PokerStars One Piece Of The Pie, But Stars Group Hungry For Sports Betting

PokerStars expansionPokerStars expansion

On Wednesday, The Stars Group (TSG) released its first quarterly results since finishing acquisition of Sky Betting & Gambling (SBG) in July. As expected, the inclusion of SBG’s businesses has been truly transformative.

Look how the group’s revenue chart has changed since the acquisition:

Poker accounts for 36 percent of revenue, down from 63 percent.Sports betting accounts for 32 percent of revenue, up from 5 percent.Casino games account for 28 percent of revenue.

The entity formerly known as PokerStars has developed into a highly diversified behemoth these days. In fact, its market cap north of $5 billion makes it the largest publicly traded online gambling company in the world.

Though internet poker stays TSG’s primary business for now, it’s no longer the only vertical in the spotlight. In this new era of expansion, CFO Brian Kyle says PokerStars has been partly reduced to”a large and low-cost customer acquisition channel.”

Total Q3 results here.

Forecast expansion for poker

From the call with investors, Kyle projected that online poker would see future growth in the low single digits.

PokerStars’ Q3 revenue actually fell by 4 percent year-over-year — or grew by 0.3 percent adjusted for fluctuating exchange rates. Pro forma poker revenue came in at $221.8 million for the quarter.

The”level” performance happy Stars. As Kyle touched on, the group’s size makes it more resistant to market conditions than some of its rivals.

“We continue to grow as smaller players trade market share among themselves,” he said.

Online poker, as a worldwide industry, isn’t growing with any urgency these days. The Stars Group likely sensed a need to diversify into higher-growth verticals, like sports betting and online casino, to stay on peak of the class.

Recreational players were focused on by pokerStars

PokerStars has spent the previous three years pursuing a recreational model for its own poker ecology.  In particular, it clamped down on the use of third party software, a trend which will continue:

“The Stars Group has implemented, and continues to implement, policies and controls to significantly reduce or eliminate the use of certain sophisticated technology that may offer an artificial competitive advantage for certain poker customers over others.”

The VIP program has refocused benefits on casual gamers, too, and an adjusted Stars Rewards program will increase that emphasis:

“Since the start of 2016, The Stars Group has improved its poker ecosystem to gain and attract high-value, net depositing customers (primarily recreational players) and decrease incentives for high-volume, net-withdrawing customers, and adjust the prices on poker games and tournaments (also referred to as rake and tournament fees) on particular offerings (which resulted in an effective increase in pricing). The Corporation launched the Stars Rewards program in July 2017, which will be an integrated cross vertical loyalty program focused on improving client engagement, retention and the player experience.”

Market access essential for US expansion

The expansion of state-regulated US sports gambling represents one of the greatest opportunities for growth. CEO Rafi Ashkenazi set out Stars’ strategy, which is markedly different from its peers:

Stars hasn’t yet announced a deal that would offer a multi-state sports betting footprint. It does have a point of entry into Pennsylvania alongside Mount Airy, but that’s the extent of its present US reach beyond New Jersey.

The importance of securing a gateway into multiple markets cannot be overstated. This is becoming especially true as lawmakers continue to pass legislation that provides land-based casinos the keys to the kingdom. Online-only providers, like Stars, sometimes have to find a partner to avoid being shut out.

Ashkenazi said the facts plainly for investors. “The plan in the US, basically, has to go through a market access,” he said. “You can not operate in the US without market access.”

Although he would not go into detail about potential partners, Ashkenazi indicated that talks were progressing.

Media partnership could provide competitive edge?

One interesting element of the Stars plan is that it intends to add a major US media partner, too.

As Ashkenazi explained, SBG achieved enormous success in britain by exploiting the media presence of its corporate parent. The company was previously part of BSkyB, one of the major European telecom companies. The probable synergies between a major sports broadcaster and a major sports betting operator are self-evident.

“The success we had in the united kingdom is exceptional,” Kyle said. “Our ability to export this to the US is a competitive advantage.”

Ashkenazi consented with an investor who proposed that Stars are the preferred sports gaming companion for US media outlets. He explained that TSG was currently in talks with several such companies but shied away from details and timelines.

More from TSG presentation

Other highlights of the Q3 presentation included:

Total Revenue: Revenues increased 73.6 percent year-over-year, primarily as a result of earnings of SBG and BetEasy.Online casino: Associated revenues grew 29 percent amid product and market expansion.Sports betting: Associated revenues increased 80 percent for a number of reasons, such as the World Cup.BetStars: Will be stopped as a brand in the UK and Italy. SkyBet will take the flag for TSG in those markets going forward. TSG is, however,”happy” with the BetStars traction in NJ.Pennsylvania: Stars is partnered with Mount Airy and anticipates all verticals to be online in 2019. Start-up prices will drag future earnings a bit.Kentucky: No news on the active legal case in the Bluegrass State. Stars is currently appealing a $650 million courtroom ruling.Switzerland, Sweden, Netherlands: TSG expects to launch nationwide regulated online gaming in all three countries in 2019. Each is currently working on new gambling regulations.

Askenazi summarized the year to date for TSG like this:

“We are happy with our quarterly results, which reflect both continued organic growth from our Global business and contributions from both BetEasy and Sky Betting & Gaming, despite unfavorable sporting results throughout the period.

“As we continue our transformation and look towards 2019, we are excited to take advantage of the opportunities ahead of us by leveraging our leading positions in attractive markets, strong brands, technology and operating experience.”

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