The Game is Getting Tighter

Bluff Europe recently ran an article asking if there was a poker slowdown going on in the UK. While I commend them on being one of the first mainstream outlets to acknowledge that nearly every public poker site is reporting poor numbers, I think they arrive at the wrong conclusion.

Poker may very well be slowing in growth in the UK but the data in their article would seem to suggest that there’s a serious contraction going on in the market. It’s the same contraction I noted awhile back when I pointed out that things aren’t as rosy in the poker industry as sites like Poker Site Scout often portray them to be (or as people who read PSS analyze the numbers and report them to be).

Party posts disappointing numbers
888 posts disappointing numbers
Playtech (iPoker) posts disappointing numbers
Svenska Spel (a monopoly!!!) posts disappointing numbers

Noticing a trend here?

Most telling part of the article was the comment from the always-pleasant John Shepherd.

However, many are saying you should not panic and that by 2012 the industry is expected to reach $6.2bn for a 12% compound annual growth over four years. PartyGaming’s John Shepherd also claims that these figures do not take into account PokerStars and Full Tilt Poker

Exactly!

The reason that it might look like there’s a slowdown in poker in the UK is because players are moving from sites like William Hill to sites like PokerStars and Full Tilt Poker. That’s why PSS shows the market expanding while individual sites that have to report quarterly earnings keep posting soft numbers.

Of course, like I said, the UK market could be weakening but unless any of the poker rooms is going to turn over their player numbers you can’t see it from the outside looking in. You don’t know how much of Stars’ growth has come at the expense of 888 in the UK and how much of it has come from expansion in other markets.

But the mere fact that both geographically diversified poker rooms are performing poorly as well as the UK-centric ones leads me to believe that contraction is the more likely culprit.

Also of note was a comment made by gaming analyst at Collins Stewart, Paul Leyland:

“The problem you face with poker, as opposed to other forms of gambling, is that you need volume to make the model work. You can’t just focus on high rollers, as you might with a sports book or a casino. You have to bring volume in to supply your higher rollers with people to play.

“What that does is drive up your costs and reduce your yields because you have to incentivise people to sign up. This favours operators who already have customers to whom they can cross-sell, like a William Hill, for example. They can acquire new poker players at a lower cost.”

First part of the comment is really dead on. So many of the skins and the smaller rooms focus on high-rollers. It’s in their blood from being sports books or casinos first and poker rooms second. They really don’t fully understand the whole poker ecosystem model.

That’s why they love rakeback and are the ones who kicked off the rakeback wars offering obscene amounts of rakeback which threatened the entire skin concept. They wanted to keep the high rollers. They lack the resources to go after recreational and novice poker players.

Network operators love selling their skins to casinos and sports books because of this huge cross-sell potential but what they don’t realize is that these guys don’t know how to attract normal poker players. Sure, when they first start cross selling plenty of fish get dumped in the pond but a year or two down the road when they’ve blown their load they go to what they know which is to preserve their high rollers.

That’s one of the reasons why I’ve always said rakeback is the network operators problem. They choose who they can let on the network and if you can’t present a credible business plan that isn’t just about cross selling your casino and sports book customers you’re going to eventually become a burden on the ecosystem.

However the second part of what Leyland says I’m not so much in agreement with. When he says that you can just cross sell and you don’t need to incentivize people to play poker I think he’s making the same mistake.

Sure you might get the completely clueless to sign up with no bonus incentive but even a casual sports bettor is going to know that most poker rooms (like most sports books) offer signup offers. For instance, I just went to William Hill’s poker site and they’re offering 100% up to $600. Sounds pretty industry standard to me. Where’s the supposed cost savings? Maybe they don’t offer it to existing customers which all but drives anybody but the most lazy to find a better deal.

Granted, cross selling is always less expensive that acquiring new customers but I think Mr. Leyland might have oversold the benefit here. At least how he’s quoted in the article makes it sound like you can treat your cross over’s like dopes and they’ll just go with it.

Anyway, I think the bottom line here is that what we’re seeing is industry contraction. Many of the smaller rooms won’t be around in a year or two. Players are flowing upstream to the liquidity and anybody who thinks they can run poker as a side business to their main cash cow is going to get squeezed because the market is going to get too competitive.