Analysis: The impact of Microgaming's MPN closure

Ten years ago, next month, the largest pot in online poker history, an eye-popping $1,356,946.50, was contested between Swedish wunderkind Viktor Blom and Finnish pro Patrik Antonius during a heads-up pot-limit Omaha cash game at Full Tilt Poker. That record pot on the virtual felt, which still stands to this day, symbolised online poker’s much-publicised boom and a period in time when high-stakes games ran around the clock and the so-called railbirds flocked to the leading sites to watch the action unfold.

Since then, there has been Black Friday, Full Tilt’s spectacular collapse, operators packing up shop, the ring-fencing of liquidity in certain European markets, the rise of a bot scourge, and a pronounced shift in the industry towards coveting recreational players to protect online poker’s ecology. Against that backdrop, online poker is a different – and less lucrative – animal compared to those heady and unrestrained days of the mid-to-late 2000s.

The challenges facing the sector were once again highlighted just recently when a stalwart of the space, Microgaming, announced the surprise closure of its poker network, MPN. The shutdown is earmarked for either Q2 or Q3 next year. Operational since 2003, the network is currently home to 16 poker brands, or skins, belonging to the likes of Betsson, 32Red, OlyBet, Paf and Grosvenor Casinos. MPN, formerly the Microgaming Poker Network, also separately powers the poker room of Flutter Entertainment-owned Georgian operator Adjarabet.

Microgaming’s MD of poker, Alex Scott, says the decision to close MPN followed an internal strategic review of the Isle of Man-headquartered supplier’s business. “Ultimately, when we looked at all the facts and data, the network model simply did not fit the company vision anymore,” he tells EGR Intel. “It was a difficult decision to make for many reasons, not least because of our long history in poker and the close relationships we have built with our poker customers and their players over the years.”

Microgaming’s MD of poker Alex Scott

Rank and file

At the time of writing, poker traffic tracking portal PokerScout puts MPN down in 18^th spot in its rankings with a seven-day average of 325 cash game players. That’s one place above Sweden’s Svenska Spel and eight below Microgaming’s larger rival, Playtech and its iPoker network. However, a scan of web archiving resource Wayback Machine reveals that around this time three years ago MPN was up in ninth position on PokerScout’s league table with a seven-day average of 900 players at the cash tables.

Cash game traffic has traditionally been used to gauge a poker site or network’s performance against it rivals, as well as the overall health of the industry. But Scott insists this doesn’t tell us the full story in terms of shifting tastes in poker formats. “Six or seven years ago, most online poker revenue industry-wide came from cash games.

Over the past few years, we have seen a pronounced transition away from cash games to tournaments, which currently account for about two thirds of revenue and the vast majority of active players. The industry has only really measured the decline of cash games.”

He continues: “The growth of tournaments over the same period has been significant, and the number of active players in online poker as a result has remained roughly stable and revenues had returned to long-term growth in 2016.” That said, MPN’s position in the market has been eroded by skins either cashing in their chips and leaving the network or folding their poker offering altogether. In 2016, two years after one of the network’s main brands, Unibet, shifted to proprietary poker software, MPN had more than 30 skins. That total has halved. Some of the bigger names to since disappear from MPN’s roster include Betway, BetVictor and Stan James, while RedKings ceased trading in April after serving up poker for 13 years.

MPN’s biggest customer currently in terms of traffic is very likely to be Betsson Group with its three Nordic-centric brands: Betsson, Betsafe and NordicBet. While the Stockholm-listed operator ignored EGR InteI’s queries regarding its post-MPN plans, one option would be to migrate its brands and players to the in-house software of Europe-Bet, a Georgian operator Betsson Group acquired in 2015. Europe-Bet, which operates its own standalone poker platform for the Georgian market, could be reskinned for Betsson Group’s three brands on MPN.

A more plausible scenario, though, is that this trio of skins simply transfer to the iPoker network. Playtech refuses to say which, or even how many, MPN skins will make the switch, yet the iPoker network is the obvious choice for MPN operators looking for a new home. Skins on the iPoker network include the likes of bet365, Betfair and William Hill. Microgaming says that “almost all” its poker clients intend to find a new software supplier and that the company has been liaising with other suppliers to assist the transitions. What’s clear, though, is that MPN’s closure will automatically strengthen Playtech’s hand in the market.

The network effect

When the poker boom first ignited 15 or so years ago, poker networks allowed online bookmakers and casinos to grab a piece of the action through a shared liquidity pool. The operators handled marketing and recruiting players; the network supplier built and iterated the software in return for a share of the revenue. However, networks do come with inherent downsides for operators. One issue, says Chris Welch, CEO of the now defunct PKR when it transitioned from a standalone poker room to MPN in 2016, is what he refers to as “drain”.

This is where players of varying skill levels from different operators converge on the network and, in essence, the sharks devour the fish. Funds then slide from one operator to another. Welch experienced this first-hand, much to his frustration, when he recalls how PKR’s largely casual customer base tended to be outclassed by Betsson Group’s more skilled Nordic players. He suggests that with around 50% of poker deposits converted to rake and tournament fees, drain has a direct hit on a skin, particularly if its weaker players lose money to a rival brand on the network. “This ‘lost’ money can’t be bet on sports or played at the casino,” he remarks.

“While networks try to encourage sites to bring recreational players and penalise to some extent sites with winning players, it doesn’t make up in many cases for the impact of drain which in some cases can run to hundreds of thousands of pounds a month,” Welch adds. Then there’s also the problem of smaller operators acquiring customers from within the network. “This is not really helping the network, which is what is so annoying for the bigger operators,” says Jonas Ödman, recently GM for social poker site Global Poker and previously head of Bodog’s poker network.

“Running a poker network has always been challenging,” Ödman explains. “You have friction between the big and small operators. The big operators want to ring-fence their player liquidity – if you look at Unibet, they decided to leave and build their own platform.” He adds: “With poker being quite a complex and expensive product to build and maintain, the 10 or 15% revenue share you get as a poker network [means] it’s tough to make that profitable.”

Turning the tables

It hasn’t been all plain sailing of late for long-time market leader PokerStars either. In September, the operator announced job losses at both its Malta office and its headquarters in the Isle of Man. Parent company The Stars Group (TSG) cited regulatory headwinds in its international business for the redundancies. Furthermore, a maturing poker segment combined with compliance issues and regulatory challenges can partly explain why international poker revenue slumped 12.4% year-on-year (YoY) from $462.9m in H118 to $405.6m in H119.

Of course, TSG is joining forces with Flutter Entertainment after the announcement in early October of a $10bn mega-merger. So, it will be interesting to see how PokerStars fits into the expanded business post-merger. Following TSG’s $4.7bn acquisition of Sky Betting & Gaming in 2018, poker accounted for a hefty 35% of group revenue. Once TSG becomes part of Flutter, poker falls to 18% of the combined group’s revenue. Welch says: “While still a significant cash generator, it remains to be seen whether poker will continue to receive the same level of focus and resources. If PokerStars does falter, it could lead to a more uncertain future for the vertical.”

Elsewhere, 888 Holdings’ poker arm has struggled for some time. 888poker’s revenue in H119 was $23.1m, down 24% from $30.6m a year earlier, while revenue for the whole of 2018 plummeted by a whopping 37% YoY. One poker operator to buck the trend and enjoy a renaissance, however, is GVC-owned partypoker. NGR rose 40% YoY in 2018 following similar gains in 2017. Alongside significant overhauls to the product, heads-up displays and other third-party tracking tools were recently banned. And in the last 10 months alone, partypoker has also confiscated over $1m from more than 600 bot accounts and cheaters. Investments in the product and its live events have combined to boost partypoker’s market share online.

Emerging markets

While poker’s fall from grace has been a slow and gradual decline, it certainly isn’t moribund. Sure, the product isn’t as popular as it once was in Western Europe, but in other parts of the world, such as Eastern Europe, the CIS region, Brazil and parts of Asia, the appetite for online poker doesn’t appear to be subsiding. In fact, PokerStars was finally dislodged from the summit of PokerScout’s cash game traffic rankings this summer by Indonesian network IDN Poker. In addition, Asia-facing network GGPoker is now sitting pretty in third spot, narrowly ahead of Winamax.fr, underlining the game’s growth recently in the Far East.

And Microgaming itself hasn’t thrown in the towel completely. Its CEO has insisted MPN’s demise doesn’t spell the end of poker for the supplier, although what this means isn’t entirely clear. Hiring out its Prima poker software to operators could be one possibility. Prima is a solid and reliable poker platform that underwent a major upgrade last year to improve the overall UX. This revamp included a tool for players to track their profit and losses over time. Microgaming’s dev team also deserves credit for the unique Babelfish API released in 2015 that allowed standalone operators like PKR to join its network and retain their own software.

Microgaming’s Prima software

Indeed, Microgaming has made a significant contribution to online poker down the years, even though Welch isn’t surprised by the decision to close the network. “The cost in time, money and effort in competing in poker is considerable. Microgaming wisely, in my view, has decided to put its resources behind its core casino product and potentially its own sportsbook software.” While players, as Scott pointed out, have migrated from higher-margin cash games to lower-margin tournaments, and the industry has introduced all manner of new variants like rapid, lottery-style games first pioneered by Winamax, online poker will always have a place in egaming.

There’s no denying this once darling of the industry remains an effective low-cost player acquisition tool and a way of introducing new customers to a brand, particularly when the land-based poker tour scene really is in rude health right now. “Players who play both [online] poker and casino are worth far more to an operator than players who play only casino,” Scott states. “I believe poker is important to operators, and operators who ignore that potential could be kicking themselves in years to come.”