More rewards could be coming for PokerStars players

Flutter Interim Results Presentation Hints At Rewards For PokerStars Players

Flutter released its interim results for H1 2020 last week. It’s the first bit of official financial communication from the company since its all-shares tie-up with The Stars Group (TSG) went through in May. Among other things, it contained hints that PokerStars might become less stingy in its promotions and rewards than it has been in recent years.

Flutter has only existed since 2016, formed by a merger between the Irish bookmaker Paddy Power and its British counterpart, Betfair. It went on to acquire the US daily fantasy sports giant FanDuel in 2018.

Its subsequent combination with TSG has made it the world’s largest gaming company. The presentation has helped to quantify that, as well as offering a glimpse at its future plans.

Treating Flutter’s new acquisitions (including TSG) as if they were part of the company all along, their combined revenue was nearly £2.4 million ($3.2 million) in the first six months of 2020. That’s an increase of 22% over the same period last year. Profitability was even better, with adjusted earnings per share of £2.86, an increase of 56%.

As dominant as PokerStars is in the poker space, that vertical only accounted for 19% of Flutter’s H1 revenue. Likewise, the US is still a minor market for the company. At the moment, US revenue makes up just 12% of Flutter’s total, compared to 40% from the UK and Ireland. Even so, the US market and poker vertical both received a fair bit of discussion during the presentation because they represent new vectors for the company’s expansion.

PokerStars marketing expenditures have been uncommonly low

Flutter CEO Peter Jackson dedicated several minutes of the presentation to discussing the future direction for PokerStars as part of Flutter. Central to that discussion was the fact that PokerStars has been “deprived of proper levels of investment,” to use Jackson’s words.

Comparable companies such as GVC, Kindred, 888 and others keep on average just 23% of net revenue as profit, while PokerStars has been keeping 49%. Only 14% of PokerStars revenue has been going to marketing and promotions. Meanwhile, those competitors averaged 25%.

PokerStars was under private ownership until 2014, so there’s no way of knowing what its marketing budget was like prior to then. However, it’s probably safe to say that it was higher than it has been since it was taken over by Amaya, which would later become TSG. One major change for the company in recent years has been the gutting of its rewards program. For some of the site’s highest volume players, that had been worth more than $200,000 per year.

The company claimed at the time that its reason for doing so was to improve its poker ecosystem. It felt that sustainability required reducing incentives for these high volume players and rewarding casual, net depositing players instead. However, critics accused the company of pinching pennies and prioritizing profits over players.

Jackson acknowledged both the benefits of that strategy and its limitations.

“Customer generosity, too, has reduced significantly over the last five years,” he said. “This reduction has been deliberate, with specific initiatives undertaken to make sure that generosity has been better directed towards customers who would enhance the overall health and liquidity of the poker ecosystem. While such measures have been effective, there is an important balance that has to be struck when developing the business for the long term.”

A full return to the Supernova Elite days is unlikely

Exactly what that balance will look like, Jackson did not specify. Players hoping for a full return to the days of the Supernova Elite program are likely to be disappointed, however.

Those sorts of volume-based incentive programs make sense in a growing poker market. When money is flowing in steadily, the priority is to deal as many hands as possible. In a period of decline, however, that can be counterproductive. Incentivizing high volumes of play can lead to losing players burning through their money faster than they’re willing to deposit, and ultimately leaving the site.

However, Jackson indicated that the company is committed to increasing its marketing spend. At least some of those dollars should make their way to those players disgruntled by the removal of the old rewards program. Rekindling those players’ enthusiasm will be a priority in the Flutter era.

“It is clear that customer perception of the PokerStars product lags behind competitors in a number of jurisdictions today,” said Jackson. “We have work to do to address this. Make no mistake, the online poker market is a competitive market and we are going to have to invest in our product and customer experience in order to remain competitive in this space.

Whatever the plan proves to be, American players may get a sneak preview before it arrives in the US market. Historically, PokerStars’ US sites are among the last to deploy any changes the company makes. Depending on its level of commitment, it might roll them out directly on its international site first. Alternatively, it may begin with a trial in Italy or on its European network.

Groundwork is the key in the US

For its US operations more generally, Flutter’s strategy is to focus on the medium and long term. It’s only active in six states at the moment, but expects this number to increase rapidly. Within the next six months, all its US brands should be operational in Michigan. Meanwhile, FanDuel and FoxBet mobile sportsbooks will launch in Tennessee and Illinois.

Beyond that, there are many states which haven’t yet legalized sports betting, online casino and poker, but could do so in future. Jackson said that the company estimates that the total addressable market could soon comprise as much as 50% of the US population and be worth around $12 billion annually.

In order to be a dominant force in the US, Flutter is working at customer acquisition even in those states where its core products aren’t yet legal. FoxBet and FanDuel both offer free-to-play products that are available in all 50 states. FanDuel’s original daily fantasy sports product is available in 41, and Flutter’s racebooks are legal in 33. All told, the company picked up over 350,000 new customers in the first half of 2020. It will be looking to do even better going forward.

Here, too, the name of the game is increasing its level of investment. Some money will go directly to customer acquisition, but it is also working on proprietary technologies, increasing its US staff, and expanding its risk and trading capabilities.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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