Chips are down for online poker sites

23-09-2005

by Jason Walsh

After a year of flush profits, online poker sites are beginning to see the lustre come off their profits. Is what seemed like a solid bet just a year ago set to fold, and will 2006 be the beginning of the end for online poker?

The profits are high, but the stakes even higher. Recent activity has indicated a potential downturn in the online poker market with PartyGaming, the world's biggest online poker company, losing 33 percent of its share value in early September. The online gambling firm cited a decline in the online poker market as the reason for its poor performance.

PartyGaming floated on the London stock exchange this year and has seen its value rise to STG6.34 billion. Despite its high-profile decline in recent weeks the Gibraltar-based firm is due to enter the blue-chip FTSE100 in September.

In the meantime, rival 888.com cut its proposed flotation price on 15 September as a result of investor scepticism towards online gambling. 888.com is seeking a market capitalisation of between STG546 million and STG715 million, down from an initial valuation of STG800 million.

Despite the downturn and lowered figures, the number of online poker players remains huge. Industry sources claim the online gambling audience in the UK has increased by 45 percent over this time last year, with 3.2 million people visiting a gambling site in February 2005. Most online casinos put part of their success down to the fact that a "poker face" -- the ability to hide one's emotions while playing -- is not necessary when your adversaries are unable to see you. Less frequently mentioned is that, for some people, gambling remains a taboo, even in countries like Ireland where it is relatively common.

Punters in the UK have embraced online gambling and the media has been quick to cash in on the boom. The Racing Post has seen circulation soar and Sky Digital hosts a dedicated poker channel. The Poker Channel is clearly targeting online players, featuring practical programmes such as the Poker Godfather: "Each week we send a poker professional (the poker Godfather) to an online poker player's home and turn their poker game upside down."

Meanwhile, Ireland is not far behind in the online poker stakes and Irish firms have been keen to cash in on the gambling boom at home and abroad. Belfast-based AVA Leisure recently launched, in association with Paradigm New Media in Comber, Co. Down, DV8Poker.com, licensed by the Kahnawake Gaming Commission in Quebec.

When it comes to competing with established brands, DV8Poker.com's strategy is to make the most of advertising: "We do pay-per-click advertising and that's a great leveller," said Sherril McCahon, a partner in the business. Despite being based in Northern Ireland the company is eyeing international markets.

"We've had our splash page translated into Far Eastern languages. If you look at [search engine] Alexa, the biggest traffic drivers to 888.com are Far Eastern sites," said McCahon. "At the moment, with the growth, there seems to be enough business out there for everyone."

Meanwhile, Irish bookmaker Paddy Power has seen its online profits outstrip its traditional business. Non-retail businesses accounted for 63 percent of its EUR17.8 million profits in the six months ending 30 June. In the first half of 2005, Paddy Power.com had 47,000 sterling customers and 27,000 euro customers.

Paddy Power, head of communications at the bookmaker said: "I've no doubt that it'll settle down [but at the minute] poker is such a sexy word. There's been a lot of media attention."

For its Irish customers, name recognition is an issue: "In Ireland everyone's heard of Paddy Power, they've seen our bricks and mortar shops and they know that we'll not be gone in the morning," Power explained.

But despite the media flush, all is not well in the world of online poker. Inside Edge, a UK gambling magazine was launched by Dennis Publishing in 2004 with a target circulation of 30,000 copies. However, ABC figures from 2005 show the magazine sells a mere 15,112. It seems that the amount of chips in the pot does not translate directly to sales of gambling related media. Despite the disappointing performance, Dennis has pushed ahead with the launch of Total Gambler. The 22 September will see Dennis launch another title, Poker Player.

The situation in the US is heating up at the moment. While online gambling has not been legalised in the US, a number of gambling sites exist but these are operated from offshore or overseas locations and have been deemed legal.

There have been moves of late to have a nationwide ban on internet gambling in the US. On 15 September the US Senate rejected an attempt by Republican, Jon Kyl, to ban internet gambling across the country. Kyl remains determined to pass the legislation, which was overturned in a technical manoeuvre.