Online Poker Room Trends

Online poker rooms, like any other business, have their ups and downs. When the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in the United States in October of 2006, it triggered drastic changes in the online poker industry. Prior to the UIGEA, Party Poker had a clear lead as the largest online poker room. Nearly two years later, Party Poker is now the fourth largest room. It's a very distant fourth; the largest online poker room, PokerStars, is now roughly four times larger than the industry's leader from two years ago. online poker 468x60 The UIGEA divided online poker service providers into two groups: those who service American customers and those who do not. Much of the reason why Party Poker has lost such a huge market share results from their exit from the U.S. market. Since Party Poker is ran by PartyGaming, a company traded publicly on the London Stock Exchange, company officials could no longer service U.S. customers for fear that doing so would put their shareholders in legal jeopardy. On news that the company would pull out of the U.S. market, PartyGaming shares fell 58%. That hardly represented the bottom for PartyGaming. Their shares have fallen an additional 48% over the course of the past two years. A quick glance at the history of Party Poker's major Sunday tournament tells the tale. Just before the UIGEA, they held a million-dollar guaranteed event every Sunday. Last year, this event had been reduced all the way down to a $350k guarantee. The tournament was reduced once more this year to a $300k guarantee. Last Sunday's tournament came up 35 players short of avoiding an overlay. Not all online poker operators who pulled out of the U.S. market have toiled in misery at the loss of American customers. The iPoker network, whose biggest skin is Titan Poker, have impressively capitalized on the European market. Two years ago, it would have been laughable to think that tiny iPoker would someday be larger than Party Poker. That is now a reality. After drawing to a virtual tie with Party Poker in the early part of this year, iPoker is now clearly larger by about 20%. Investors of Playtech, a company whose chief holding is the software it provides to iPoker operators, also suffered a major hit of about 40% upon the passing of the UIGEA. Unlike Party Poker, that event represented a basement-bargain buying opportunity. In the two years since, Playtech's stock is up about 245%. Basically, iPoker has kicked Party Poker's butt in the aftermath of the UIGEA. Symbolic of this, on the day this article was published, iPoker held a $1,500+$80 buy-in tournament with a guaranteed prize pool of $2.5 million. Part of the reason iPoker was able to catch up so quickly to Party Poker was that they weren't as exposed to the U.S. market. This is evident in how much their stock prices fell after the UIGEA. Additionally, iPoker has been very aggressive with promotions whereas Party Poker has not. The iPoker network also benefits from having several groups marketing it (there are over 60 skins on the network). To be sure, iPoker is still a distant third from the two U.S.-facing giants (PokerStars and Full Tilt Poker). But they have done a good job of establishing themselves as the clear leader in non-U.S. facing sites. A concerning trend has developed among non-U.S. facing sites in the last six months. The average number of real-money players is steadily on the decline. Some places, like iPoker and the Boss Media network (home to PokerKings) have only dropped about 10%. This is nothing compared to Party Poker and the Ongame network (home to Mansion Poker) which have each dropped 28% and 33%, respectively. Several factors may be causing this overall decline in the market. Some of the dip can be attributed to the natural pullback in online poker during summer months when people spend more time outdoors. Another factor could be the European economy which is stalling to a recession. However, the most likely explanation might just be a sheer market loss to the two major U.S.-facing rooms. In the past six months, both PokerStars and Full Tilt Poker have seen a marginal increase in their player activity. Each of them have been marketing aggressively towards Europeans by signing top European players to serve as sponsors for their cardrooms. PokerStars also receives a lot of exposure in Europe for organizing and holding satellites to the European Poker Tour, which has been growing increasingly popular. It will be interesting to monitor if non-U.S. facing sites can keep up with PokerStars and Full Tilt. The natural force in the market is for there to be a small handful of very large poker rooms. PokerStars and Full Tilt have clearly stepped up to fill this market preference. In order for places like Party Poker, the OnGame network, and Everest Poker to avoid slipping away into oblivion, they would be wise to take a queue from the iPoker network: strong, aggressive promotions and marketing are necessary to stay afloat in an industry that will default to a near-monopoly when allowed to. That or they should just lobby the U.S. Department of Justice to throw some of the owners of Poker Stars and Full Tilt into jail to send those rooms into total chaos.