Focus: Winning hand - Poker Online
by Matthew Goodman

Focus: Winning hand
By Matthew Goodman February 27, 2005

Online poker has boomed in recent years. Now the aim is to develop it further — maybe with interactive TV gambling

Lee-Ann Smyth started playing poker on the internet because she did not like what was on television. As a student, it was fun to spend an hour or two each evening playing poker for not much more than the price of a video rental.

Even after starting work for Halifax bank, Smyth continued to indulge her hobby. As she became more competent, so the stakes got higher and, these days, Smyth’s hobby is her job. She spends up to 10 hours a day playing poker online, earning up to £4,500 a week. She has turned a room in her house in Carrickfergus, on the outskirts of Belfast, into a poker den.

While Smyth is an exception, it is people like her who are behind much of the remarkable growth in online poker.

Last year, she was one of about 250 dedicated players who, along with their partners, joined Ladbrokes on a poker cruise of the Mediterranean. Smyth did not win on the high seas, but it was not through lack of effort. John O’Reilly, managing director of Ladbrokes’ online operations, said the ship docked every day at a European port but nobody got off, such was the appeal of the cards.

Online poker is a massive business — it is estimated that the worldwide commission earned by operators of poker sites runs at about $4.5m a day.

Last week, the growth of the market was brought into sharp focus by results from Hilton Group, parent company of Ladbrokes, and Sportingbet.com, which last year acquired Paradise Poker, one of the world’s leading poker sites.

Shares in Gaming Corporation, a little-known internet firm that owns the domain name Casino.co.uk, jumped 21.6% after it announced plans for a poker-based internet portal called Findpoker.com.

On Thursday, Ladbrokes declared that profits from its e-gaming division were up 50% to £21.3m, with growth from poker proving especially strong. Remarkably, for a business that started less than three years ago, O’Reilly said this year poker is expected to take more money than Ladbrokes’ online sports-betting service.

Two days earlier, Sportingbet delivered record profits, driven by Paradise Poker which made better-than-expected operating profits of £8m on turnover of £13m, prompting the shares to rise and push Sportingbet’s market value above £1 billion.

Nigel Payne, chief executive of Sportingbet, is delighted and said poker would continue to grow. “We think a compound growth rate of 3% a month over the next year is a reasonable expectation.”

THE BOOM in online poker is creating a whole new crop of internet millionaires but, unlike the stars of the dotcom boom, the brains behind many leading sites are wary of the limelight. When Sportingbet acquired Paradise Poker last October, the three selling shareholders made it a condition of the deal that their identities would remain secret. All that is known about the trio is that they are Canadian and are thought to have met at university before setting up their lucrative online gaming firm. Reports vary as to whether they are computer engineers or financiers and stockbrokers. Either way, they need never work again — the three shared a £170m payout.

One reason for the lack of publicity could be the legal grey area that online gaming occupies in America, but this could soon change. North Dakota recently became the first state to apply to become a legal poker jurisdiction.

“The problem with that is that it could bring them into conflict with American federal law,” said Hilary Stewart-Jones, a partner at the law firm Berwin Leighton Paisner.

The mystery surrounding the owners of online gaming sites is clearing as their businesses head for the stock market.

Party Poker recently appointed Dresdner Kleinwort Wasserstein and Investec to advise it on a possible flotation. If it lists, the site is tipped to head straight into the FTSE 100 index of leading companies, making fortunes for the founders, Ruth Parasol, Anurag Dikshit, Russ de Leon and Vikrant Bhargava.

Bhargava declined to comment on the float plans or the size of the shareholdings owned by the business’s founders. He said the seeds of the business were sown in May 2000 at a gaming-industry expo in Montreal, where the executives, who were already involved with gaming software, first heard about Paradise Poker.

Liking the idea, they set about creating their own version, and launched Party Poker in August 2001. Less than two years later, the progeny had overtaken the inspiration to become market leader, a position it still holds.

Other sites have been founded by newcomers to the world of e-commerce and technology. Poker Room, a Scandinavian operation, was set up in 1999 by two students, Oskar Hörnell and Claes Lidell, who met at Sweden’s Uppsala university and were keen poker players. Having travelled round American casinos refining their game, they launched Poker Room after teaming up with Hörnell’s brother Karl, a computer programmer.

Their business, which claims to have 3.2m players, has more than trebled its revenues in the past year to $60m.

Bhargava said the appeal of online poker is that, unlike traditional bricks-and-mortar card rooms, it allows players to gamble for low stakes. “I could never find a casino where I could play poker at low enough stakes where I felt comfortable. The atmosphere is intimidating and the stakes are too high. (Online poker) provides clean, inexpensive entertainment.”

GROWTH in the online poker market has been nothing short of phenomenal. The numbers are enough to make your eyes water, according to one leisure analyst. But, impatient as ever, City folk are already starting to wonder where the next spurt of growth is likely to be found in the world of online gaming.

In a report published last week by Durlacher and Edison, the City broking and research firms, analysts wrote: “There is little sign that the explosion in online poker is abating, but already operators are looking for the next big growth segment.”

A number of areas seem likely to provide it, not least bingo and what has been dubbed “cash-skill gaming” — a catch-all for sites offering chess, backgammon, quizzes and puzzles.

The global market for cash-skill gaming is estimated to have grown from £19.5m three years ago to £76.3m last year, and is on a course to expand by 40% a year.

Greg Harris, an analyst at Cannaccord Capital, said some of the dynamics were broadly similar to those enjoyed by online poker: “Both poker and skill gaming are driven by liquidity. The more players you have, the better the service.”

Some of the bigger operators in this space are owned by London-listed companies such as Skill Jam, part of AIM-quoted Fun Technologies.

At the tail end of last year, two British sites were launched in the sector — Riskclub.com and Riskology.co.uk. Ben Hewitt, founder of Riskology, which offers punters prizes such as plasma-screeen televisions and Ducatti motorbikes, said the site has attracted more than 5,000 users and the company is contemplating versions for Japan, Australia and, crucially, America.

Page 2 Continues

That is the other attraction of cash-skill gaming — with the exception of eight states in America, this kind of betting is legal because it is not perceived to be gambling. As a result, online casino operators are starting to offer games in America as a way of safely tapping into this market.

But perhaps the holy grail for interactive betting groups is gambling via television. Last year, William Hill, the British bookmaker, launched its own digital-television station, showing a mixture of live greyhound racing and interactive games, such as roulette. Nobody at the company expects its popularity to mushroom — yet.

“It will be step-by-step,” said David Harding, chief executive. Investors will get an idea of its pr

Date Posted: 13-Mar-2005

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