Publicly Traded Poker Companies
THE WEEKLY SHUFFLE, 2006-01-15, by TwoGun
Many online poker rooms are now operated by publicly traded companies. Examples include Party Poker, Empire Poker, and Paradise Poker. Becoming publicly traded often results in changes in the way a company operates. This article will analyze what players can expect now that more and more poker rooms are owned by publicly traded companies.
1. More consolidation
Now that the online gambling companies have more cash available to them, many may begin acquiring their competitors. This is largely because online poker players tend to play more at sites that already have a lot of players. Since it is easier for a player to find a game he or she is interested in at sites with larger player bases, the large poker rooms often tend to get larger as more and more players flock to those rooms.
So far, there has been a relatively small amount of consolidation in the online poker industry. Most of the consolidation that has occurred within the online gambling industry has generally been firms acquiring firms that sell a different gambling product. An example of this is Sportingbet's acquisition of Paradise Poker. While Sportingbet had a popular sports betting site, it did not have a major poker room until it acquired Paradise Poker.
2. Cross-selling of casino products
It has become clear that online poker firms are going to try and sell casino games and/or sportsbetting to online poker players. Casinos generally make more money when a player is playing a house game instead of a poker game, since the house edge generally results in more profits for the casino than the amount they can expect from rake.
There are two reasons cross-selling will occur more frequently at a poker room that is owned by a public company. First, there is the increased pressure on the company from investors to squeeze every possible dollar from each player. Second, many of the companies that are now public went public in the first place so they would have money to acquire companies that sell other types of casino products. For example, an online casino may go public so they would have enough money to acquire a poker room, so they could now sell both casino games and poker to its customers.
3. More unique promotions (branding)
Many investors are skeptical of investing in online poker rooms because they believe there are low barriers to entry in the industry. Since it is relatively easy for a new poker room to open or for smaller poker rooms to gain ground on the larger ones, many view the larger poker rooms' dominance as potentially short-lived.
One way to alleviate these fears is for poker rooms to convince investors that they have a strong brand. To create and maintain a strong brand, poker rooms need to advertise heavily and have strong, unique promotions. An example of a promotion that "brands" a poker room is the Party Poker Million Tournament.
4. Softer Games
Poker games as a whole may not be softer, as more and more players become exposed to poker books and poker strategy websites. However, I believe the games will probably be softer with many of the major sites being owned by public companies than had they not been owned by public companies. This is because many casual players will now feel more comfortable depositing money at these sites.
Previously, a fair amount of potential players were deterred from playing online poker since they were worried that the poker rooms would just run off with their deposits and never pay them their winnings. Experienced and knowledgeable players knew this was extremely unlikely, but casual players often did not. Now that several of the major poker rooms are owned by public, multi-billion dollar companies, fewer people will fear that these companies will just run off with their $50 deposits.
5. Higher rakes
For a long time, almost all poker rooms had a standard rake structure of 5% of the pot up to a maximum $3 rake. For shorthanded games, the max rake was generally capped at $1 or $2.
Recently, some of the poker rooms have started deviating from this rake structure. PokerRoom, though not a publicly traded company at the time, changed their rake structure to be based on the number of big blinds in the pot instead of just a percentage of the pot. While the maximum rake of $3 has stayed the same, the amount taken from the pot percentage-wise now tends to be higher than before.
Pacific Poker was the next to significantly increase rakes. They upped the maximum rake up to $4 or $5 for some of their middle-stakes and high-stakes games, and they significantly increased the rake for shorthanded games.
Previously, many online poker companies probably did not deviate from the standard rake structure since it had shown to be very profitable for them for several years. They probably just didn't view the extra revenues as worth the risk of alienating some customers. However, since publicly traded companies are under pressure to maximize profits, poker rooms have started experimenting with ways to maximize rake.
Furthermore, poker rooms have now developed more elaborate bonuses and players club programs than they did in the past. If they are looking to increase their profit margins, poker rooms may rather just increase rakes rather than decrease bonuses and promotions. This is because players are more likely to notice decreases in bonuses and promotions than increases in rake.
Fortunately, poker rooms can only increase rake so much before players realize how much extra they are being charged. If the rake becomes too high, fewer people will be able to win. People who are used to being "winning" players will no longer play at the room because they will find it unprofitable. Players who tend to lose or break even at poker will still probably notice that they perform significantly poorer at that site than others. While it may take them some time, many will leave the higher-rake poker rooms for the lower-rake ones, provided that the competition at the lower-rake ones is similar to or easier than the higher-rake ones.
The Weekly Shuffle is our Sunday column with our observations and commentary on the poker world. Have an idea for an article? Leave a suggestion on the feedback page.
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