?

PS: My general impression of those posters on 2+2 who do nothing but flame and berate other posters is that these are the guys with what I like to call "internet muscles".

[Punker]

1. Current peak usage appears to be about 8,000 tables/65K players.
2. Including off-peak times, Party averages about 5,000 tables/40K players.

How many of these are play money players?

[goldseraph]

I believe they made around 250 mm last year, your estimate is wayyy too high.

[cwsiggy]

I know that Paradise I think it was was sold to some sport betting operation in the UK for like $300 million or so. Not bad for the people who started it.

[Jax_Grinder]

Good question, thanks. I looked and they have about 1400 play money tables going at the moment. Not entirely sure, however, that these are counted in the totals posted on their client screen. I counted somewhere around 5000 ring and 2000 tourney tables, so that number (1500) would seem about right. Obviously that would skew the number down some...but it still a giant number. Maybe someone can rough their own figures and see if I am way off (which would make me feel better, frankly.)

[Jax_Grinder]

Couple of thoughts:

1. No reason to disbelieve you on '04 income, but do you have a source?
2. At the start of '04 (if I recall), they were PEAKING at about 12 to 15K players. 65K is about 4.5 x or so that number, so carry it forward...
3. Party has added higher limits (30/60, 1000 SnG's, etc) and has expanded Omaha and Stud offerings during that time -i.e., more options = increased raked hands played in real terms.
4. My number is off, to be sure, but by over 800%. Not possible!

[goldseraph]

I don't have a source, sorry. I'm too lazy to find one, but I have read that number cited more than once. It could be more, but suffice it to say as long as the poker craze continues, they will be making a shitload. I think 2.5 billion is much too high of an estimate, not sure why you threw that number out there as it bears no validity. I agree Party should offer more to their customers, a nicer GUI, more bonuses, free rolls, better variety of MTT's. However, they really don't have that much incentive to invest in these things until someone seriously challenges them as the largest fishbowl.

[jacobsta]

Visit www.pokerpulse.com (http://www.pokerpulse.com)
They list 2350 Real money ring tables,
17709 ring game players
20438 tournament players
All real money, as the peak for party.
If you drop the number of hands to say 55/hr and set average rake at something more like .65-.75 I think you will probably get a more accurate value as most of the tables are at the lowest limits and you also have to make up for the hands that are not raked (or in NL, that are raked .10, .20, etc)

[Jax_Grinder]

Interesting info on that site, thanks. In my calculation I tried to backdoor the number of hands raked by tracking the turnover on the bad beat counter ($.5 per hand - came out to $60 per minute over a 3 minute period...i extrapolated that to 2 raked hands per second over the 75 bad beat tables and used that as an average for all ring tables of 60 raked hands per second). Your methodology and assumptions may be more accurate (who knows), but the number, including tourney fees, still comes out to well in excess of $1B for the year....if they don't continue to add players at the rate of +25% per month.

[TDCumm16]

I believe the difference between Jax and gold's estimates maybe that gold reported $250M income for last year, whereas Jax' estimate is just a revenue estimate and does take into account the expenses Party incurs

[That guy]

who knows the accuracy of such but here goes:

--------
One industry insider commented. "This valuation of paradise would make new leaders Party Poker worth at least $2 billion."

from:
http://www.pokernews.info/news-id287.html
--------

I used to work in investment banking.

If somebody is valuing this thing at $2 billion, then using a 20 P/E multiple yields after-tax earnings of $100 million.

Assuming high margins like the online video gaming companies, I would guess revenues in the $300-500mm range. Call it $400mm would make $2 billion and 5x multiple of revenues logical...

That is assuming the $2 billion is close.

[REL18]

I know exactly how much they make if they aint lying. They say so on the site last year 500 million this year they will make a billion. Or at least thats what it says on the site

[Jax_Grinder]

A more technical perspective for sure. Thanks. Note that the quote you reference states " at least $2 billion", and, further, that this income stream is NOT a static or mature. Between February '03 and today, their peak usage has grown by some 400% and shows little signs of slowing.

BTW, this could turn into an interesting exercise into the power of distributed group analysis (no idea if thats what its called, but you get the idea). I bet 2+2 as a whole could estimate PP gross revenues pretty darn close (+/- 10%) with addtional, reasoned input (net income would be impossible to estimate without some insight into what there expenses really are - even with cost savings associated with subcontracting all of their cs work to India...).

[transmitt]

Jax, you have to be off 800%, if they were putting up 2.5 billion in sales they would be in the high 3's-low 4's on the fortune 500--that's not possible!

[srw5n]

An interesting little article on the potential market cap of Party poker:
[url]http://business.scotsman.com/latest.cfm?id=4056004[url/]
To summarize the gentlemen who started the company are exploring their options. Realistically I would guess they are either acquired or go public in the next 12 months. The potential market cap for the company is much higher than I anticipated (over 5 billion dollars). All I can say is WOW.

[Dan Mezick]

Readers of this thread might look in the StockMarket forum, where there is a link describing Party's possible IPO. They are reporting 350MM in net revenues in 2004.

Party Poker IPO Post: 2+2 (http://forumserver.twoplustwo.com/showthreaded.php?Cat=&Number=1620496&page=0&view=c ollapsed&sb=5&o=14&fpart=1)

[Jax_Grinder]

As it has been pointed out later in the thread, PP reported $350M in (what I assume is) gross revenue for FY2004 - http://tinyurl.com/55p7r. The number I am trying to estimate, however, is potential gross revenue for FY2005, which should be substantially higher due to Party's exponential growth over the past 12 months.

While revenues in the BILLIONS are certainly significant, even my (apparently) excessive estimate does not crack the F500 list. No. 500 for 2003, for example, was Newmont Mining Corp. with $3.214B in revenues.

Few companies can boast 65K plus daily customers pumping money into a business with NO manufacturing and/or inventory expense and comparably insignificant labor, capital and R&D expenses. I have not heard anything yet that makes me question whether this company can generate well in excess of $1B for 2005.

If someone doesn't make a well executed marketing drive soon, Party is going to go public in some fashion (IPO or asset purchase by public company) and use its monumental cash reserves to buy-out or eliminate altogether any significant competition (not to mention hopeless cases like rakefree.com). Where do I get in line?

[Jax_Grinder]

Just found this. http://infoex.hemscott.net/MESSAGES/1430962.HTM

The money quote for this topic appears to be -

"PartyGaming last year reported earnings before interest, tax, depreciation and amortisation of about 350 mln usd (186 mln stg). Earnings are projected to rise to as much as 600 mln usd this year. Among British peers, shares in William Hill trade on a multiple of around 17 times earnings, while Sportingbet stock is valued at around 19 times estimated 2005 earnings."

While I STILL think $600M is way low (call be pigheaded), that would produce a market cap of $10.8B or so. Not too shabby.

There's also a section about Merrill Lynch, UBS, Morgan Stanley and Deutsche Bank refusing to get involved in the acquisition of Paradise Poker (thus passing up $20M in fees!) because of "concerns that PartyGaming's
biggest market is in the United States, where the legality of internet gambling remains in doubt. Although poker, where players are pitched against each other rather than
against the house, is less of a grey area, the big banks are still wary of upsetting regulators such as Eliot Spitzer, New York's attorney-general."

Legality in doubt? There is none. It's simply not legal in almost every jurisdiciton in this country. However, given that U.S. based prosecutors have no reach to foreign shores, and U.S. law enforcement has neither the capacity nor the ability to track the activity from the client side, there is no need for "concern" from an operating perspective. Now on the other hand, perhaps the investment banking folks have some concerns in re: security regulations...

I've blathered long enough. Thanks for the interesting responses to my virgin post.

[DesertCat]

[ QUOTE ]


Legality in doubt? There is none. It's simply not legal in almost every jurisdiciton in this country.

[/ QUOTE ]

I think you are wrong on this. There was a post that listed gambling legality in almost all states, and the overwhelming majority had no explicit ban on internet gambling.

[DesertCat]

ttp://www.gambling-law-us.com/State-Law-Summary/

Here's the actual link on U.S. Gambling laws.

[DesertCat]

US Gambling Laws (http://www.gambling-law-us.com/State-Law-Summary/ )

whoops, try this

[bottomset]

woohoo Im breaking the law

[Jax_Grinder]

I have previously reviewed the site you linked to and it is an excellent resource. But your comment about gambling being legal the absence of an express prohibition against internet gambling is incorrect.

First, it is wholly unnecessary and often counterproductive, particularly from an enforcement standpoint, to adopt an express prohibition of internet gambling. Narrowly crafted prohibitions are subject to tighter standards of interpretation when applied to specific situations - i.e., loopholes proliferate. A nice, broadly crafted statute, on the other hand, can gather all sorts of activities within its scope. For example, Florida has no express prohibition, but I can assure you that if the AG ever got a bug up his ass to stop internet gambling, certain provisions of chapter 872 provide all of the ammunition he would need. The only thing stopping various AGs from pursuing this is that they see no pecuniary benefit to their states and thus cannot justify action. The counterpont is that states with significant gambling operations (say, Nevada and Louisiana) DO have the necessary justification and have thus passed prohibitive laws (Florida may join this group if the gambling lobby ever overcomes the Disney lobby and cracks open the door for casinos...).

As a side note...I'm a stinkin' lawyer and have looked at this issue in a slghtly different context in connection with some proposed ventures in Florida. Consensus among my friends with the States Attorney is that my clients would be buying trouble.

[TransientR]

All that money and they can't upgrade their crap looking software?

Frank

[flawless_victory]

[ QUOTE ]
All that money and they can't upgrade their crap looking software?

Frank

[/ QUOTE ]NO EFFING KIDDING

[DesertCat]

[ QUOTE ]

As a side note...I'm a stinkin' lawyer and have looked at this issue in a slghtly different context in connection with some proposed ventures in Florida. Consensus among my friends with the States Attorney is that my clients would be buying trouble.

[/ QUOTE ]

How can something be illegal if there is no express prohibition against it? Don't we have rights and a constitution? Or do local AG's get to pretend that anything not expressly legal is illegal?

I'm not aware of any law allowing breathing, but I would continue to insist on doing so even if shadowy figures in my local AG's office insisted I wasn't allowed to.