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Microgaming benefits from IGT’s woes

26th September 2012 8:31 am GMT

The decline of poker pioneers Boss Media, Entraction and Ongame has left operators with a choice of Microgaming or Playtech

IGT is fast becoming the gambling industry’s most enduring soap opera – along with Full Tilt Poker of course. That little drama probably still has a few twists and turns to come.

It feels strange grouping IGT with Full Tilt given the former’s desire to be whiter than white and the latter’s struggles with the authorities but these two strange bedfellows have one key thing in common – they both terribly mismanaged poker.

IGT’s decision to close its dot.com network means that the world’s largest supplier of technology to the gambling industry spent €78m on an inoperable business. That is not quite the amount Full Tilt managed to “lose” but it is still a hefty chunk of cash that could have been much more constructively spent. Let’s just make it abundantly clear here (before our lawyers score huge red marks all the way through this blog) that there is no suggestion of malpractice being levelled here just incompetence.

When Entraction’s management first starting speaking to IGT the benefits for Entraction’s shareholders were obvious. The industry-wide decline of poker had kicked in and it was losing money. €78m was a great deal for them but they just could not believe it would actually happen.

“It came with a lot of difficulties for a Nevada licensee,” says an insider.

Entraction made a decision to withdraw from the US before UIGEA but at the time of the transaction it still serviced Canada, Israel, Norway and Turkey to name just a few.

Days ago, IGT CEO Patti Hart told Bloomberg that regulatory changes in Europe killed the business model but the rise of dot.country was well underway at that point and the differences between the two companies were obvious to any observer, as this blog noted at the time.

“Presumably this will all be washed out by IGT’s due diligence,” we noted in that posting but it never was.

The due diligence was done by IGT’s corporate law firm Sidley Austin and Sweden’s leading law firm Mannheimer Swartling. However, its findings were either ignored or misread. Post-acquisition IGT began the painful process of closing down all the jurisdictions that it considered unsuitable.

“I think the due diligence was fine,” says another source. “They knew they had to close these markets but maybe they did not realise that when you lose 25 per cent of your liquidity by closing down grey markets then you are likely to lose another 25 per cent with customers leaving because of the reduced liquidity. Now Microgaming might see the opposite effect.”

And then there were two
The Isle of Man-based company has been the chief beneficiary of this disastrous deal. As a privately-owned company it is one of few networks willing to service certain grey markets. Entraction’s largest customer iGame has moved to Microgaming as has BetVictor, which had already moved some of its customers there after being shut out of Israel by IGT.

“With the certain addition of the iGame skins to the network together with the possible addition of disheartened/disenchanted iPoker and Ongame skins there’s every reason to believe that Microgaming could be a contender for second or third spot in the rankings before too long,” muses BetVictor head of poker Andy Horne.

Horne has had a tough gig over the last few years. Most poker managers have but Horne has been hit by consolidation more than most. Originally with Tribeca, BetVictor migrated its Israel customers to Entraction when Playtech acquired Tribeca and banned licensees from Israel. It consolidated the rest of its network with the Swedish outfit before IGT came in and banned it from  Israel, Canada, Norway and Russia. Those customers were then migrated to Microgaming before the IGT dot.com closure necessitated the whole shebang moving to the Isle of Man supplier.

Horne’s choice of networks has receded fast. GTECH G2’s International Poker Network is tiny and has a similar risk rationale to IGT. Ongame’s future lies in the balance. Shuffle Master’s belated refusal to follow in IGT’s footsteps made Ongame look even more distressed than the rumour mill insisted.

The latest gossip, linking Ongame with distressed-asset specialist Amaya, made perfect sense but it seems the gossips added two plus two and got five – as misguided gossips often do. It seems unlikely Amaya will splurge more millions after it spent $167m on US slot machine supplier Cadillac Jack yesterday. Although if bwin is giving Ongame away…

Fundamentally, operators have been left with the choice of just two non-US facing networks: Microgaming and Playtech. Well, as Horne alluded to, you could call that three given Playtech’s split of ipoker. Given the potential for second tier licensees to feel jilted, it looks like a potentially risky move by the world’s biggest network.

Playtech has been silent thus far on the split but head of poker Roei Gavish explains the rationale: “The logic behind the split was to enable a more balanced environment for the participants in the network where our licensees will enjoy a stable mixture of players within the liquidity pool, thereby providing those licensees a level of protection from an on-going outflow of players funds, and finally a better experience to the players within the system.”

That would seem a good enough rationale for the Bet365s, William Hills and Paddy Powers. The benefits for the rest are not so clear but fundamentally, this does not seem like a change that different from those introduced by Microgaming, when it unveiled its network management board and new rules 10 months ago.

“The system only seeks to reward those who meet the performance criteria by providing additional streams of revenue,” continues Gavish, “leaving tournaments unaffected by the policy. Note that only regular cash tables and SNG’s will be included in the split. All speed variants, Jackpot SNG’s, promotional related SNG’s, and satellite SNG’s are excluded from the split.”

Ultimately, this is Playtech’s latest move to address two years of falling poker revenues and a lack of balance in the network ecosystem that has been a common problem for all poker network suppliers. If a few smaller iPoker skins are shaken off by this move, Playtech will probably be unconcerned.

On December 11th, IGT Poker will close its dot.com network – 12/11/12 (in American English). As a singular event it is not nearly as significant as an April 15th or a December 23rd but it could come to symbolise the day that poker networks died – for all but two.

sah@gamingintelligence.com

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