Party CFO conversation: Trip report

[LostMyCaseMoney]

You beat me to my point Innocentius. Pro players are advertisement. I'm the one who brings in fish. Anytime I go to a live game I'm introduced as the kid who makes a lot of money playing online. So I share a few stories about a big win or a big loss and at the end of the night it's always which site do you play? Which site do you like best? Where do you think I should play?

The guys I know who deposit a hundred bucks every week to play online do so to play poker. They can win at it. They've seen people do it on a regular basis. One day I'll get good at it and be able to win money. No one is going to deposit week after week to lose playing blackjack or slots which they have no chance to win except the very few degennies. The pros will go where the fish go but I think it is also underestimated how many fish will follow the pros.

[gergery]

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I think they should appreciate each and every customer they have. Other poker rooms do.

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They do. This talk of "sub-optimal" just confuses people. Of course Party wants the hard-core multi-tablers. it's just that the hard-core multi-tabler is not nearly as profitable as some other segments. and the multitabler has fewer other options.

This is just a business saying is going to focus on its most profitable customer segment (those that will play casino games), and that its high volume, lower-margin segment is not the most optimal area to focus on.

That's not "trickier", or "screwing the multitabler", its just economics and a profitable business decision.

-g

[AceHigh]

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In short: My impression, along with the impressions of a lot of other people, I guess, was that Party regards us primarily as a hassle, and that they see their business model as catering to an ever-rotating group of recreational gamblers. This conversation would seem to strengthen that impression.

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I don't think that's true. Wasn't Party one of the first sites to allow 3 and 4 tabling? Sure that helped them, but it also helped the serious gambler. Party needs lots of games going at all hours, so they need all types of gamblers. Of course the optimal customer is the "fish" that regularly deposit money, but they need all the customers they can get.

My guess is Party is like any business, looking to grow. One way is to "steal" customers from competitors and the other is to get into other aspects of gaming.

I don't think this change is aimed at serious gamblers, I think it's aimed at the skins and at rakeback.

[MisterKing]

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The pros will go where the fish go but I think it is also underestimated how many fish will follow the pros.

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This, in essence, seems to be the biz model FullTilt is using (and to a lesser but still significant extent PokerStars). Of course they're doing it with the most visible pros, and are making it very easy to find said pros and match wits with them. FT's regular e-mails to users with tips from recognizable TV players further extends this branding effort, as does the site's "win a piece of the pros" tournament series. Since FT is doing it so well, I have to think that the ability of other sites to emulate this particular angle is probably minimal. Why go play at the same site some mid/hi pro says is good when you can go play against Greg Raymer or Jesus Ferguson?


On a separate note, I thought something StellarWind said above was particularly on point. He said:

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A key strategic issue has not been mentioned. The upcoming battle for market share is a crisis point in the industry that will likely determine winners and losers for a long time to come. Retaining pros right now should be important to Party because they need to keep our rake dollars from feeding the marketing budgets of their competitiors. They shouldn't make it easy for small competitors to get big fast by grabbing a big player base on the cheap. Growing rooms enjoy an upward spiral as greater game selection and increased revenues fuel even more growth. The opposite is true for shrinking rooms. Keeping the small rooms at bay and putting the skins into a tailspin will pay big dividends for Party down the road.

[/ QUOTE ]

I couldn't agree more. The next six months will be as significant as any two quarters in the past three years for online poker. Instead of riding a wave of interest and new money, as the sites did following Moneymaker's WSOP win in 2003, the sites are now in an all out death match for the existing player base, plus whatever the handful of player entries are still coming in. The image of all the animals fighting over the shrinking pool of water during dry season in the Sahara comes to mind... in order for someone to win, someone else is probably going to have to die.

As to what will enable Party to win this struggle, there is no question that (at least temporarily) depriving their chief competitiors of regular players is in their best interest. This is why I posited that there would be some kind of new rakeback option for a few months. The way I see it, if Party does offer this option, it would be terminated the moment its rivals were so weak as to be unable to offer a better overall deal for high volume players ("better deal" being roughly the sum of available poker profit from weaker opponents + available rakeback dollars).

As others have said, this is has been an interesting discussion.

A question for those involved: What do you think the average # of users at the following poker rooms will be in 60 days? Party, X-Party, and Stars (the top three, basically). I believe right now the average on Party is about 65K on the weekends, X-Party looks like it has about 7,500, and Stars has 56,000. My guess as to where things are in 60 days: Party 70K, X-Party 5K (a 33% reduction), Stars 60K.

[lautzutao]

The higher % of rake to pot is at the lower limits isn't it? Why wouldn't they rather have someone 10-tabling a 1/2 game collecting 1$ of rake a table as opposed to 1-2 5/10 or 10/20 or 15/30 tables at $3 a pop?

[HesseJam]

short-term and looked at it statically - yes.

long-term and dynamically - no.

short-term, this means more rake. long-term this means more low-limit, low winning multitablers (because they tend to stay whereas the losers tend to leave) playing a robotic style and hampering the "Party Atmosphere" for the beginners. Dynamically, it is better to encourage moving up in limits to keep skills levels more balanced at each limit.

The math: Let's say the typical low limit (,5/1) table consists of 1 bonus-rb-bottom-feeder Pro (20000 hands per month, 4 BB/100), 2 semi pros (5000 hands/m, 2BB/100), 2 break even bonus hobby whores (1000 hands/m, 0 BB/100) and 5 fish who lose more or less badly (1000 hands /m, x BB/100). This is only hypothetical, I do not say that it is like that at Party) How big does the xBB/100 for the fish need to be?

Answer: Party rakes about 4BB/100 per player at .5/1. So the losers have to pay jointly 40 BB/100 (table rake) + 8 BB/100 (winnings) = 48 BB/100. In that example, you need 5 losers at about -10 BB/100 to make this work. If you calculate this for 20000 hands to accommodate the bottom feeder pro, you'll have to supply 8 semi pros, 40 break-even hobby whores and 100 fish to fill up for 20000 hands. For sake of simplicity and illustrative purposes, let's say the fish get frustrated easily which means you have to bring in 100 fresh fish EVERY MONTH to keep your table running. The winners/whores enjoy their income and stay.

Now come the dynamics: Over time either the average table changes or you need to set up more tables in the same configuration. Let's say the average table changes: One fish out of 100 works himself all the way up to pro status. You have now 2 pros, 2 semi pros, 2 whores and 4 losing fish. The losers now have to cover 52BB/100 among their foursome. This means, you'll need 80 fish now losing -13BB/100 to keep the table running.

Alternatively, if out of 100 fish 1 turned pro, 2 semi and 2 whores you'll need another table and second set of 100 fresh fish EVERY MONTH to keep the same quality of games.

This, of course, is only a hypothetical example to illustrate the dynamics. Note that it is less relevant how much exactly the winners win at the low levels. The effect of a loser sharing the rake burden with other losers now becoming a non-loser and thereby raising that burden is much greater. Also, the total amount of fish required is mainly a function of how many hands the multitabling pro plays.

Attracting new fish is very costly. This cost changes over time relatively to the stage of the poker product cycle. In the beginning of a craze it costs less, the more you are approaching the top, the more it costs. I guess currently the cost of attracting another 100 fish per month outweighs the additional income of the additional table by far.

The best way to alleviate these negative dynamics is creating room for winners at the lower tables so that you do not have to bring in so many more fish. The best way to create room is to have them move up in levels.