The First Three Months For PokerStars New Jersey: Market Up, 1st In Poker And Casino Growing

PokerStars Posts A Strong, But Not Dominant, First Quarter In The New Jersey Online Gambling Market

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The June revenue figures issued by the New Jersey Division of Gaming Enforcement (DGE) provide a full quarter of data on how PokerStars has fared since it entered the market in late March.

Amaya executives may be pleased at progress so far, but what are the future prospects, and what can investors learn from the experience?

PokerStars is the leading online poker provider in New Jersey

Total DGE reported online poker revenues for June were $1,969,175. The market share and revenues for each casino were:

Current cash game traffic figures from PokerScout via Poker Industry Pro show that WSOP/888 has slightly more traffic than PokerStars, but for almost the entirety of the period since PokerStars launched, it has been the number one online poker operator on this measure.

Spin & Go tournaments offered an initial competitive advantage

One differentiator PokerStars enjoys is that it remains the only operator in New Jersey to offer lottery style sit and go tournaments with its popular Spin & Go variant.

Spin & Go tournaments have proved to be a major revenue generator for Amaya. In its Q1 report for 2015, the company announced that revenues from tournaments were greater than revenues from cash games, a change attributed mainly to the success of Spin & Gos.

The availability of the new tournament format also proved to be a powerful tool for reactivating dormant customer accounts. Amaya CEO at the time, David Baazov, said:

“An increase in reactivations of inactive players are 5% attributable in part to the popularity of PokerStars Spin & Go tournament.”

In the last couple of months, partypoker has launched Sit & Go Hero, a four-handed lottery SNG, and 888poker has launched BLAST, also four-handed, but with a countdown timer that limits the length of each game.

Neither game has yet been introduced in New Jersey, but it is inevitable that they will be available as soon as the operators can get them in front of customers. At that point, one of PokerStars’ top differentiators will lose some of its value.

PokerStars has grown the market, perhaps by more than the revenues imply

One of the expectations that many industry analysts had before PokerStars entered the market was that its very presence would increase the total online poker market size. A fairly consistent estimate that was bandied around was for an increase of at least 20 percent.

Comparing the last three months with the same months in the previous year, it is clear that the market has grown, at least for now:

  • April 2015 $1,985,289 —2016 $2,587,845 –Plus 30.4 percent
  • May 2015 $1,928,106 — 2016 $2,570,853 — Plus 33.3 percent
  • June 2015 $1,835,576 — 2016 $1,969,175 — Plus 7.3 percent

In the April and May, it looked like a solid increase of around a third in the total market size, but the collapse in revenues in June took the year on year increase down to just 7.3 percent.

A precise revenue figure for the impact of PokerStars is not simple to derive, because year on year comparisons are also affected by a general decline in online poker revenues over the period.

Looking at the three months before PokerStars entered the market, they came in at a time when monthly revenues were lower than those in the same month in the previous year.

  • December 2015 $1,984,137 — December 2014 $2,059,213 — Minus 3.8 percent
  • January 2016 $2,151,232 — January 2015 $2,299,426 — Minus 8.9 percent
  • February 2016 $1,994,065 — February 2015 $2,045,655 — Minus 2.6 percent

Assuming that the downwards trend provides a background to the revenue figures after PokerStars launched, the 7.3 percent year on year increase in June could mean that PokerStars has increased the market size by much more than that.

If PokerStars had not entered the market, total revenue may have shown a substantial single figure percentage decline.

One other factor which cannot be ignored is that the WSOP live tournament series in Las Vegas may have attracted some high volume New Jersey players to Nevada. New Jersey heavily promoted satellite tournaments to the live events, so some of the most active players on all New Jersey regulated sites may have temporarily left the market.

The July and August revenue figures should provide better comparables to determine whether the revenue reduction is a seasonal factor related to the WSOP or whether the early enthusiasm for PokerStars has waned.

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Can PokerStars reverse the market decline over the longer term?

Whether the overall market will see the decline stabilize or reverse is difficult to forecast. PokerStars has obviously had a positive impact, but looking forward, other factors may predominate.

The new lottery SNGs from 888poker and partypoker can be expected to have an impact in attracting new players, but in cash games, low levels of liquidity are definitely a drag on participation.

The prospects for sharing liquidity with other states such as Nevada look good in the long term, but appear unlikely in the next couple of years, despite enthusiasm from the Governor of Nevada, Brian Sandoval.

One difficulty is that only operates in both markets, so the Borgata and Resorts Casino and their online partners have no incentive to lobby for change.

Perhaps this attitude will shift if there is the prospect of sharing liquidity with Pennsylvania or California, should they eventually get online poker legislation passed.

Casino revenues make up for poker weakness

The NJ online casino revenues that the DGE reports for Resorts Casino come from and, not just, so it is more difficult to see what contribution PokerStars is making to revenues.

However, comparing revenue numbers for the three full months of PokerStars operations with the three months prior to March suggests that the casino offer has managed to pick up some market share.

  • June 2016 — $1,924,972 — 13.3 percent
  • May 2016 — $1,843,855 — 11.1 percent
  • April 2016 — $1,177,837 — 6.9 percent
  • February 2016 — $1,318,338 — 8.9 percent
  • January 2016 — $1,434,295 — 9.8 percent
  • December 2016 — $1,288,079 — 9.2 percent

Unless Amaya breaks out the numbers in its next quarterly report, which is unlikely, PokerStars market share in online casino can only be estimated with a significant margin for error.

The true figure probably lies between 2.5 percent and 4 percent after three months in the market.

Although the PokerStars casino offer includes game titles from NYX Gaming and from NetEnt, the overall game library pales in comparison to that of the other online casinos that also have relationships with the two game providers.

Casino market share on pace to match market share in Italy

Breaking into the casino market, where PokerStars is not a known brand name, is presumably much harder than breaking into the online poker market where it is widely recognized as the leading brand.

Amaya launched its online casino brand in Italy in May 2015. The market is much larger than New Jersey, but not dissimilar in that it is highly regulated, and the customer profile includes a high propensity to gamble and high income per head.

After one year, the online casino managed to secure a 5.8 percent market share, so the New Jersey performance after one quarter appears to be a good start on achieving a similar level of penetration.

Investors can use the additional New Jersey data point for estimating how the PokerStars’ online casino product will impact revenues as it rolls out across the full range of jurisdictions.

Both poker and casino revenues have been achieved with low cost marketing

When PokerStars launched in March, there was no massive money spend on marketing promotions. No major league sports teams were sponsored, and there were no new player incentives out of line with the offers from the existing operators.

Affiliate commissions were, if anything, less generous than those offered by the other regulated sites.

PokerStars’ first major New Jersey tournament series, the NJSCOOP in May, offered higher average guaranteed prize pools than the Borgata/partypoker GSSS, but not by a great amount.

The NJSCOOP guaranteed a total of $1.1 million in prizes, against the GSSS $1 million. The average guarantee across 54 tournaments was $20,370 compared with $16,100 across 62 events, and the Main Event guaranteed $200,000 compared with the $150,000 for the GSSS.

There was no intention to buy market share by offering regular large overlays.

The PokerStars New Jersey VIP program offered slightly lower in equivalent rakeback compared to the scheme, but compensated with lower rake requirements for the VIP levels.

At the lower VIP levels, the PokerStars scheme offers more value than its competitors, especially at the mid-ranges, but the top levels cap rakeback at 30 percent, 5 percent less than what is available at WSOP/888.

Amaya’s low key marketing strategy can be declared a success. PokerStars has gained pole position in online poker on a level of marketing spend much lower than it would have contemplated if it had been licensed at the same time as its peers back in 2013.

- A former founder of Poker Industry Pro and Head of Content at PokerNews publisher iBus Media, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.
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