Bill's Poker Blog » Is Online Poker Legal?

The Death of Poker Media?

Bill Rini — Tue, 31 Jan 2012 06:33:17 +0000

I swung by Commerce last weekend to get in a little Omaha and, as is my habit, I picked up copies of CardPlayer and PokerPlayer magazines which are always available in the casino. It’s a habit that goes back for nearly as long as I’ve played live poker in the local Los Angeles poker rooms.

When I was a beginning player I loved reading the strategy articles. I always enjoyed Roy Cooke and the other authors handing over little tidbits of advice on how to improve your poker game.

After I got involved in the online poker industry, I started to pick up the magazines to see who was advertising what promotions. They became more like industry or competitor research. I still found the articles interesting but poker on the internet had exploded by that time and there was more poker strategy articles available than one human being could ever possibly consume.

As I picked up the most recent editions of these two great poker publications I noticed they seemed a tad light. Very light.

Of course, light is relative. The last time I was a semi-regular in the LA card rooms was back in 2006 before I left for Gibraltar. Back then a copy of CardPlayer magazine was pretty hefty. How hefty, I don’t know because I never really took the time to inventory the magazine but I remember it being thick enough that it was too big to fold up or easily slip into your pocket.

That’s not the case today. The Jan 25, 2012 (Vol 25/No 2) edition of CardPlayer that I was holding was a mere 68 pages (including front and back covers). I was able to fold it over twice and put it in my jacket breast pocket.

It got me curious so I sat down and really looked at what was in these 68 pages.

Front Cover: 1 page
Masthead: 1 page
TOC: 1 page
Advertising Index: 1 page
Tourney Schedule: 5.5 pages
Advertising: 28 pages
Content: 30.5 pages

Only four online poker rooms had ads in CardPlayer; Lock Poker, Poker Host, America’s Poker, and Carbon Poker. CardPlayer had a full-page ad for their own free poker site but I don’t really count that since it’s a house ad. In total, seven pages were purchased by online poker sites.

Ads for land based casinos made up 19 full pages.

The remaining two pages consisted of smaller ads for things like CardPlayer Cruises, CP Poker School, Kardwell playing cards, Poker Media Consulting, etc.

Before I go any further I want to make it very clear that I am not singling out CardPlayer. As I browse around online poker news sites I notice a scarcity of any sort of advertising. It’s an industry-wide issue.

Part of the problem is that many poker media outlets got too fat on affiliate fees and placement fees. The amount of money online poker sites were willing to shell out for premium placement of their affiliate ads on the biggest poker media sites (both print and online) simply couldn’t and can’t be matched by any other sort of advertiser.

Many print magazines just kept adding pages and pages to their magazines in order to accommodate all of the people who wanted to advertise. Online sites sold out their inventory and then began charging poker sites an insertion or placement fee for increased exposure on their site.

This left little room for any sort of diversification of advertising income streams. In other words, GM, Coca Cola, Budweiser, and any other non-poker related advertiser were priced out of the market. When Black Friday hit there were no unaffected advertisers on the poker media customer list. All their bets were on online poker.

Granted, selling online poker to Corporate America was never an easy task. Not only were they priced out of the market but there is/was the issue of associating their brands with something that was, at best, morally objectionable and, at worst, blatantly illegal.

But that raises the issue of cause and effect. Was Corporate America scared away from associating their brands with poker or were they scared away from associating their brands with poker media that closely associated itself with online poker?

One could make the argument that poker is already somewhat acceptable to Corporate America. ESPN has an entire section dedicated to poker. Many newspapers carry syndicated poker content. They don’t give this exposure to poker out of the kindness of their hearts. They do it because, in theory, they are able to make money from it. Some advertiser is buying an ad on that syndicated column which makes it, in theory, profitable for them to pay the author for the content.

In some ways it reminds me of the dotcom crash. I remember when Yahoo was commanding super-premiums just to get your ad on their website. And just a few years later their sales dropped like a rock wen the dotcoms crashed.

Was it because nobody was advertising online? Ehrm, well, sort of. The problem was that the stupid dotcoms, flush with investor cash, stopped outbidding each other for prime Yahoo real estate when the money dried up. Since that was the only type of business Yahoo had been accustomed to, their sales reps were unaware that the phones dialed out as well as in. Their sales reps had never courted customers before. They were order takers.

The dotcom crash hit them hard because they weren’t organizationally structured to go out, hat in hand, begging for business. Likewise, I think the poker world needs to wake up to the fact that ads aren’t going to sell themselves. If the phone isn’t ringing the sales reps need to be hitting the phones and the pavement selling the ad space.

But are any of them doing that? Not from what I can see. I visited several of the largest online poker news sites and they’re all running ads for online poker sites. Some, even though I’m accessing the site from the US, are running ads for sites that aren’t even available to US players. One news site, which shall remain nameless, still has links to Full Tilt, UB, and Absolute room reviews in their footer (in their defense, they link to 404, page not found, pages).

I find it difficult to believe that this ad space can’t be sold to non-poker related businesses. The demographic of poker players is a highly coveted demographic for advertisers.

Or has the poker media yet to come to terms with the fact that the days of easy cash are over? Are they holding on, waiting for US legalization, hoping to command those outrageous premiums again? Have they burned their bridges to the legitimate world so badly nobody in Corporate America wants to touch them?

Whatever the answer, the one thing I do know, is the market weeds out those that fail to adapt. There are plenty of flamed out dotcoms that could have survived if they would have read the writing on the wall. Now all we can do is sit back and see who is paying attention to the winds of change and who is doubling down on their bets.

Zynga Ready for Real Money Gaming or Trying to Hide Failures?

Bill Rini — Sat, 21 Jan 2012 01:19:31 +0000

Last September I wrote about why I didn’t think Zynga would be a major player in real money poker. I cited several reasons and among them was that they weren’t serious about real money gaming. They had not hired a single name out of the online poker industry. I left the door open though and said that when we began to hear about Zynga making moves my opinion on their future in the real money gaming sector would change.

Several months later Zynga’s poker product manager confirmed that they had no aspirations to become a real money gaming platform.

And now, just a few months after they wrote off the real money gaming market, they’re making waves that they might have changed their mind and are actively looking for partners in the real money gaming space.

Many in the poker world are breathless at this but it’s not really that exciting. First off, you have to understand the situation Zynga is currently in. They just floated an IPO which flopped big time. The share price dropped 5% on the first day of trading and it hasn’t much recovered since then. Today the stock trades around $8.50 (down from the IPO price of $10).

Zynga is under pressure to report something positive to get the price back up. All of those institutional investors who bought Zynga stock aren’t happy with getting this turd dumped in their laps.

So how does Zynga go from saying they have no interest in real money gaming back in November of 2011 to saying that they are investigating partnerships just two months later?

In the past you’ve denied any plans of shifting to a real-money platform. Are you still sticking to that, even if it’s a few years down the road?

Zynga’s business model is free-to-play and we monetize the virtual goods. That’s our business model. We have no interest in going after the real-money space. We have been able to build a very nice business for ourselves with our heads down focusing on our existing business model.

–Zynga Poker General Manager Lo Toney via PokerNews

Part of it can be attributed to the fact that Zynga’s management has some issues. Just prior to Zynga’s IPO the media was full of reports about overworking employees, an alleged move to force early employees to give back stock options or be fired, accounting gimmicks, and that sources within Zynga confirmed that the company basically steals their ideas from their competitors.

Last year, for the first six months of 2010, Zynga amortized revenue from virtual goods using an expected useful life of 14 months. In other words, $5 of fertilizer a Farmville player bought anytime over the past 14 months would be spread over the next 14 months, so that Zynga booked about $0.36 of revenue per month.

But for the first six months of this year, Zynga shortened its amortization schedule to 11 months instead of 14 months. This means that, for every $5 of Farmville fertilizer sold, the company will book $0.45 of revenue per month for 11 months.

And that, in turn, means that Zynga’s reported revenue from these sales is considerably higher than it would have been had Zynga left its amortization schedule unchanged. (It also means that revenue in the 5th quarter will be lower, because all of the revenue from today’s sale will already have been exhausted).

So, how much revenue has Zynga’s accounting change contributed to the company this year?
$27 million!

Zynga has booked $522 million of revenue so far this year, so $27 million might not seem like a big change. But it’s big enough to wipe out the company’s $18 million of profit for the year.
In other words, had Zynga not changed its accounting, the company would have lost money for the first six months of 2011.

via Business Insider

There are also rumblings that Zynga’s core businesses are faltering. Recent comments by Sterne Agee analyst Arvind Bhatia seem to indicate that Zynga’s cost of acquisition far exceeds the lifetime value of the players they’re acquiring

Zynga’s marketing budget for the first nine months of 2011 was $120 million, which he said was almost entirely dedicated to acquiring new customers. “We also know that they had 3.4 million unique players in the September quarter, which is up from three million at the end of December 2010,” he explained. “In other words, they added 400,000 additional payers and they spent $120 million to acquire them.”

That’s $300 a head, yet each one spends an average of just $150 over the 12 to 15 months they stay with the company. You don’t have to be a rocket surgeon to see a pretty big whole in the equation. “That math won’t work for very long,” Bhatia said.

So, Zynga’s recent decision to look into real money gaming seems more of an attempt to divert attention away from other problems the company is experiencing. They’re trying to excite the market with news about possibly entering a multi-billion dollar market in order to take the focus off of the state of their existing business.

As All Things D puts it:

As with any new entrant in the space, Zynga will have to fulfill several requirements, meaning any major rollout is still months away.

The San Francisco-based social games maker will have to wade through a maze of state, national and international regulations. It will have to secure the correct licenses, and it also needs the right technology to make betting over the Internet secure.

For either of these last two requirements, a partnership or acquisition of an online gambling organization or other technology would make the most sense, instead of starting from scratch.

As I’ve said in the past, I’m not suggesting that Zynga can’t be a major player in real money gaming. What I am saying is that they’re not even close to being ready at the moment. Today’s announcement brings them a step closer to being ready but there’s still a lot of ground for them to cover before we can even begin to speculate how many virtual goods players would be willing to wager for real money.

If Zynga is really serious about entering the real money gaming markets a few things will likely happen. Consider any of the following the next step for Zynga:

1. Zynga acquires an existing online gaming operator

2. Zynga hires someone with real money gaming cred to head their real money initiatives

3. Zynga partners with a US land-based casino

Because without any of the above happening, Zynga is still not even remotely prepared to enter the space.

How Things Became So Screwed Up At Full Tilt Poker

Bill Rini — Tue, 04 Oct 2011 19:40:02 +0000

I haven’t been able to stop thinking about how things could have gone so horribly wrong at Full Tilt Poker. None of the people I know there are stupid. Nor are they malicious. It’s easy to go for the simple answer that Howard Lederer, Ray Bitar, Chris Ferguson, and Rafe Furst are greedy, thieving, conmen who set out to rip off Full Tilt players for their own benefit but that doesn’t really fit with the people I know.

So, I started to try to imagine, logically, how things came so unglued.

Keep in mind, this is all my own personal speculation. I have no inside knowledge. I haven’t consulted any of the indicted or other people within the company. It’s just me trying to take a scenario where we know certain facts and trying to determine what logical process brought about a decision.

I have no agenda. I’m not trying to make anyone look good. I’m not trying to make anyone look bad. If this were a poker game, all I’m doing is trying to read how the hand played and put a player on a hand or range of hands.

Lastly, I would like to point out that this is written with the assumption that all or at least major portions of the complaints by the DOJ against the indicated poker rooms are true. Rather than write “allegedly” fifty times, please just assume the alleged portion.

I think you have to go back to September 2006. Full Tilt was just completing their migration over to Dublin from Los Angeles. Part of the selling point for relocation was a nice stock option package and promises that the company would attempt to float of public offering soon.

The UIGEA changed all of that. Full Tilt Poker was forced into a very difficult decision. Stay in the US as a rogue operator or retreat to the European market. In some ways, I think the decision was even more obvious since non-US traffic on the site probably didn’t amount to more than 10% – 20%. Even in 2011 after Black Friday, FTP’s traffic dropped off 50% when it lost the US while PokerStars only slipped about 20% so even during those 5 years FTP hadn’t done a particularly good job at diversifying its revenues.

Now, Full Tilt has repeatedly claimed or inferred that their legal counsel was of the opinion that FTP was breaking no laws. Poker is a game of skill. There are no specific federal laws making poker illegal. Yes, we can almost recite these arguments from heart.

But, I highly doubt any lawyer ever told FTP this. If they did, they should have their right to offer legal services revoked.

Every year some new chucklehead claims that the US government doesn’t have the legal right to tax income. They usually write books where they lay out all of the legal theory behind their position and urge people not to pay their income taxes. And every year the US government prosecutes and convicts guys like this and the people who take their advice (i.e. Wesley Snipes) for failure to pay their income taxes.

The point is, no matter how strongly YOU believe what you’re doing isn’t illegal, in the end, it’s what the DOJ and/or the courts believe is illegal. And the US government was sending some pretty clear signals that online poker fell into the category of stuff they felt was illegal.

So the most likely scenario is that Full Tilt’s legal counsel did not give them a thumbs-up to keep offering online poker. It’s far more likely that what the lawyers did was outline FTP’s risks. What are the chances of the DOJ coming after them? What are the chances of anyone doing time? What are the chances of a negotiated settlement with the DOJ?

But, as I mentioned, the decision had already been made for Full Tilt to some degree. Leaving the US market was pretty much the end of the company. Losing that much liquidity that quickly would have hurt Full Tilt very badly. Chances are they wouldn’t have been able to continue operations.

So, the legal justification seems like something that only buttressed a decision that had already been made.

I think this is a very important decision because it sets up everything after it. The online poker world was operating in a grey area up until the UIGEA. The UIGEA sort of drew a line in the sand and forced companies to stand on one side of the line or the other. Those who left the US market did not have the risk tolerance that those who stayed had. More importantly, it was a key decision because those who stayed in the US did so knowing they were breaking the law. They were publicly declaring that profits were more important than ethics. Of course, that eventually proved to be FTP’s downfall five years later.

However, what would you have done? Some people would never cross the line. It’s just not in their DNA. But these guys are gamblers. The upside is hundreds of millions of dollars and the downside seemed fairly minimal. Back then the DOJ seemed somewhat impotent in doing anything about online gaming. Plus FTP had itself shrouded behind so many shell companies and their claim that the companies who did all of the work at FTP, Tiltware and Pocket Kings, were only consultants to FTP.

For them it seemed like getting all of your money in as a 3:1 favorite.

The decision to stay in the US had another fallout that was less than obvious to the rest of the industry. One of the big selling points to the FTP staff in LA to follow the company to Dublin was a grant of stock options. Staying in the US basically killed any chance of the company going public so the stock options became far less attractive.

So, at some point, FTP decided to pay out a dividend or profit distribution to shareholders. Whatever the official reasoning behind it, the move seemed to be designed to quiet people who were wondering when the big payday would be.

These payments, which the DOJ would later highlight in their complaint against FTP, originated when the company was paying them out of profits. They weren’t stealing player money to pay anybody. This was all coming out of what was left over after all the bills were paid.

At this point, all would apparently seem right with the world as far as FTP is concerned. They’re making tons of money, essentially doubling overnight, and everyone is happy that they’re getting a cut of the profits.

Now, fast forward a few years. The DOJ has been systematically going after the payment processors facilitating payments to the US facing poker rooms, Stars, Tilt, and UB/AP. It’s becoming more and more difficult to process payments and its beginning to impact business.

Again, this is another pivotal moment because they could have shrugged, thanked the business gods for a good run, and left the US to focus on Europe. FTP was in a much different position by this time and could have survived without the US market. Granted, a good chunk of their liquidity and revenues would have disappeared but they were diversified enough to be able to survive.

Instead, FTP made the decision to engage in all sorts of risky and illegal behavior in order to keep the money train running. They bought a piece of a struggling bank they could get to look the other way and they engaged the services of people so shady that one person was under two different indictments while FTP was shipping him payments to process.

I flag this as a pivotal moment because it again allowed FTP, Stars, AP/UB to establish just how far they were willing to go. When you start committing bank fraud, money laundering, and other similar crimes there’s no turning back. Even if they legalized online poker in the US tomorrow you still have the banking and financial crimes hanging over your head.

So why isn’t anybody mad at Stars? Mostly because Stars was able to pay people back. The fact that they were driven by the same greed and disregard for the law as Tilt doesn’t seem to concern many people but I think it should.

But let’s just delve a little deeper into how Tilt became the industry pariah.

When the bank fraud, money laundering, and other financial crimes still couldn’t pull in the money fast enough, Full Tilt embarked on a bold plan to capture market share.

Stars backed off. There was a limit as to how far they would go and they reached it. The executives at Full Tilt saw this as an opportunity. If Stars couldn’t get money onto their site all Full Tilt needed to do was come up with a way to get that money and those players would flock to Tilt.

The plan? Lend the players the cash to play until another payment method could be concocted that allowed Tilt to recover the funds.

I’m sure the finance, marketing, and other teams were called in to make the numbers work. I’m sure that on paper this looked like a brilliant move.

Somewhere in a PowerPoint presentation is a worst case scenario showing how the company would be impacted by various default/noncollectable rates on these “loans” and they all indications were that Tilt, over the long term, could afford to lose a certain percentage of deposits due to nonpayment and still make a profit.

But is that a Ponzi scheme?

Not really. It’s a calculated business risk. There was no intent to steal the money.

But as we’ll soon see, when you start to compromise your ethics it becomes a slippery slope.

One of the first decisions you’re faced with is how to finance the loans. One option would be to cut the profit sharing distributions and scale back spending. But that would draw attention to Tilt’s flanking move. In order to keep Stars, the DOJ, and the players unaware of their scheme they had to keep operating business as usual.

If too many people found out that Tilt was floating the money to the players, players would begin to take advantage of it and make deposits without having the funds to back them up. No, this needed to be done in strict secrecy so that nobody was the wiser. Stars might even catch on and counter with their own loan program.

That only leaves other player deposits to finance the loans. Again, I’m sure there’s a PowerPoint slide out there showing the historic deposit and withdrawal levels over the last several years indicating that Tilt could float a significant portion of player deposits without ever having to worry about cash flow issues.

And since nobody would ever know, minimal cash flow risk, and no real government regulation, why not?

Of course, what everyone forgot to ask is whether or not it was the moral and ethical thing to do. It’s one thing if Tilt wanted to give out loans from their own pocket but now they were playing with player funds which made it an entirely different gamble.

This is where I lay the real blame on FTP. I have nothing against Howard, Ray, Chris, or Rafe but whoever was fully aware of this plan and authorized it deserves everything they get. Because not only is this ethically unsound but it’s against the rules of the AGCC licensing authority. Not only is FTP now operating illegally in the US but worldwide since they are in material breach of their licensing agreement with the AGCC.

How do you know all of these risks and give it a thumbs up? How can you do that?

Was FTP’s board operational? Was the board made aware of these decisions?

That’s why I previously said that compromising your ethics can be a slippery slope. Tilt was already too comfortable with operating in ethically and legally grey areas. This is the point where maybe back in 2005 Tilt would have said this was a line that couldn’t be crossed. But in 2009 or 2010 with so many lines already having been crossed, this one seemed trivial in comparison.

The problem with this strategy is that it turns the relationship from a fiduciary responsibility to protect your customer’s interests to a total gamble on the player’s dime. Surely as the numbers grew and grew each month someone inside of Full Tilt had to have done a little math and figured out that the company was insolvent if anything caused a run on the bank or there was a major seizure of assets.

And, it’s not like assets hadn’t been seized from online poker sites in the past. Several times since 2006 the DOJ seized bank accounts believed to belong to online poker sites. Even if you get over the ethical problems with this loan strategy you would expect that FTP would have gone to great lengths to make sure that there was never too much money sitting anywhere within the grasps of the DOJ.

This is where the regulators deserve some blame as well. Even an accountant who earned his degree from a mail order study course should have been able to notice tens of millions of dollars disappearing from Full Tilt’s balance sheet. Shame nobody thought about including regular financial audits as a condition of holding player funds.

Also, like I wrote in Who to Blame for Black Friday? this is where the poker media should have been asking more questions. Some people have pointed out 2+2 threads going back to December and January in which the lack of their accounts being debited for deposits was discussed.

But none of that happened. Instead, Black Friday happened and Full Tilt couldn’t have possibly been in a worse cash situation than that fateful morning.

This is when the full extent of Tilt’s f-up became fully known. According to the DOJ this is when Howard and Ray both acknowledged that the company was screwed. There was that email from Howard that documented how bad the problem was as well as the Ray Bitar email that noted that they company couldn’t stand even a mild run on the bank.

Yet again, Full Tilt management is faced with an ethical dilemma. Publicly acknowledging their situation would create a run on the bank as players rushed to get their money off the site. Likewise it would have opened them up to civil lawsuits from players who weren’t able to get paid. There could even be criminal penalties as Full Tilt previously had advertised on its website that player funds were not commingled.

So what are we to make of all of this?

Well, for me, it’s like I told QuadJacks, I don’t think Howard Lederer, Chris Ferguson, Ray Bitar, and Rafe Furst are bad people. But I do think they’ve done bad things or bad things were done that they should have known about. I highly doubt any of them specifically set out to defraud anybody of their money. It just doesn’t fit with their personalities.

Having worked with Howard and Ray on a daily basis in the past I can tell you that whenever there was a question of what was in the player’s best interests Howard and Ray always came down on the side of the player. Chris never seemed especially engaged in the business. He didn’t really get involved in the day to day operations of the company even though he was often in the office playing poker until the wee hours of the morning. And Rafe is a smart guy who is more interested in raising money for cancer research and chatting about the future and potential of technology than he is in making a quick buck.

None of these guys comes off as a criminal to me.

However, that being said, Howard and Ray are very aggressive people. I can see them sliding down the ethical slippery slope. They have a poker player’s mentality of pushing small edges and wanting to be the best. I could see them taking the attitude of the whole payment processor mess being a giant cat and mouse game with the DOJ that they thought they were winning.

I don’t mean to sound like I’m apologizing for Full Tilt or to make excuses for them. I’m not. I just don’t subscribe to theory that everyone involved in what happened is evil or that they set out to steal the money. I still disagree with nearly every decision they made.

I’m just trying to offer a slightly more realistic picture of how the company got to where it is today. An analysis that includes people acting in a completely rational manner given their circumstances and knowledge at the time.

I may have hit the mark or I may have missed it by a mile. You tell me.

What’s Next for Full Tilt Poker?

Bill Rini — Thu, 22 Sep 2011 18:31:57 +0000

Last night on the QuadJacks Marco asked me what the next shoe to drop would be for Full Tilt. It’s one of the few times I’ve been completely at a loss. Every time I’ve thought things simply can’t get any worse for Full Tilt I open up my web browser and things have gotten much worse.

So what’s next for Full Tilt? Here’s some guesses:

DOJ files additional indictments against FTP executives for tearing the “Do Not Remove” tags off their mattresses.

The Weekly World News runs a feature alleging that Ray Bitar and Bat Boy are one in the same.

Howard Lederer is arrested in Mexico while undergoing plastic surgery to change his appearance. Strangely, he was trying to change his face to look like Jimmy Fricke.

Iranian president, Mahmoud Ahmadinejad, is named as the mysterious potential buyer of Full Tilt.

Chris “Jesus” Ferguson has case dropped against him after offering to pay back players with fish and loaves of bread.

What are your guesses for what’s next for Full Tilt?

Is Zynga Ready For Real Money Poker?

Bill Rini — Tue, 20 Sep 2011 22:38:06 +0000

Despite having already written a post about why I don’t think Zynga will be a major player in the post-US legalization world, I still get asked by people what I think about the company.

Mind you, I work for someone who is a tangential competitor to Zynga but I don’t feel that I’m bashing here because my original post was in October of 2010 and my views are very similar to as what they once were.
The only difference is that since Zynga has plans on going public they’ve had to open the kimono a bit and show their numbers. After taking a peek at the financials my belief that Zynga is not poised to take on real money gaming in any significant way is further reinforced.

While everyone seems to make a big deal about the sheer volume of players on Zynga’s network of gaming sites some numbers have come out that should give Zynga zealots some pause.

According to this Business Week article, Zynga gets about 232 million monthly active users across its network of games. From that, they’ve been about to generate $597 million in gross revenue.

Hey, I’ll give ya that both of those numbers are impressive. It’s easy to see why people would think that Zynga is poised to become the world’s biggest poker room without breaking a sweat.

However, those numbers don’t tell the whole story. $597 million annual gross income is just under $50 million a month. Yet, Zynga has 232 million monthly active users so if you divide their monthly income by the number of users you end up with an average gross income per player of just 21 cents. That’s not very impressive. Even if they simply sent a letter to each of their active monthly users ever month they would be losing money.

The reason why they gross so little per player is because only a very, very small number of people ever pay to play on Zynga. The before mentioned Business Week article speculates that less than 10% of Zynga’s players ever open their wallet. I’ve seen other analysts peg that number closer to 5%.

So 95% of Zynga’s customer base refuses to part with their hard earned cash to play online poker. Five percent of 232 million active monthly users is 11.6 million. In order for those 11.6 million users to generate $50 million in gross revenue they need to spend, on average, $4.31.

Again, not a very impressive number. Five bucks a month? But wait, there’s more.

Also according to the Business Week article (as well as several other I have read), Zynga has whales!

Just like in Vegas, a whale is someone who spends a lot of money. In Zynga’s case, the top 1% of their players generate anywhere from 25% – 50% of that $50 million per month. That means that the other 4% (making up the magic 5% who spend money online) aren’t even close to spending $4.31 per month.

In other words, rather than 11.6 million players contributing roughly $4.31 each, the truth is that 2.32 million spend about $10.78 each while the other 9.28 million spend only $2.69.

It should be fairly obvious from this little exercise that Zynga does not have an attractive pool of players when compared to real money gaming sites. Or to put it into perspective, prior to the UIGEA passage in 2006, PartyGaming reported revenues of close to $1 billion with roughly 60% – 70% of that revenue coming from poker.

Even though Zynga is far larger than PokerStars and PokerStars is far larger than Party was at its peak it’s safe to assume that real money gaming sites yield far, far, far more per player than Zynga does currently.

And all of this circles around to one of the main points I made last October when I wrote about Zynga, Zynga cannot possibly convert enough of their play money players to real money gaming to pose any sort of serious threat to the bigger real money poker rooms.

Because, don’t forget, the $597 million is across all of their products. This is for all of the virtual goods people purchase in Mafia Wars, Farmville, and all of their other games as well as the chips they buy in poker.

But the bigger issue here is that Zynga is not a poker company. They’re not even a gambling company. They’re a game maker. They’re a successful game maker and poker happens to be one of their products but the obvious question is whether or not they have the expertise to operate a poker room.

Play money gaming and real money gaming are more different than whether or not you can redeem your chips for cash. Real money gaming involves a lot of checks and balances. It’s one thing if a player claims that he had 5 million in chips in his account before the crash and now only has 1 million on a play money site and something completely different if it happens on a real money site.

Chip dumping, collusion, bots, etc are all daily concerns for real money poker rooms because they have real money consequences. What’s the cost to Zynga to just give you some chips if you’ve been wronged? Nothing. They have no tangible value.

Likewise, I often hear people propose that someone will want to license the Zynga software to use as their own real money gaming system. I find that hard to believe. In addition to the reasons already listed above concerning back office functions, fraud detection capabilities, and auditability, there’s the issue of being able to buy the same thing but actually built for real money gaming. Ongame is on the sales block, Full Tilt might be at some point, 888 is providing white-label solutions, and I’m sure iPoker would jump on the real money bandwagon in a heartbeat. So why would you want to buy, license, or even rent Zynga’s poker client if you have ready alternatives that do everything you need them to do?

Maybe some people think Zynga looks better than the other poker clients out there. Personally, I don’t but if there’s one thing I’ve learned in this business it’s that everybody has a different idea about what a good looking software client should be. How else can you explain how Full Tilt and PokerStars were the two most popular rooms and each having raving fans saying how much they love the software yet they are apples and oranges in terms of looks. In fact, it is not uncommon to hear (former) Full Tilt players say they hate the PokerStars software and to also hear PokerStars players say they hate the Full Tilt software.

Regardless, that’s just a UI issue. If Zynga was so far superior to other poker rooms it’s only about a 3 – 6-month project to redesign the client.

Lastly, as I’ve made reference to previously, Zynga isn’t a poker company. Other than their acquisition of the MarketZero team (makers of Poker Table Listings) you hardly hear any buzz about Zynga in the real money gaming world other than people pondering what would happen in Zynga got into real money gaming.

If Zynga was serious they would be hiring like crazy. Sure, they are hiring people but they’re not hiring people from the real money gaming world. I don’t recall seeing any press releases about this or that executive from a real money gaming company joining Zynga. Nobody I know has told me that they’ve gotten a call from Zynga. There’s nothing to indicate that any of the job listings at any of the major head-hunting firms is for Zynga (in fact, quite the contrary since the job listings usually indicate the country the job is in and it’s all in the same old Malta, Gib, IoM, etc locations).

Now, the real question is whether or not Zynga could become a real money gaming company. Sure they can. But first they would need to address everything I’ve mentioned above. It’s not impossible but it would require a bit of a paradigm shift at Zynga.

This isn’t as simple a task as just accepting money. Zynga has to make a lot of internal changes in order to become a respectable real money gaming operator. Until there are some signs that Zynga is making these changes I really can’t consider them prepared to enter the market.

Who to Blame for Black Friday?

Bill Rini — Tue, 06 Sep 2011 19:38:34 +0000

One of the things people have been reluctant to address is who is to blame for Black Friday and its aftermath. Well, I’ve done a little investigation and I can say with certainty I know exactly who is to blame for Black Friday. Want to know who it is?

It’s you.

Well, technically, it’s you and me. We’re all to blame. Whether we be mere players, journalists, employees of the poker rooms, site owners, affiliates, regulators, or whatever, we caused Black Friday.

We’re all at fault because we didn’t demand better. We didn’t demand more transparency. We didn’t ask the right questions.

Online poker has always been a **wink, wink, nudge, nudge** sort of proposition going back to its earliest days. There has always been an unspoken agreement between players, poker sites, and the media to not ask too many questions so that nobody has to admit any sort of uncomfortable truths.

Unfortunately, that veil of plausible deniability just kept growing as online poker exploded across the world. Nobody wanted to rock the boat. Players wanted to keep playing. The media wanted to keep making money referring players to the poker sites. And the poker sites wanted to keep making money from players playing on their site. It was the perfect mutually beneficial relationship.

Well, it seemed perfect on the surface.

As the money became more and more staggering in nature the online poker sites began to exert more and more power. Not that it took much of a struggle. The media sold out early. Most of the media became affiliates of the major poker sites and some even flat out sell/sold favorable coverage for a price.

This was never so obvious as during the Absolute Poker and Ultimate Bet scandals. Even though this was, by far, the biggest cheating scandal in poker history, most of the large poker media sites kept running UB and Absolute affiliate banners, kept glowing reviews of both sites in their “Site Reviews” sections, and basically only wrote about the scandal when 2+2 threads revealed new information that was too big to ignore.

And it wasn’t just online and print media that was in their pocket. All the big poker rooms were buying up infomercials disguised as poker television. They paid the production costs for these shows, bought the time from the television networks, and then heavily advertised themselves. Oh wait . . . they advertised their .net site, not the real money gambling site. **wink, wink, nudge, nudge**

But before we point the finger at the media, what did the players do? They kept playing on UB and AP. Bot scandal on Full Tilt? Numbers just keep going up. Cheating scandal on PokerStars? Numbers just keep going up.

Recently players staged a sit-in on PartyPoker because Party was raising their rake caps and moving to a weighted contribution model but where was that sense of collective outrage several years ago when Full Tilt was murky on whether or not they were segregating customer funds?

The players didn’t care. In fact, many people kept thousands, tens of thousands, hundreds of thousands, even millions of dollars on these online poker sites imagining their funds were as safe as if they were sitting in an FDIC insured account.

What about something as simple as an accusation of chip dumping or collusion on one of these poker sites? The site granted itself the power to investigate, determine guilt or innocence, and issue penalties such as forfeiture of not only funds involved in the immediate investigation but anything else the player happens to have in their account as well. There is no right to present evidence. There is no right to an appeal to a real judge or ever have your case heard in front of a jury of your peers. In fact, in many cases the poker room simply emails the person telling them that their funds were seized and that the matter is closed and please don’t contact them again. Where is the due process in that?

When the UIGEA passed in 2006 it was really a massively defining moment for the industry in terms of consolidating power with the poker rooms. The poker media bought the “poker is a game of skill” argument hook, line, and sinker because it was in their best financial interests. They would make a killing moving all of the players on Party, 888, etc over to Stars and Tilt.

And players who wanted to continue playing online poker didn’t even flinch before moving their play over to US facing sites. They were more than happy to rally behind the Poker Player’s Alliance shouting “online poker isn’t illegal.”

So with the press in their pocket, the players completely apathetic, and the DOJ seemingly impotent to stop them, the arrogance of the online poker sites just grew and grew. At some point nothing seemed beyond limits.

In many ways players should be thankful for Black Friday. When/If we get online poker back in the US it will be on terms far more favorable to the players.

First off, it will be properly regulated. That means that the regulatory body will most likely have teeth. Unlike most of the overseas gaming commissions regulating the industry today that, at best, strip a room of its license, in a US regulated market there will likely be criminal and civil penalties associated with violations.

Similarly, cheating, collusion, and other player misbehavior will also likely carry criminal and civil penalties. No more washing away your sins with an apology posting on 2+2 and simply moving on to another site that hasn’t banned you yet. Rooms will have the option of submitting evidence to federal or state prosecutors who can bring the full weight of their office down on cheaters and those accused will be given full due process under the law.

And with online poker free of the stigma of being considered illegal by the DOJ more traditional media will be less averse to writing about online poker. And since they are diversified enough to not have to rely on affiliate deals existing poker media will either need to kick it up a notch or two journalistically or perish.

That might come as little comfort to those who may not receive their funds back from Full Tilt, UB, or AP but this should have been the goal from the beginning. We should have been demanding higher standards from ourselves, the media, the regulators, and especially from the businesses handling hundreds of millions of our dollars.

Black Friday was the worst case scenario. It’s not as if the DOJ’s actions were completely unforeseeable (I’ve been warning about the DOJ strangling cash flow since 2006). Yet, because of the silent collusion to ignore all of the flaws in this model and to overlook the risks Black Friday was a perfect storm of carelessness, ambivalence, greed, and mismanagement.

So if you’re looking where to lay the blame for Black Friday, the first place you should start looking is in the mirror.

What You Could Buy With the $150 Million Full Tilt Owes Players

Bill Rini — Thu, 28 Jul 2011 08:18:45 +0000

Full Tilt Payout Problems Exposed

Bill Rini — Tue, 26 Jul 2011 18:16:58 +0000

Last week Todd Brunson tweeted that he had run into Howard Lederer in Las Vegas and that after telling him how short he was of cash Howard offered to pay him what he had locked up on Full Tilt.

He asked how much I had on tilt and I told him 150k.. He said come with me. We went to his car and he opened his trunk and paid me!!!!!!

He even tweeted a photo he grabbed of Lederer before the payout.

This got me to thinking. First off, what the hell was Lederer doing with $150,000 in the trunk of his car? Is he filming a new reality television show called “Carjack me”? What kind of theft deductible does Howard carry on his wheels? Then it hit me. Full Tilt has been shut down by nearly every bank in the world. This must be their “technical difficulties” that they’ve been referencing in their FTPDoug posts.

So, is this a brilliant PR move by Howard and Ray Bitar? Is Howard going to tour the US in his Audi A8 and hand out people’s bankrolls to them at prearranged restaurant parking lots across the country?

Sadly, a little investigation into this matter proves this too may be a “technical difficulty.” As you can see in the image below, it is highly unlikely that $150,000,000 (represented to scale) would fit in the trunk of most cars (even minus Todd’s $150K).

My sources have told me that the reason that Full Tilt asked for (and received) an adjournment at the Alderney hearing today was so Howard could rent a more appropriate vehicle for the cash dispersal. Unfortunately, Howard’s Full Tilt, Tiltware, Pocket Kings company credit card was declined at U-Haul and Ray is busy in Dublin trying to find a staff member who might be able to lend them a debit card.

Please stay tuned here for more information and dates for the “FTP W00t W00t, Come Get Your L00t” tour.

PokerStars Statement Regarding AGCC Actions

Bill Rini — Thu, 30 Jun 2011 02:59:41 +0000

Dear William Rini,

We would like to bring your attention to the following two press releases:

PokerStars Official Statement, June 29 2011

In light of today’s news that Alderney Gambling Control Commission has suspended Full Tilt Poker’s license, PokerStars wishes to assure our customers that their funds are completely safe and that our operations are completely unaffected. The Isle of Man Gaming Commission today re-affirmed that PokerStars’ worldwide licensing is intact and that our operations are in full compliance with all of its requirements. PokerStars’ online operations continue as normal and all funds in players’ accounts are safe and available for withdrawal as usual with no delays.

PokerStars also remains in full compliance with our licenses in other jurisdictions where we are regulated, including France, Italy and Estonia.

As provided under our licensing, PokerStars has always maintained the integrity and security of our players’ funds, by keeping all such funds in segregated bank accounts, always available for immediate withdrawal.

Since the actions of US Department of Justice in April, we have returned more than $120 million to US players and continue to act upon requests as they are received. Players outside the US have not been affected and all cash-outs have been processed without delays. Further, PokerStars entered into an agreement with the Department of Justice which expressly confirmed the company’s ability to operate outside the US.

We will continue to operate as a responsible corporate citizen and are committed to serving the needs of our customers in complete compliance with our regulatory requirements.

IOM Gambling Supervision Commission Statement, June 29 2011

The Isle of Man Gambling Supervision Commission wishes to make it clear that the licensing status of PokerStars in the Isle of Man remains unchanged following today’s statement from the Gambling Control Commission in Alderney. Alderney is a separate jurisdiction from the Isle of Man and the operation in question is separate from PokerStars.

PokerStars continues to demonstrate compliance with its licence conditions in the Isle of Man. PokerStars continues to offer withdrawals to any players who wish to withdraw their funds, including players in the USA to whom PokerStars does not currently offer real-money gaming.

The official statement from the IOM Gambling Supervision Commission can be found here.

We would like to thank you for your continued support.

Best Regards,
The PokerStarsPartners Team
www.PokerStarsPartners.com

Things Just Keeping Getting Worse For Full Tilt Poker

Bill Rini — Thu, 30 Jun 2011 02:54:28 +0000

After the news that the Alderney Gambling Control Commission (AGCC) had pulled the plug on Full Tilt Poker by suspending their license a lot of new news has hit the web.

In no particular order:

Filming of Poker Lounge ceases. After not receiving payment from Full Tilt this advertiser supported program has had the production crew walk out.

Moneybookers pulls the plug on Full Tilt. Seems that FTP was allowing some to players to deposit but not withdraw and there was some dispute between FTP and Moneybookers over this. Whacky Wednesday seems to have pushed Moneybookers over the edge and they’ve stopped processing any payments for FTP.

Full Tilt is looking to open it’s doors before the July 26th AGCC hearing by either going with the Kahnawake Gaming Commission or completely unregulated. Yeah, that’s what the industry needs, a company that is already clearly spinning out of control opening its doors without any oversight whatsoever. And if the KGC grants them a license I think that along with allowing UB and AP to keep their licenses pretty much discredits them as any sort of regulatory authority.

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