Blog: Alex Dreyfus – My take on Pokerstars in New Jersey – Everything is relative.

The epilogue to the Pokerstars/State of New Jersey saga is going to be written soon (if not already) and published. Every week that passes, I hear different outcomes and different scenarios. Is Pokerstars going to be licensed ? I don’t know. Just to be transparent, to support what I’m about to say, I’m very much conflicted when making a personal point of view as I am still a consultant for Bally Technologies, to whom I sold my company, Chiligaming, last year and who is partnering with the Golden Nugget in Atlantic City. I also have Pokerstars as a non-exclusive sponsor for my new company www.thehendonmob.com. 🙂

So, Pokerstars being approved in NJ or not, doesn’t change anything for me, but it doesn’t mean I have nothing to say about it 😉 I have been in the poker industry for 10 years now, I founded Winamax.com and then Chilipoker.com. As much as I don’t know how to play poker (in a successful way) I consider myself as an expert of the gaming industry (yes I am  French and can be perceived as arrogant).

I wanted to write a quick piece on my thoughts, before the final decision is public, because at that point everybody will have something to say about it based on the new information – that I don’t have yet.

A few days ago, this article was published in BusinessWeek: (http://www.businessweek.com/articles/2013-11-08/the-past-catches-up-with-pokerstars-in-new-jersey) which was very interesting. Let’s be realistic, none of the casino in New Jersey (or should I say in US), except Resorts AC, wants Pokerstars to be approved. I understand why and can’t argue with that; it’s business.  Even though I’m not American, and I don’t know how politics work there, I understood that when JP Morgan paid a $13 billion US settlement (http://www.bloomberg.com/news/2013-10-19/jpmorgan-said-to-have-reached-13-billion-u-s-accord.html) a few weeks ago, it didn’t block them from continuing to operate, even though whatever they did was obviously not right. Why would Pokerstars, as a legal entity that paid $731m, not  be granted the same opportunity? Well, I believe that if it is not the case, it will have to be highly supported by strong arguments to avoid any legal battle in the future between the regulator and the potential licensee. I don’t want to go into the legal aspect of this story, because I’m not an expert and the devil is in the details, that I don’t have unfortunately. I’m a businessman, so let’s look at the business side:

For nine years, I ran an online poker room, met dozens of others entrepreneurs in the online gaming space and I have to admit, I love this industry. So, trying to figure out what’s next  is actually very exciting. Now let’s pretend I’m in the shoes of Pokerstars (those shoes feel super comfy), I would have done exactly the same which is to seek a new business opportunity in a new territory as much as I do in every other country in the World. It’s a business decision and yes, let’s admit it, there would be a revenge factor too. Fair enough, we all have our little battles 🙂 And actually, let’s be realistic, it’s a little battle. The poker market in New Jersey can likely generate $100m in yearly income in the next two years, which isn’t bad. Now let’s predict that Pokerstars gets 40% of market share, being very aggressive, despite the strong competition. Its $40m of revenues; still, not bad. As my physics professor taught me when I was 15 and the worst student ever : “Mr. Dreyfus, everything is relative”. What is $40m (of revenues, not bottom line) for Pokerstars? That’s the real question. If you look at Pokerscout traffic and consider that its accurate and can give you some guidance about the global revenue for Pokerstars/FTP, you can imagine that the group generates more or less $1.5billion in revenues (using a comparison with the French market that I know). So the potential revenues (to be confirmed) in New Jersey is more or less 2.5% of the global revenues. That’s not a lot.

What does this all mean? It means that as much as Pokerstars and its shareholders want to prove the world wrong (the industry), want to deliver the best poker experience to American poker players (that’s the reality), they will never decide to enter this market if the conditions are not reasonable. Conditions you ask? Yes : http://www.reuters.com/article/2013/10/31/bwin-share-sale-idUSL5N0IL1KY20131031 Last week, the former founders of PartyPoker agreed with NJ regulators to divest in the next … 36 months, their 15% shares in Bwin.Party to allow the company to be licensed. Very interesting move and very surprising. That’s what I love in this industry, it never stops surprising us.

Now let’s assume that the same condition will be in place (in order to get approved) for the current shareholders or managers at Pokerstars, would they ever accept? As I said, if it was me, definitively not.  It’s a No-No. I would prefer to run away from the current process, which will allow me to not be denied and I’d just withdraw my application, exactly like what Caesars did two weeks ago in Boston (http://www.reviewjournal.com/business/caesars-withdraws-proposal-build-boston-hotel-casino). That’s how it works in the US, you usually don’t get denied, you just walk away before they get the opportunity to do so.

The potential of an additional 2% in revenues for the group isn’t worth deconstructing a winning hand, at least, not at this stage. Would this be considered as a failure for Pokerstars? If it happens, I can definitively predict that it’s exactly how the press, especially in US, will cover this event. Competitors (that are also my customers 🙂 ) will probably claim the same – and I wouldn’t blame them, it would be good news for their own market share. I agree. But is the market bigger with or without Pokerstars? That’s another important question. There are no better online poker experts than those inside the powerhouse that is the Rational Group, except for my friends and former partners at Winamax in France. The fail – to get licensed – of Pokerstars in NJ, will be a fail for the customer at the beginning, because others operators will learn and will, eventually, deliver a strong and powerful experience to American players. It will take time.

A battle lost? Maybe. Will it be the end? Surely not, just try to remind yourself what happen during the last 5 years in the poker industry, so many changes, so many surprises, so much consolidation. Currently, Pokerstars has +60% of market share in the world, increasing every day. If you add, NewJersey and Nevada, well Pokerstars will still have 60% of market-share globally (or may be 59%). 🙂 It is a no-brainer. You’ll recall what happened after “Black-Friday” when Pokerstars re-allocated all its resources to the European and emerging markets. After two years, they changed their base-line to “We are poker” 🙂 I do think it is accurate 🙂 They are poker.

So all the people who see a victory, if it happens, should Pokerstars fail to return to the US (in New Jersey for now), will probably be very disappointed, because all the resources, energy and investments that will not be put into the US will actually be put in other territories and will get into even more markets versus European operators. Then, the only territory where they are not poker, would be the US, which for now and the next two years will only be Nevada and New Jersey. There will be no new State that will go live before 2 to 3 years, even if regulation goes through.

I’ve been working for 18 years, this month, and I learnt one thing that my physics professor could have told me : “Patience always pays”. So just wait and let’s see what will be the river.