VIP Cuts And Rake Changes Start To Pay Off For PokerStars

Steve Ruddock August 15, 2016 1350 Reads
PokerStars VIP cuts

PokerStars began making significant cuts to its VIP program in late 2015 and increased the rake in certain games several months later. At the time, it was seen as a betrayal of epic proportions by a segment of the poker community.

The changes led to boycotts and handwringing on social media and forums, which is generally reserved for a cheating scandal. That reaction was something the previously beloved PokerStars was unaccustomed to.

PokerStars said these changes were for the greater good, but the company’s doubters stuck to the narrative that it was nothing more than a cash grab. They have pointed to a decrease in player traffic at the site’s cash-game tables as proof of the company’s folly.

But cash game traffic has become an increasingly unreliable metric to measure the health of an online poker site.

Furthermore, the changes PokerStars put in place were never intended to have an immediate positive impact, and a short-term decline was likely expected.

However, we’re now over six months past the VIP changes, and several months have elapsed since PokerStars’ rake adjustments. Based on the company’s Q2 2016 earnings report, the doubters may have to eat crow. However, I would point out that few people have defended PokerStars’ decision to make cuts to the Supernova VIP program (a two-year status) prematurely.

An overview of the Q2 numbers

The earnings call began with the announcement that David Baazov had officially resigned as CEO and would be officially replaced by current interim CEO Rafi Ashkenazi. Then, Amaya boasted that its online poker numbers have stabilized (for the first time in quite some time), and its casino and sports betting arms continue to grow.

During its presentation, Amaya reported that of its 2.4 million unique users, 2.3 million played at the PokerStars tables during Q2 2016; a slight year-over-year increase.

The number of active users was relatively steady YoY, reported as 2.35 million compared to 2.28 million in Q2 2015.

Amaya reported 1.9 million customer registrations during Q2 2016.

As noted by Ashkenazi, YoY poker revenue has stabilized. Online poker revenue was $215.6 million in Q2 2016 compared to $216.1 million in Q2 2015.

This stabilization led to a rise in total revenue (casino, sports, and poker) of 10% YoY: $285.9 million in Q2 2016 vs. $259.5 in Q2 2015. Using the constant currency calculation (the same currency exchange rates for both periods) total revenue was up 14 percent, and poker revenue was up 5 percent YoY in Q2.

PokerStars’ online poker market share was estimated to be a mind-boggling 71 percent.

PokerStars continues to push non-traditional poker games

PokerStars made another announcement that will cause the blood pressure to rise for disenchanted players who feel the company has drifted away from its poker roots towards a gambling-centric suite of offerings.

The site is adding a permanent product feature based on PokerStars’ Card Hunt promotion.

The permanent version of the bingo-style game is expected to be unveiled in Q3.

Amaya ramps up US lobbying

Also of note, US lobbying expenses have tripled year-over-year.

In Q2 2015, Amaya spent $1,173,000 in US lobbying. In 2016, that number ballooned to $3,473,000.

By way of comparison, Amaya spent a total of $3,595,000 over the first two quarters combined in 2015.

Recreational model starting to pay dividends

It took several months, but it appears PokerStars’ decision to shift its focus away from high-volume players and onto recreational players is starting to pay off.

According to Ashkenazi, the rake changes PokerStars put in place at the end of March have led to a four-percent increase in revenue.

Much to the chagrin of the players who were forecasting the site’s demise, Ashkenazi reported there have been “no negative revenue impact from high revenue players.” He also confirmed what some analysts like myself suspected, as he noted, “bankrolls from recreational and casual players are lasting longer.”

If this sounds counterintuitive, here’s are in-depth looks at how increasing the rake, and reducing VIP rewards can lead to a longer lifespan for recreational players; create a more appealing environment; and what behavioral changes PokerStars is trying to promote.

A negative KPI; or is it?

One of the more interesting bits of information that came out of the earnings report was the amount of player deposits on hand compared to six months ago.

Amaya’s earning report indicates the total amount of player deposits (the total amount of player bankrolls at PokerStars) has dropped off dramatically during the first two quarters of 2016:

  • December 31, 2015: $443,519,000
  • March 31, 2016: $406,980,000
  • June 30, 2016: $365,364,000

As Chris Grove noted on Twitter, this outcome was likely anticipated by Amaya.

Beyond being anticipated, it’s not exactly clear what this signifies.

That is, how many winning players that have since left the site in the fallout of the rake and VIP changes were sitting on oversized bankrolls? This is important because this money was unlikely to ever see the light of day at the site’s tables.

So, if tens of millions of dollars were being held in accounts of winning players, the decrease in total deposits is not only expected, but it’s meaningless.

For example, suppose a winning player in the $100 no-limit hold’em games exercises proper bankroll management and keeps a bankroll of 100 buy-ins in his or her account: $10,000. Even during a bad downswing $7,500 of that bankroll is likely to never see the felt. It  would take a horrendous downswing just to get $5,000 of her $10,000 bankroll in play.

To make an analogy, it would be akin to a gym possessing 300 45-pound plates when no more than 100 have ever been used.

Essentially, PokerStars was/is acting as a zero-interest bank for some players, holding money in reserve for these players that is unlikely to ever be used at the site’s online poker tables.

As long as the amount of deposits on hand stabilizes down the road, this is a non-story.

Upshot for PokerStars

PokerStars was portrayed as foolhardy when it first started effecting these changes in late 2015.

But the Q2 2016 numbers are beginning to prove what some have been saying all along. The naysayers are wrong, and the changes put into effect at PokerStars are causing positive changes to the ecosystem.

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