A brief history of online poker
In the late 2000s the global online poker business was booming. The two most popular cardrooms in the world at that time were Full Tilt Poker and PokerStars.
Full Tilt was where the real poker players went to play. It had young, exciting pros on its roster like Phil Ivey, Tom Dwan and Patrik Antonius. It was not uncommon at that time to see Texas hold 'em and pot-limit omaha running at $200/$400. For the uninitiated, $200/$400 is the price of the blinds, and the typical buy-in is 100 big blinds. These were games where the players were buying in for $40,000 at a time. In U.S. dollars. Millions could be won and lost in a day.
In fact, over a million dollars has been won and lost in a single hand. This US$1.5 million pot from late 2009 remains the biggest cash game pot in online poker history:
This is known by poker players as Black Friday and was the catalyst for the end of the salad days and the beginning of austerity for players, operators and gambling enthusiasts.
It's worth mentioning at this point that, while PokerStars had been the most popular cardroom for most of online poker's history, it was viewed by pro poker players as sort of lame. The software was never as good as Full Tilt's, the action wasn't as frenzied and it just wasn't cool to talk about. Sort of like the old Mac vs. PC commercials - Stars was the PC.
Black Friday changed all that though. As it turns out, Stars was the only operator of the three that had segregated its players' funds. In other words, it was the only operator able to refund U.S. players now they they were wholly, and suddenly, no longer its clients.
Things got worse from there. After Black Friday, Full Tilt quickly became insolvent and couldn't refund its players; an investigation led by then-United States Attorney Preet Bharara opined that Full Tilt was a US$330-million Ponzi scheme. The cardroom never recovered.
PokerStars bought Full Tilt from the Department of Justice in 2012 for:
- US$225 million cash
- US$547 million in forfeitures
- US$184 million to refund players
Under PokerStars' ownership, Full Tilt faltered for a number of years and was eventually folded into PokerStars' operations as a skin. But during that time, PokerStars greatly improved its software, became the most trusted place to play in the world in large part because of its actions related to Black Friday, and to this day has a choke hold on the global online poker market:
This chart from pokerscout.com shows how far PokerStars is ahead of the competition. IDN is only accessible in Asia, Winamax in parts of Europe and GG in Asia. The next most popular room accessible in Canada is PartyPoker with about 12 percent of PokerStars' traffic. The number fluctuates but since Black Friday, PokerStars has been destroying the competition.
Which brings us to the real point of today's post: is The Stars Group, owner of PokerStars, worth your money?
Well, let's ask ourselves a few questions:
Is it immune to competition?
No. In fact, you could probably set up your own poker room right now. But for whatever reason, players love PokerStars.
Does it have good underlying ratios?
No, not really. The price-to-sales and price-to-cash-flow numbers are okay. It's hard to get excited about a price to book of 5-to-1. It has lots of debt.
Does it pay a dividend?
No, it doesn't. And paying a dividend is one of my core criteria. It might not be one of yours though.
What's a fair price?
I have no idea. As a starting point I would consider it near its 52-week low. It's not there right now, although it did fall 10 percent today.
What's the big picture?
The big picture is that PokerStars has no real competition at present; that people gamble and will continue to gamble; and that the United States is slowly re-opening its doors to (fully taxed) online poker, but doing it on a state-by-state basis. PokerStars is back in New Jersey, for example. But only New Jersey.
I'm not investing anything now but will continue to keep an eye on developments.
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