WPT online poker faces tough odds

Aug 29, 2005 1:28 AM

 

WPT Enterprises, the owner of the popular World Poker Tour television show, is in for some tough competition as it launches a new online gaming site in the United States, where online gambling is illegal.

The company will have to go up against overseas competitors who have already tapped into their local constituencies.

"If you’re a U.S. company, you’re restricted," Deutsche Bank gaming analyst Marc Falcone said. "They would have to go up against bigger competitors, like Party Poker, who are based in the United Kingdom or other countries, and have already tapped into their home markets."

Party Poker is owned by Partygaming Plc, a British company that went public in July. Shares of Partygaming have risen 10.8 percent since the offering.

Conversely, shares of WPT have fallen 44.7 percent over the same period.

Another major competitor would be Gibraltar-based Cassava Enterprises, which runs several online casinos, including 888.com and Pacific Poker. Cassava is planning an initial public offering in September, according to sources familiar with the company.

"The United States is currently probably at least 80 percent of the world’s market for online poker, where we believe our core competency would be," Todd Steele, chief financial officer at WPT, said in an interview on Friday.

Despite U.S. restrictions, companies based overseas target U.S. customers, but WPT would prohibit U.S.-based bets, Steele said.

Steele cited Costa Rica-based PokerStars, which is also said to be eyeing an IPO in London, as another formidable online competitor. PokerStars is planning to move its operations to the Isle of Man (off the coast of Great Britain).

In addition to the popular television series broadcast on the Travel Channel cable network, WPT recently launched an online gambling Web site and a new television show called "Professional Poker."

The World Poker Tour show was among the first to catch on with the general public, but it’s facing tough competition from reality talent show "American Idol," which played at the same time on the Fox television network this past season, and from rival show "World Series of Poker," broadcast on ESPN.

"They have some challenges ahead," ThinkEquity analyst Traci Mangini said. "The United Kingdom is a pretty saturated market for poker, so they are going to have to look elsewhere."

The WPT also had to overcome the resignation of its auditors, Deloitte and Touche, who cited the company’s new online gaming venture.

The venture "created audit risks that would require an inordinate investment in time and resources" as a Deloitte client, the gaming company said in a statement.

"A company that’s in the start-up phases of developing an online poker distribution channel faces some very tough competition," Deutsche’s Falcone said.

Online gaming is illegal in Australia and China — two potentially lucrative markets. "We’re targeting every market where it’s legal," Steele said, noting Scandinavia and Western Europe as immediate markets.

In South America, WPT is eyeing Brazil and Mexico as its biggest markets.

Despite the challenges, analysts think the company has growth opportunities in the long term.

"The challenges now are more just quarterly fluctuations given the newness of the company and lots of revenue streams from new products," Mangini said.

Gaming consultant Christiansen Capital forecasts online gaming revenue will rise to $22.7 billion by 2009 from $8.2 billion in 2004.

"They have a lot of potential to grow in the rest of the world," Mangini said