I’m not going to pretend I saw Black Friday coming but PokerStars and FullTilt were on a path where I’m not entirely surprised at the outcome. Going back to the passage of the UIGEA I’ve been dismissive of their legal arguments about poker being a game of skill. I even predicted that their demise in the US would be the cash flow strangulation resulting from the DOJ’s chokehold on banks and payment processors.
And I wasn’t alone is predicting this. Many industry insiders privately agreed with me. Yet, I can’t find a single cautionary note in any of the mainstream poker media. Despite plenty of warning signals, including one poker media site reporting that an unnamed industry insider told them that several big poker sites would collapse if the Reid bill wasn’t passed because of . . . payment processing difficulties!
Of course, we all see what their lack of journalistic curiosity got us.
But this post isn’t about Black Friday. There’s another potential scandal brewing and nobody in the mainstream poker media is covering it. It won’t likely impact players in the way that Black Friday did but it is something players should be made aware of.
Mike ODonnell reporting for CalvinAyre.com recently wrote a piece titled, Playtech’s Trust Issue, in which he discusses the fact that Playtech has announced yet another acquisition of assets that just happen to be owned by Playtech’s founder and largest shareholder, Teddy Sagi.
According to reports, Playtech will pay approximately £80 million to acquire certain assets of a social gaming company which is owned by Sagi. Sagi will retain 80% of the company (i.e. the £80 million is for a 20% stake) plus the rights to use some of the assets that Playtech is buying. In other words, he’s selling them software that Sagi plans on keeping for his own use.
This is in addition to the fact that another Sagi affiliated company is selling Playtech their office space in London for £10.5 million.
And if you do some googling around you’ll find this isn’t the first or even the second time Sagi has sold assets he’s owned back to a company he effectively controls. This is at least the third time he’s dipped into Playtech’s coffers to cash himself out.
Playtech shares took a dip (at one point shaving nearly 10% of their value) on the news. The investor view of this constant dipping into the corporate well was summed up beautifully by Simon McGrotty, an analyst at Davy Research.
Where concerns will be raised is that once again Playtech is acquiring assets from its founder and largest shareholder.
Ninety five million euros is a significant investment, especially in an area that is relatively unproven – there is no mention of the current profitability of the assets being acquired in this morning’s announcement.
Oh and in case that wasn’t troubling enough, according to the Las Vegas Review Journal, William Hill’s Nevada gaming license is “possibly” being held up due to regulators wanting to take an extra close look at William Hill’s online business partner, Playtech. Why? Well, because the guy who is the majority shareholder, Sagi, was convicted in 1996 for fraud and bribery.
But you won’t read about these stories on any of the mainstream poker media’s sites. Once again, they’re either turning a blind eye or too inexperienced in the poker business to connect the dots.
Maybe Sagi’s deals are legit. I don’t know. The purpose of this post was not to make a case for or against Playtech or Sagi. My purpose was to point at the poker media and ask why they aren’t asking the same questions everyone else is.
If the worst were to happen and Playtech were to collapse, how many poker skins would they take down with them? How many of those skins are properly segregating their funds? How would another major implosion impact legalization of poker or the overall poker market?
The fallout has the potential to be staggering and widespread. Yet, the poker media is too consumed with posting trivial updates (or updates telling you that there are no updates) about the Full Tilt situation to pay Playtech much attention.
Maybe their investigation turns up nothing funny going on but shouldn’t they at least be asking the questions?
If Black Friday taught us anything it’s that as long as nobody is asking questions you can get away with virtually anything.
The last line of that post pretty much sums the whole thing up.
If people aren’t looking or listening for problems, then they wont find any, and people can continue to get away with everything.
If you didn’t see BF coming you just didn’t play enough! I attended fulltilts academy saw trends over an eight year 13 hrs a day non-stop poker frenzy,but to make a long story short the information and experience that I endured and processed I will never be able to thank FT for making me the person and player that I am today. tyvm good chi
My guess is that they’re counting total accounts. Many poker sites have millions of accounts. The vast majority of inactive with just a small balance or zero balance.
The thing to keep in mind though is the remaining 5% held $168 million. If anything that would imply a fairly large number of players if only 5% account for $168 million and the cutoff criteria was having more than $100 on deposit.
Bill,
Sorry for the offtopic question but you seemed the best person to ask.
One of the things mentioned on diamondflushpoker.com regarding the GBT deal is that about 95% of accounts on FTP had $100 or less in them.
That seemed a bit odd to me. Is that normal in the industry or is it possible that FTP wasn’t as big as we thought it was.
@Bill. I think that big companies are going to avoiding poker because of the DoJ stance. The DoJ may have wanted to attack online poker but they have tainted the whole industry. No company that has the money to sponsor a major live tournament will risk it on anything even remotely linked with illegality unless they have a direct link.
@Michael: I agree that was some of it. But that was only for sites associating themselves with online poker. Budweiser’s relationship with the WPT shouldn’t have been an issue since there was nothing illegal about televising poker events. Same with ESPN and the WSOP (as well as Jack’s Beef Jerky, Dearfoam slippers, etc).
Online poker was the real deal breaker with that DOJ letter.
@DanM: Hmmm . . . I think I’ve run across a site like the one you describe 🙂
All I can do is share my opinion. What’s right or wrong for you is for you to decide.
Personally, I don’t feel confident recommending any rooms that are still US-facing. I wouldn’t put my money on those sites so I cannot recommend them to others.
However, there are many different levels of recommendation. Slapping a banner ad on your site might be one level and writing a review page where you give an unqualified endorsement to the room is another.
I just don’t feel comfortable doing either. I think most of the US facing rooms are one misstep away from having a bank account seized and being forced to shut their doors and being unable to pay back players (ala AP/UB). But that’s my opinion and thus my choice.
It’s also an easier choice since this site has never been a real big money-earner for me. I might feel entirely differently if this site was putting food in my family’s mouths. I might feel different if I had 50 people on staff who I would have to let go.
Because of that I have a certain degree of luxury in my opinions that others might not. I’m trying to be respectful of that but after BF, every site needs to take a cold hard look at whether they’re helping or hurting poker.
@Adam: Sadly, you’re probably right.
However, I would also point out that another reason mainstream advertisers have avoided gaming (in addition to what I’ve mentioned and what Michael posted) is that poker affiliates turned out to be some royal dirtbags.
I don’t care if you’re trying to get a mailing list going on Aweber or you’re signing up for Commission Junction affiliate offers, many people don’t want to work with gambling affiliates. We’re lumped right in there with porn, viagra, and Nigerian scams.
And rightfully so. I’m sure anybody who runs a website has been spammed by gambling affiliates. Most of the poker rooms did little to police their affiliates in the beginning. Some still don’t.
Or what about those of us who decided not to work with US sites anymore? Will anyone make a distinction? I generally assume they won’t
so hence the real question, moving forward … what of the so-called poker media, currently reporting on all sorts of legal matters, but still running advertisements for american-friendly online poker sites?
@Adam + Bill
I think I can explain where the ad revenues from mainstream companies like Budweiser went:
The federal Wire Wager Act
makes it a crime for anyone engaged
in the business of betting or wagering
to use a wire communication facility
for the interstate transmission of
wagers or information assisting in
the placing of bets or wagers on any
sporting event or contest.
In June 2003 letter to the National
Association of Broadcasters and other
media trade groups, the DOJ warned
that an entity not directly involved in
gambling activity is at risk of violating
the law, since federal law punishes
anyone who aids, abets, counsels,
commands, induces, or procures the
commission of a crime. The letter
was framed as a public service to the
marketing community.
This is from an article written by a lawyer in 2006 and he continues to use the example of Esquire magazine who cancelled a multi million dollar contract having read the DoJ letter.
To be fair he then goes on to explain how an ad companies may way to proceed if they did want to but judging by the current state of poker advertising that has not happened.
The major brands were happy to give it a go when the market was a grey area but they just cant afford to go against a letter like that from the government. The benefits just do not match the risks.
I am sure there are lots of mainstream media keeping an eye on the poker situation knowing that if it is legalised there is likely to be a lot of lucrative contracts to be picked in the early days. They have no reason to make a move until the US government gives them the green light.
Dont get me wrong, i like the poker media and I think they do an excellent job of posting new and useful information but I dont expect them to run an expose on their biggest client.
When poker is legalised the major media outlets are going to get involved and that is when these major scandals break. They can afford to upset people as they have a huge spread of income streams.
Although you are totally right saying that the entire industry needs to clean up its act, it is not going to happen. It only takes a small number of people who put their own personal gain ahead of everyone else’s enjoyment to screw it all up. That is why we need people to expose them as quickly as possible.
That is not the role of the poker media. Their role is to inform players of the news and events that the industry want us to know about.
What is needed is a change of mindset by the US government. Everything else will then fall quickly into place.
@Adam: I can appreciate what you’re saying but it’s sort of a chicken or the egg argument. One of the reasons mainstream advertisers didn’t (and still don’t) want to advertise on gambling sites is because they didn’t want to be associated with sites operating illegally in the US.
If you look back pre-UIGEA, Budweiser used to be a sponsor of the WPT. In fact, Mike, Vince, and the winner used to do a big toast to the cameras with a Budweiser in their hands. There was a lot more interest from big advertisers back then. Most were still on the fence but they were open to the idea.
But now everyone is tainted. If I was a Fortune 500 company I wouldn’t want to go near the online poker industry with a 10-foot pole.
But you’re sort of damned if you do, damned if you don’t. There were so many people playing on illegal poker sites and those illegal sites were paying out such staggering amounts of affiliate money that it’s hard to stomach taking AdSense or some other chump change advertising while everyone around you is raking it in.
However, that being said, there is a difference between slapping some affiliate banners on your site and burying relevant news. I’ve run affiliate ads for most of the major poker sites and I’ve never pulled punches based on whether or not I’m affiliate for the company.
Granted, I don’t make enough money from this site to care if someone closed my affiliate account because they weren’t happy with something I wrote. In fact, I’m pretty sure most sites know I would call them out publicly for even making the threat.
In fact, I’ve had CEO’s, marketing directors, and lawyers call me about stuff I’ve written. But they’ve always done so on very cordial terms. No threats. No bullying. Most are very open to what I’ve written, often agreeing with me, but want to clarify, correct a factual error, or explain things from their perspective.
And, here we come back to the chicken and the egg thing again. One of the reasons why most of the big poker news sites can’t ask the questions they’re supposed to be asking is because they allowed themselves to become financially dependent on the sites they were writing about. Had they diversified their income streams (pre-UIGEA) and accepted the fact that they would make less money by dealing with non-gaming related advertisers, no poker room could ever put them in that position.
It’s sort of like a (non-gaming) SEO site I follow. Google recently killed their AdSense account and won’t tell them why and won’t reconsider their decision. Only now are they starting to see the error of relying on one income stream. They figure that they’ll end up making 30% less in revenue with other advertisers because AdSense has more advertisers and a better contextual ad engine, but they sleep better at night knowing that no single advertiser can ever rock their world like AdSense did.
@Michael: I appreciate the kind words but it is the job of the entire industry to keep things on the up and up. Unless they had already diversified out of poker, I’m not aware of a single affiliate who did not take a massive revenue hit on Black Friday. So they have a vested interest too. It’s a matter of whether or not they want to take the fast money today or make a lot more money over a long period. Unfortunately, many opted to take the fast cash today.
@DanM: I’m sure there’s corruption. But given a choice between regulators that can be bought off and regulators that don’t have the legal authority to enforce their “rules,” and I’ll take the corrupt regulator, every time.
Not to imply that they’re all corrupt. But enough have been corrupted in the past that it’s a valid assumption that they could be corrupted in the future.
“The poker ‘media’ makes its money from the sites and only exists in order to promote these sites.”
I can definitely understand this sentiment and imagine it’s true in some cases, but a lot of the reason things seem this way is that people running non-gaming websites in the industry have had practically zero other options for income over the years. I can tell you from personal experience that my partners and I didn’t start our site anticipating any significant revenue from poker websites. I’m sure there are plenty of others who got in for that reason – particularly the SEO-wizard types. We were just really into poker and had an idea about something we wanted to do.
The way things have turned out is that while options should be opening up, they just flat out haven’t. Instead of more advertising options emerging over the years, they’ve become fewer and fewer. Most poker media sites wouldn’t exist without their affiliate revenue, but it’s more a factor of that being their only option for income to cover their expenses and make it worthwhile to run their sites. Mainstream advertisers have avoided most of us like the plague – and we’ve tried for years and years
Poker as a rule,is cool. Even since its inception the game of poker was used as a way to figure how to cheat,bilk and steal in every possible way shape and form. Online was the real chance to make everyone their own worst enemy. Mind controlled,manipulated and programed by the experience of online. If you didn’t see black friday comming you had to be blind (I did). Invasion on privacy,security breech and broken contract was self evident. The retardation of the poker community is complete!
I think you are being a little harsh on the poker media and I think you are giving them far greater respect than the actually deserve.
Calvin Ayer’s article mentions the fact that the UK national newspapers are becoming interested in the situation. That is their job and that is how they make money. The spend their entire working life uncovering these sort of questionable goings on.
The poker ‘media’ makes its money from the sites and only exists in order to promote these sites. Expecting them to understand, let alone question these investments means placing for too much confidence in what they do.
That is just part of online life nowadays. I love wikipedia but I would never use it as a factual source.
What is most important is that people like yourself tell the world what is going on. There is a reason that this is one of the most respected blogs in the poker world and you keep on raising excellent points.
I used to treat your blog in the same way as many others, pay attention to what is said but dont read too much into it as I didn’t know your vested interests.
However, you have repeatedly proven yourself to be knowledgeable, honest and that you have the interests of the game and the players at heart. Now I always read your posts with great interest knowing that you are raising the issues that really have to be raised.
I totally agree with you that we need the industry to be clean and transparent but we can not expect the poker industry to help. It is people like you, with in depth industry knowledge who can really raise the most important points and hopefully make some changes.
william hill recently bought leroy’s, too … the big huge sportsbook that has changed the techno-face of sports betting in nevada with “leroys app”.
ya know … we talk about how strong nevada regulation is … and indeed, GCB code and reporting measures are far more serious than, say, Panama or the Mohawk Nation of Kahn’awake … but I’ll see if I can find the link that says Nevada’s government officials are some of the most corrupt.
perhaps that’s the new dog and pony show … to be saying how awesome the people in Nevada/Harry Reid’s back pocket really are?
@Mike: I agree. In fact, another topic the poker media should be all over is how lax other regulatory environments are compared to Nevada. Many companies holding gaming licenses in other jurisdictions wouldn’t even make it to a license hearing in Nevada.
Problems with Playtech would be a big blow to the industry. But, the whole thing with William Hill you wrote about, is a good thing in the long run. I mean, all these sites are trying to get into the game with the state of Nevada and Las Vegas Casinos. Who better to straighten out the industry then one of the oldest and most well organized regulatory boards. If these companies want to get in on future action in the US, they will be made to straighten up their act.
Adam, I always love your comments because they come from someone who has been there and done that before.
Your points are also a sub-point of this post. The advertising money blinds people to what’s going on.
For instance, Marco at QuadJacks wrote his BF 1 Year article and he took the industry to task for letting PokerStars off so lightly when they were “allegedly” engaging in many of the same illegal acts as Full Tilt was. Yet, because they could pay back players they got a pass.
The fact that we, as players and as members of the industry, put up with this crap should be a huge warning that there’s something wrong with the industry.
There’s no room for unethical behavior in this industry. We have to be cleaner than clean if we want to see this industry gain the mainstream appeal that will drive it to the next level. Turning a blind eye because you don’t want to lose your ad revenue for publishing facts is just as bad as committing the acts yourself (IMHO).
The unfortunate part about all of this is that basically all of the poker media (not excluding my own web site, at all) depends its survival on income from these rooms. If a PokerNews, PokerListings, Bluff, CardPlayer, etc. had started asking a bunch of questions about Full Tilt’s payment processing, all it would have meant for them at the time would be that they’d have major pressure applied to them with the threat of losing one of their biggest sources of revenue. I know of numerous cases where information would go up in a site’s forums about a poker room’s payment processor and within minutes that poker room is emailing the forum administrator to ask that this information be taken down. Maybe there weren’t any direct threats, maybe there were. But when that website depends heavily on that poker room for income, they’re going to be more willing to do something like that just by default.
One of the things I’m hoping in a post-regulatory US atmosphere is that media sites have the opportunity for much more diverse income – think $1-2k a month from 40 different sources instead of $30k from each of two poker rooms, for example. Without heavy dependence on a few gigantic entities, there should be a lot more independent content coming out. I guess we can all dream 🙂
As sort of a follow up I wanted to address the questions being asked by @Poker_Hack and @Pokerfuse on Twitter.
First is, I’m not predicting the worst case scenario. I mentioned the worst case scenario to put the severity of the issue into context.
As I said at the beginning of the article, even though I was, by far, the person predicting the worst possible scenario resulting from PokerStars and Full Tilt continuing operations in the US after the UIGEA, even I didn’t see the DOJ acting in such a swift and brutal manner. So even my worst case scenario wasn’t the worst case. It turned out to be far worse than my worst case. And even then, people, including much of the poker media, scoffed at what would now seem like my pretty mild worst case scenario.
The point being is that you don’t have to be able to see how the worst case scenario could come about. I shouldn’t have to draw a map. It doesn’t matter how you get there.
What does matter is, and the point of this post was, that it seems odd that what Daniel Negreanu thinks of Annie Duke, or what some lawyer who has been wrong 15 times in a row has to say about the progress of the FTP deal, is deemed worthy of extensive coverage in the poker media but a guy running one of the biggest companies in online poker and is getting called out in the financial press for possibly shady dealings, isn’t.
And the even bigger point is that I don’t care if what they accuse Teddy Sagi of is true. I would be more than happy to read that after investigating all of the claims, the poker media was able to dispel the accusations.
Because it’s about the poker media doing their job.
As I ended my post, if you don’t ask any questions people can get away with anything. What if the poker media had done an expose on how player funds are handled at various sites prior to BF? What if they had asked how Stars and Tilt were able to keep processing millions of dollars in transactions from US customers before BF?
We’ll never know because those questions were never asked. But here, we have some pretty serious accusations from the financial community, which should be a huge red flag that this needs to be on the poker media’s radar, but it isn’t. Literally, other than CalvinAyre.com, I could not find a single other poker media site that even linked to the story (or any of the stories since it was covered in several non-poker media outlets).
At the end of the day, the question is, as a player, is this news relevant to you? Considering what just happened at Full Tilt, I think any news about possible mismanagement is relevant.
We’ve seen what business done behind a curtain can result in. We now know that nobody is too big to fail in this business. Now is a time for both players and the poker media to demand transparency in the online poker arena.
Anyone who has ever done business with Playtech owned companies (and been ripped off by them) will tell you how shady they are. Even fellow Israelis don’t trust them!
I have been told that any time you even have a meeting where the Nevada Gaming Commission are involved, the first question they ask you is “Do you have any felony’s”. Apparently they vet everyone in your company and them some at the top pretty hardcore. With what you posted, this could be a really serious issue moving forward.
Nice write up Bill.
Good article indeed and questions that really deserves to be asked.
Let’s just hope there’s nothing fishy going on or the impact will be big on
the online gaming industry. Waiting in horror…