Poker's perception problem

Despite rumours of its long-term decline the online poker sector remains in relatively good health heading into the second quarter. But in many ways it remains its own worst enemy. In fact, the vertical seems perpetually trapped in a cycle where it gets everything it wants two years too late.

Back in 2015 there was a declining, but still fairly robust, online poker sector in the regulated markets of France, Spain and Italy, with a dominant Amaya but an underlying industry desperate for change. The regulated sector was crying out for liquidity sharing to boost the product profile and return it to growth, while the player behaviours at PokerStars were slowly killing the game from the inside.

In the present it seems both problems are finally being ‘fixed’. The European regulators seem minded to launch shared liquidity later this year in the manner of a man who phones the dentist when his tooth is about to fall out. Meanwhile, PokerStars has made some bold and significant changes to its product and poker room ecology that have fundamentally changed the nature of the game.

Ecology and economy

Amaya CEO Rafi Ashkenazi commented on the changes in detail in the latest analyst conference call. “Our long-standing model was to handsomely reward high volume players based primarily on the number of hands they played…In tandem, we tailored our poker product offerings, our pricing model, our innovation and our promotions to reinforce these behaviours,” he said.

The big shift, he noted, was to no longer focus on these semi-pro and professional high-volume players but to enhance the player experience for recreational players. “In today’s market, our old business model does not position poker for the long term. We therefore began to shift those rewards and tailor our products and promotions for recreational players who want to enjoy the game as a fun entertainment experience,” he added.

It has had an immediate impact on PokerStars with management predicting short-term revenue declines as some high-volume players leave the site and flat revenues through 2017 as it adjusts. But they claim the metrics are positive with new players and recreational players depositing more and playing for longer. What’s perhaps more significant, however, is the impact on the remainder of the sector where the net result is a poker market in a state of flux.

The state of change

In response to PokerStars’ changes we’ve seen a noticeable upgrading of poker marketing efforts from the previously sleepy competition in the sector with 888, partypoker and even bet365 poker upping its game in recent months. While the launch of 888’s new “Taking Back the Game” is fairly consistent with the firm’s focus on the poker vertical, the renewed enthusiasm for poker from partypoker suggests it believes there is an opportunity here.

Partypoker was highlighted as an area needing some remedial work following the acquisition of Party Gaming by GVC Holdings, and GVC noted in its 2016 annual report some areas of historic weakness. “It is fair to say that product development lagged key competitors, whilst the business suffered from a lack of focus,” the report said. But recent changes point to a more subtle shift in thinking.

While PokerStars’ big new loyalty relaunch involves graphically-rich animated chests containing random prizes targeted at the recreational vote, the new player rewards at partypoker are starkly in contrast. Party’s new system is a simple tiered cashback programme that looks eerily similar to the rakeback rewards seen in the mid-2000s in the poker sector.

Alongside this we’ve seen partypoker take a real focus on the live poker scene with major investment in its live tournament series and even the hiring of the EPT founder John Duthie to help lead it. The mission statement appears to be, if you are disillusioned with PokerStars then we’re bringing the old days back. But is it hankering after a lost time?

The future of poker

The revival of online poker doesn’t seem to be coming any time soon. Poker revenues looked broadly stable in the first quarter with low single-digit decline in most markets and Amaya’s poker revenue flat year-on-year in constant currency. This flat performance, it should be noted, also comes after considerable investment in the vertical from the operators above.

The much-discussed move to shared liquidity by the major European regulated markets may act as a short-term boost but is unlikely to lead to meaningful growth. The increased prize pools are likely to be a boost to the tournament sector and play into the hands of the “big win” recreational marketing messages, but they don’t change any of the fundamentals of the business or its perception by the players.

There are, however, a few factors that should be taken into account. The first of which is the role of poker to a multi-vertical operator – which PokerStars now most definitely is – to act in part as an acquisition tool for cross-sell. Amaya noted the cannibalisation impact of its casino product on the poker vertical and there is no doubt this is leading some to underplay the value of poker to the sector.

It should also be noted that poker remains a major source of revenue in the Italian and Spanish markets at around 15% and 13% of total revenues respectively. In the UK it is far smaller at 2%, and it’s likely the former markets will trend closer to single digits long-term as the sports betting and casino verticals continue to outgrow. But poker will remain a solid source of new acquisitions for both those products in those countries.

And the winner is…

This changing perception of poker will be a hugely interesting consideration as new regulated markets open up, not least the Dutch and Swedish markets where poker has historically been a hugely popular product. In the early days of a regulated mass market, can a revised recreationally-focused poker product provide some cut-through and some lower-cost acquisition opportunities?

This seems to be a bet PokerStars is making, but the gap it appears to have left have presented its rivals with a chance to invest in their product and marketing to try to steal back some share. Speaking to some of those involved there is a sense this is a short-term land-grab rather than a shift in perspective and once they have gained the liquidity boost they will revert to a more recreational focus once more.

So what does this mean for the poker vertical generally? Perhaps a small boost to revenues, but more likely simply increased acquisition and retention costs as more firms chase the same player base. But with PokerStars continuing to push for a new type of player, and a new demographic with deals like its sponsorship of move star Kevin Hart, that may be too negative an outlook.

It’s possible the net result is poker is dragged kicking and screaming back into the limelight and players begin to view it as a viable alternative to the sports and casino duopoly. And that would be a truly stunning perception shift indeed.