Monday, September 21, 2009

Poker Promoter Sells Seat at Table, by Joel Russell - Los Angeles Business Journal - 21st September 2009

GAMING: L.A.’s WPT folds hand after luck runs out

After seven years in the game, poker pioneer WPT Enterprises is cashing in its chips.

The Miracle Mile-based tournament producer that helped fuel the poker craze rode a winning streak to the top. At one point, its market cap was $500 million. But more competitors elbowed into the game and suddenly WPT got on a losing streak. When it agreed to a sale last month, its value had dropped to $20 million.

What happened? For one thing, the craze cooled: TV ratings for poker shows have dropped as much as 20 percent. For another, WPT started producing too many tournaments to keep up with competitors. What’s more, other tournament producers found ways of presenting the game in TV-friendly ways and WPT didn’t keep up.

As a result, entry fees and ad sales, the two main sources of WPT’s income, have been decimated.

The company announced last month that it will sell its assets, including the namesake World Poker Tour, for $12.3 million plus a share of future profits from PartyGaming Plc, a British online poker company. Shares of WPT last week traded at about $1, down from $1.06 when the sale was announced – a long drop from a 2004 high of $25.

“Growth of the poker boom is slowing down and there are new people getting into the business,” said Matthew Rousu, an assistant professor of economics at Susquehanna University in Selinsgrove, Penn., who specializes in game theory and competes in professional poker tournaments.

Rousu said the WPT’s main competitor, World Series of Poker, is the undisputed champ among tournaments. At one time, WPT was second, but was surpassed by the European Poker Tour.

“WPT might have made a couple of mistakes,” Rousu said. “They tried to produce a vast number of tournaments. There are only so many times people are going to plunk down $5,000 or $25,000 to enter a poker game.”

Executives at WPT declined interview requests for this story.

Stanley Sludikoff, a poker event organizer and publisher of the Poker Player newspaper in Inglewood, said there is now an Asian-Pacific tournament, a Latin American tournament, and various regional tournaments within the United States.

Also, WPT couldn’t find a stable TV partner. For its first six years, the tournament was on Travel Channel, then it switched for a year to Game Show Network and this year it is being aired on Fox Sports. In contrast, World Series of Poker has a lucrative long-term deal with ESPN.

WPT is now in the midst of its 2009-10 season and its Borgata Poker Open Tournament in Atlantic City, N.J., will be Sept. 19 through 24. PartyGaming has not announced what may occur with WPT’s television schedule.

Rousu credits ESPN with repairing one of poker’s major flaws as a spectator sport – namely, it’s tough to show a live game on TV. A typical poker championship lasts 12 hours with about 300 hands dealt, but the TV version is only two hours with about 20 hands. Because shows are taped and heavily edited, they usually broadcast weeks after the live event; in the meantime, serious poker fans know who won the pot.

In 2008, ESPN addressed the issue by compressing the tournament schedule. Instead of following a traditional calendar with tournament rounds held every four weeks, the World Series staged a whirlwind of poker in June and early July to decide nine finalists. Tape from those rounds was shown during the summer and fall.

Although fans knew the finalists, they didn’t know the winner. The last round of the tournament occurred in November on a Sunday and Monday, and ESPN quickly edited the play and aired it Tuesday, keeping it fresh.

“The ratings were huge,” said Rousu. “It really built up the excitement, but WPT has not followed suit.”

And a new tournament format is in the works. World Team Poker features groups from different countries that compete in a league, in the style of an Olympic event. Viewers will watch matches on the Internet, with interactive features allowing the spectators to offer advice to team captains and wager on the outcome of hands.

The league, a brainchild of Downey-based poker pro Robert Turner, launched Aug. 5 at the Bicycle Club in Bell Gardens.

“Having players interact with the audience via the Internet will totally change the experience,” said David Stratton, editor of trade newspaper Gaming Today in Las Vegas. “You almost have to be a poker player just to watch it.”

It might be time for innovation. Ratings for World Series shows have slipped significantly from their peak. In 2004, the World Series of Poker championship had Nielsen ratings of 2.1, or an audience of 2.4 million households. The most recent World Series final in 2008 had a 1.65 rating, or 1.9 million homes – a 21 percent drop from four years before, although up from 2007 thanks to the compressed schedule.

Two technological developments fueled the poker boom starting in 2003.

The first development was Internet poker rooms, which allowed people to play anytime at home, without the need of assembling a group of players. That got more people playing, and created a bigger audience for poker shows and tournaments such as WPT’s.

Televised poker really took off in 2003, when Chris Moneymaker, (yes, that’s his real name) a 27-year-old accountant from Tennessee, paid $39 to enter a local tournament and ended up winning the World Series of Poker’s grand prize of $2.5 million.

“That is universally accepted as the defining moment,” said Rousu. “It exploded after that.”

WPT, which had launched in 2002, was well-positioned to capitalize on the game’s sudden popularity with its innovation, the “hole camera” that shows players’ hidden cards to TV viewers.

“World Poker Tour really brought the game to television,” said Sludikoff.

The company has announced that the proceeds from its asset divestiture will not be returned to shareholders and the company won’t go out of business. Rather, the company “plans to use the cash to develop or acquire a nonpoker-related business” which it has yet to specify, according to Securities and Exchange Commission filings.

WPT’s chairman, Lyle Berman, owns 11.4 percent of the stock; his son, Bradley Berman, owns 10.1 percent; and Chief Executive Steve Lipscomb, owns 11 percent.

Sludikoff said that Lipscomb comes from the TV industry and so he will probably launch another show – just not about poker.

“They haven’t done as well as they thought with poker,” he said. “Therefore they want their money back to try something else.” (Credit: Los Angeles Business Journal)

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