PartyGaming Considering Empire Poker Purchase

Bravo, PartyGaming. Bravo.

You have successfully manipulated the system so that you can afford to buy out a competitor.

PartyGaming, operator of online poker giant, Party Poker, announced Thursday that it is considering buying former partner/rival, Empire Poker. Empire used to be a “skin” of Party Poker, meaning that a customer could signup to play at Empire, but it would actually be playing on a bigger network, comprised of Party, Empire, and other skin rooms. Party Poker supplied the virtual tables, Empire supplied the customers (of course, people could sign up directly with Party Poker, instead). At the tables, you could be playing with Empire or Party customers, but you would never know the difference. All the while, Party made money from every customer, regardless of whether or not they signed up directly or through a skin, and Empire received a cut of the revenue from the players that it actually acquired itself.

This helped Party Poker become the largest poker room on the internet. The problem was, the skin sites began offering better and better incentives to attract customers, resulting in customers signing up with the skins instead of with Party Poker. While the skins still helped Party, Party wanted the customers all to itself.

So, in October, Party Poker cut off all the skins, severely reducing their customer base. Because the more serious players tended to play through the skin sites because of the incentives, they found themselves at tables with higher concentrations of skilled players, which is a decidedly unprofitable situation for any poker player.

Because of the loss of players, Empire warned that its financial results would not be as strong as previously expected, causing its stock price to tumble. On top of that, Sportingbet, owner of rival Paradise Poker, had been looking to buy Empire Poker in September, but was essentially blocked because Empire’s contracts with Party were too strong. All of this, plus PartyGaming’s comments about an industry slowdown, has resulted in Empire shares at a level 60 percent lower than they were just two months ago.

Now Empire is entirely affordable for PartyGaming to purchase. Reports are placing a 140p price per share on the buyout, half of what Sportingbet was offering. Funny how that works, huh?

Keep in mind that the split from the skins also hurt Party’s customer base, taking it from the far and away leader in the internet poker space to virtually in a dead heat with PokerStars. This purchase would not only add about $100 million in assets to PartyGaming, but inject its table with thousands of players once again.

Of the potential buyout, PartyGaming has said:

"Any offer proposal would depend upon, in particular, PartyGaming being satisfied as to a number of material pre-conditions, including due diligence and the prospects for Empire's business."

Hopefully for Empire, this will work out. If Party’s due diligence results in the company not wanting to purchase Empire, that would not bode will for its share price.

Empire Online’s (EOL.L) shares were up 4.15 percent on the news, while PartyGaming’s (PRTY.L) were up one quarter of a percent.

Originally published November 3, 2005