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The global online poker market is mourning another loss.
In a September 20 blog post on its website, Microgaming Poker Network (MPN) announced that it will shutter its operations in Q2 or Q3 next year.
MPN is the poker arm of Microgaming and one of two boom-era operators still using the network/skin model. Its rise and fall is a story that could foreshadow things to come in the fledgling US online poker market.
Microgaming is among the oldest online gambling companies, having opened an internet casino way back in 1994. Its list of casino partners includes the likes of bet365, William Hill, and Mr. Green, and that side of the business will continue as usual. These big brands mostly use MPN’s competitor, the iPoker Network, for their poker operations.
MPN was a healthy and profitable network in its heyday, though its traffic was never quite on par with the big sites like PokerStars and partypoker. In recent years, however, it has fallen on hard times.
Unibet, formerly an MPN skin, decided in 2013 that it would fare better as a standalone site. It left the network, taking a significant amount of traffic with it.
Things looked like they might turn around in 2016 when PKR gave up its independence to join MPN, but the 3D poker site shut down due to “financial difficulties” the following year. Player funds appeared to be in jeopardy until PokerStars volunteered to honor PKR balances, as it had done for Full Tilt players following Black Friday.
It would be a mistake, however, to blame MPN’s current circumstances entirely on bad luck with Unibet and PKR. Even disregarding these setbacks, MPN’s traffic is declining faster than that of standalone sites serving the western dot-com market.
The same has been true for iPoker, which operates on a similar business model.
The network/skin model is fairly natural on its surface.
B2B relationships are commonplace in other gaming verticals — online slots and casino games are often licensed from third-party developers, for instance — but poker is unique. There are some inherent advantages for poker when multiple sites share a common back-end network and pool traffic.
For new sites, the advantages are especially obvious.
Companies joining an existing network instead of launching a standalone site save on development costs and ensure that the first wave of interested players doesn’t find the empty tables. This relationship doesn’t always make sense for the B2B operator, however, which shoulders most of the costs and risks while collecting just a fraction of the revenue.
The main reason a network operator might be willing to accept that tradeoff is that it makes growth easy. It can focus on the product and its business relationships while letting the skins handle marketing and customer acquisition. As new markets appear and existing ones expand, new skins pop up naturally and join the network with only incremental effort needed on its end.
That sort of relationship creates a win-win situation when the overall market is expanding, as US online poker seems poised to do in the next few years. When the market is stagnant — or contracting, as the western dot-com poker market has been for many years — it doesn’t work so well.
The low cost of entry for skins is a double-edged sword. As easy as it is for a skin to join a network, it’s just as easy to walk away when poker becomes less profitable than it once was. In addition to Unibet and PKR, MPN has lost smaller skins on a regular basis in recent years.
The network is also reliant on its individual skins for branding as new markets open.
If an international poker brand like PokerStars opens a site in a newly regulated market, at least some percentage of players will already be aware of the product. When a network like MPN wants to move into a new market, however, its visibility depends on the brand recognition of its prospective partners.
Additionally, disputes between involved parties are common.
These can be strategic in nature, often stemming from a clash between the network’s responsibility for development and the skins’ for marketing. A misalignment between those two can create a sense that a given party isn’t pulling its weight.
Bad publicity for the skins can also impact the reputation of the network, and vice versa. Had PokerStars not intervened to compensate affected PKR players, its insolvency could have been much worse for both MPN and other skins on the network.
It’s not yet clear to what extent we’ll see the network/skin model adopted in the US. That depends on how competitive the market is, and to what extent states end up sharing liquidity.
No state, not even California, is large enough on its own that an intrastate network with multiple skins makes good sense.
On the other hand, interstate poker by necessity involves something technologically similar to the network/skin model — even if it’s a single company operating both the network and the individual state sites running on that network.
It’s more or less a given that PokerStars and partypoker will both operate standalone sites in any state they can and share liquidity only between their own sites.
It’s apparent that they plan to take the reins on marketing in order to build their national brands, even if it means giving their local partners a free ride. Sharing revenue represents a small downside, of course, but it’s part of the cost of doing business in PA.
Meanwhile, The Stars Group and GVC can avoid the slew of other problems associated with B2B arrangements by putting these smaller partners in the back seat.
There still exists a potentially problematic separation of the marketing and development responsibilities there, with 888 powering the WSOP brand. However, Caesars (which owns WSOP) and 888 have similar levels of commitment to poker, mitigating the risk of a difference arising in the two companies’ priorities.
More importantly, WSOP is a national brand. And Caesars owns land-based properties in virtually every state where legal online poker is likely. This will, apparently, remain a two-party partnership across the US.
There’s no indication the 888 network would take on a non-WSOP skin, regardless of the spread of multi-state poker. The UK-based supplier won’t have to worry about individual brands, nor fight for brand recognition as new states open their doors to poker.
GAN is, perhaps, most likely to become something resembling MPN or iPoker in the US.
The company powers Parx online casino in Pennsylvania and has indicated that it plans to include poker among its offerings. GAN is a pure B2B supplier with no consumer brand recognition, while Parx is a purely local operation without much experience in online gambling.
The latter also happens to be the most-recognized brand for live poker in PA.
In stark contrast to PokerStars and partypoker, then, GAN is counting on Parx for marketing and customer acquisition. If it later wishes to offer poker in other states — and particularly if shared liquidity happens — it will do so with a patchwork B2B network. It would be able to piggyback on locally popular brands (like Parx) and potentially connect multiple casinos in the same state, but would be more reliant on those companies’ decision-making than its competitors by the same token.
What the dot-com market has shown us in the post-boom years is that this model is likely to work for GAN only as long as the overall US market is expanding. Depending on how big legal online poker proves to be for the US, we may even see a rival network or two appear.
If and when the market plateaus, however, the downsides of the model may begin to loom larger than its upsides — as they have for MPN.