Analysis: What comes next for PokerStars and Amaya?
The US market will be making all the headlines, but are other moves just as likely to prove a game changer
Amaya’s US$4.9bn deal to acquire PokerStars and Full Tilt sent shockwaves through the industry. It’s been described as a game changer, but it’s really only the beginning of the story. What comes next is far more interesting than the eye-popping valuation with the US, online casino and grey market issues all set to create a new cold war within online gambling.
It is definitely the end of one chapter. Isai and Mark Scheinberg will sail off into the sunset with enough cash to sink a cruise liner, and whatever your feelings on their post-UIGEA activities you have to admire and respect the business they have left behind. From a few servers in Kahnawake and bit of code they have built a business worth as much as the entire William Hill group in just 14 years.
But the continued presence of the Scheinbergs, and particularly Isai’s ongoing ownership position, was the main stick used to beat PokerStars with in the US and by selling up they give the firm a chance to become licensed in the US and the legacy to live on. And with PokerStars’ current dominance of online poker and the still unproven US market more about potential than profit it’s hard to argue the timing could be better. A valuation of 11.1 x 2013 EBITDA is testament to that.
The Big US Question
PokerStars re-entering the US online gambling sector is seen as the key driver of the deal and it is front and centre of Amaya’s plans for the new group. On the face of things any major impediment is now removed, and it certainly seems as if New Jersey will be its first US online gambling licence. The big question mark is over California, the promised land for US online poker, where battle lines have already been drawn.
Two of the most influential tribes in California seemed determined to keep PokerStars out of the state, and it’s unlikely this deal will have altered their viewpoint. Add in to this the more subtle lobbying of the likes of Caesars, Boyd and other US land-based stakeholders and you would be foolish to expect this deal to be anything other than the beginning of what may become an increasingly hostile war of words.
The ‘sins’ of the father of the company are unlikely to be forgotten and it will be fascinating to see if PokerStars can be successfully reborn as a new corporate entity in the eyes of legislators and regulators. One new stick that may be used to beat PokerStars with is its presence in various grey markets around the globe with its dot.com business. Expect much fuss to be made of its Canadian, Russian, Australian and Asian customers in the months to come, although it’s worth pointing out this has not prevented any other European firm from entering the US so far.
But the US may not actually be the most interesting consequence of this deal. Amaya was very clear in its other growth prospects for the combined group: online casino, online sportsbook and social gaming. One of the often heard quotes from the team behind the newly launched Full Tilt Casino is how they only need to convert a small fraction of their user base to become the world’s largest online casino operator. It’s precisely the trick PartyPoker pulled with Party Casino so there is precedent there.
Gambling on the future
Full Tilt has already launched its online casino, and a sportsbook is due for launch in 2015, but all eyes will be on PokerStars in this respect. The sheer scale and reach of PokerStars’ enormous active player base should terrify any other multi-vertical egaming operator. If it only converted a small percentage of its players to sportsbook and casino this would represent a huge chunk of the global market. And much of its existing player base is already active in other verticals on other operators.
It’s realistic to expect sportsbook and casino launches through the PokerStars brands, probably trialled in regulated markets such as Italy in the first instance, during the course of 2015. This would have been unthinkable in the Scheinberg era where the purist approach to poker was part of the corporate identity, but the pressures of the public markets make it now almost unthinkable it won’t happen. This perhaps will be the real game changer for online gambling.
The transition of the Rational Group from a pure poker operator to a multi-vertical online gambling operator is by no means a certainty of success. Few other firms have easily pulled off the trick of converting gaming customers to sports betting, and Amaya will need to be careful to maintain the enormous trust and faith PokerStars customers have in the brand.
Early indications are that Amaya will retain the existing Rational management and its head office will remain in the Isle of Man. And with a war of words to fight in the US the firm will need some battle hardened generals to keep things running smoothly in the rest of the world. Amaya has a lot of potential upside in this deal, but only if it can retain all the qualities that have made PokerStars what it is today while extending its reach and ambition.
That trick is a lot more difficult than it sounds, and all eyes will be on this new online gambling powerhouse to see if it can pull it off. This really is just the end of the beginning for PokerStars and things are about to get a lot more interesting for everyone.