No Matter What Playtech Does, Online Poker Revenue Continues To Decline

Playtech Half Year Results See Online Casino Soaring While Online Poker Continues To Plunge

Playtech H1 2016 revenue report
This article may be outdated. Get the latest news on International here.
The owner of the iPoker network, Playtech, released its half year results for 2016 at the end of last week.

  • The 2016 Half Year results are here.
  • The results webcast and presentation slides can be downloaded here.

Overall, the business to business (B2B) gaming operator was able to report strong revenue growth from its gaming division, but the online poker business continued to move in the opposite direction.

Total revenues for Playtech were up 18 percent compared to the first half of 2015—24 percent on a constant currency basis. Online poker revenues fell by 16 percent, on the same basis.

CEO Mor Weizer commented:

“The online Poker market remains challenging with revenues down 15% in the half at constant currency. Playtech remains dedicated to the poker product, as it is an important vertical in the operators’ offering. During the period we deployed our new mobile native offering across a number of customers in our client base, and launched Win2day, an Austrian operator which is scheduled to share liquidity with the Finnish monopoly, RAY. Following the French Senate’s approval of liquidity sharing between EU and EEA countries we expect to see similar liquidity pools emerge in Poker.”

CFO Ron Hoffman added:

“Poker reported revenues have decreased by 16% compared to H1 2015, as the entire market continues to be challenging. Playtech remains dedicated to the Poker product, as it is an important vertical in the operators’ offering.”

iPoker network model is dropping behind the market

As of August 29, iPoker cash game traffic as reported by PokerScout, via Poker Industry Pro, places the network in 10th place in the global rankings for online poker. This is its lowest ranking for several years.

Absolute cash game traffic numbers which average 760 occupied seats, are lower than at any point since PokerScout first began tracking cash game traffic in 2006.

Over the last three years iPoker has lost almost two-thirds of its cash game traffic. The overall dot-com market has lost only 40 percent by comparison.

The decline is clear from the poker revenues reported over the last few years. Full year results for 2014 produced online poker revenues of €13.8 million ($15.4 million). These declined by 19 percent to €11.2 million ($12.5 million) in 2015.

The half year revenues for 2016 were €5 million ($5.6 million), a million Euros lower than in the first half of 2015, suggesting that full year revenues could drop below €10 million.

Source-based rake and the recreational player model haven’t fixed the problems

The full year report for 2015 explained that Playtech had tackled its weakness in online poker by introducing source-based rake (SBR); moving towards a more recreational player focused strategy, and creating a re-vamped poker client that would appeal to the more profitable sector of the market.

SBR allowed iPoker to re-combine its player pool which had been split into two tiers in September 2012. The SBR system removed the incentive for skins to recruit high volume players while neglecting the more profitable recreational players.

The change has increased liquidity for all skins, but hasn’t produced the expected upsurge in revenues.

The report claimed that these developments were a “significant investment in iPoker technical infrastructure as well as in New Player Valuation.” The results for 2016 contradict claims in the 2015 annual report that this had “stabilized” the poker vertical.

No shortage of top brands, marketing spend or geographical reach

Playtech benefits from having some of the top consumer brands using its online poker network. Bet365, the largest online gambling company in the world by revenues, uses iPoker, as do major UK operators such as Ladbrokes and Paddy Power Betfair.

The cash spent by these big names on marketing is huge, so Playtech can’t say that that is the source of the weakness.

Playtech has even added skins to its network, including the only online poker operator licensed in Austria, Win2Day, and extended its exclusive relationship with Finland’s monopoly operator Ray.fi.

Playtech has also expanded its geographical reach with licenses in Bulgaria and Romania, although the newly regulated market in Portugal doesn’t allow online poker networks, so iPoker will be excluded for the foreseeable future.

Technical developments have also been ahead of the market. iPoker introduced a lottery SNG, Twister Poker, on January 20, 2014, well ahead of PokerStars, which didn’t introduce its Spin & Go variant to the dot-com market until the end of September 2014.

Competitors partypoker and 888poker were even later to launch their lottery SNGs, taking until this year before they entered the market.

Lottery SNGs transformed online poker revenues at Amaya, owner of Full Tilt and PokerStars, but don’t seem to have had the same dramatic impact at iPoker.

In fact, it’s difficult to see exactly why iPoker has fallen behind the rest of the market.

Online casino and mobile revenues more than compensate for poker weakness

Playtech’s revenues for online casino games were up 27 percent on a constant currency basis,19 percent as reported, increasing revenues to €177 million ($198 million) for the first half of the year.

Mobile revenue accounted for 80 percent of the increase, and now represents 29 percent of gaming revenues, 54 percent in the UK.

Playtech retains a large war chest for acquisitions

Gross cash at the end of the half year was €778 million ($870 million), or approximately €640 million ($716 million) if the acquisition of Best Gaming Technology (BGT) is included.

Playtech spent €138 million ($154 million) on the purchase of 90 percent of BGT and another €50 million ($56 million) buying slot games developer Quickspin.

Both acquisitions were much smaller than last year’s aborted deal to buy Plus500 and Ava Trade as part of a strategic plan to create a new financials division.

Playtech bid £460 million ($603 million) for Plus500 and another £69 million ($90.5 million) for AvaTrade, but relinquished both deals after UK and Irish regulators failed to approve the transactions.

The financials division will continue, and is “through its period of transition and positioned for sustainable growth,” according to Mor Weitzer.

However, that leaves a very large sum of cash on the balance sheet that can be used for further acquisitions.

So far, Playtech has stuck to its strategy of providing B2B services. Although no-one can rule out the possibility of it buying a B2C operator, the prospects seem unlikely.

Playtech could shock the market by being one of the undisclosed parties currently negotiating with Amaya, but the acquisition of the PokerStars and Full Tilt brands would be a major departure from its strategy.

No extra light is thrown on its intentions in the half year report other than the somewhat inscrutable statement from Mor Weitzer:

“Playtech continues to focus on M&A to augment organic growth and is currently in discussions for a number of potential acquisitions in the Gaming division and Financials division.”

Sign Up For The Grove Report – US Online Gambling Industry Insights Delivered To Your Inbox:
Joss Wood
- A former editor of Poker Industry Pro, 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.