Party Poker’s Stock Dives as it Cuts the Affiliates’ Cord

by Lou on October 11, 2005

Party Poker’s Stock Drops as it Separates Itself from its Affiliates
Party Poker will no longer allow players from affiliates such as Empire Online and Coral Eurobet gamble at the same tables as their own clients. Party’s new platform will be for the exclusive use of its nine million customers, but the result of this decision was that shares in Party slid more than 10 per cent.

Empire’s Stock Takes an Even Bigger Hit
Empire took a bigger hit, however, and lost one-third of its market value. The genesis of this collapse began when Party Gaming, the world’s largest online poker group, said it was moving Party players to a new operating platform. This move was undertaken to facilitate the cross-selling of gaming products — such as blackjack and betting on card colors — to Party Poker players.

Party’s own players account for about 80 per cent of their customer base, with the rest generated by third-party sites such as Empire. These sites, or skins, direct players to Party’s platform and take a share of the fees paid by participating players.

What the Skins Say
It was “too early…to accurately assess what, if any, impact” Party’s move would have on its short-term financial performance, according to Empire. Their plans include reducing any reliance on Party. They also acquired two new gaming brands, which they own outright.

The Word on the Street from UK Gaming Stock Analysts
UK gaming industry analysts stated that Party’s decision to move to a new platform exclusively for their customers, “… risked alienating its affiliate partners, who could take their customers to other operators.”

“It looks churlish, frankly,” said Paul Leyland, an analyst with Seymour Pierce. “Someone at the top seems to have decided they need more control of their value chain, but they haven’t thought through the full implications.” He added that Party had not “… covered themselves in glory” in the last quarter.

Here’s My Take on the Situation
Party’s shares have fallen more than 30 per cent since stating last month that player growth rates had slowed.

Empire said the number of new players on its sites had increased 24 per cent between the second and third quarters. The number of new players increased 62 per cent during last year’s third quarter. While that is a slowdown in growth, a 24 percent increase in any quarter is enviable, while a 62 percent quarterly increase seems unsustainable in any business.

How this plays out is anybody’s guess at this point, and with former Party skins a potential merger target for other online poker operators, it’s quite possible that Party might have just cut off its nose to spite its face.

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