I was reading Change100’s report on satellites into big events and I started thinking about recent events that have happened in the (my) poker world.
- Online poker takes a blow with the passage of the UIGEA.
- Harrah's announced they will not accept third-party registrations for the 2007 WSOP.
- The Harrah’s poker room in St. Louis was recently expanded and made nice with glass walls and a true smoke free environment.
Change100 and Dr. Pauly (in Change’s comments) make the point that Harrah’s could make some sweet bank off the juice from running satellites in the Amazon at the Rio during the WSOP. I think it goes much deeper than that. Also Change made the point that Harrah's could position itself as the sole provider of satellites to the WSOP, both live or online.
This led me to start asking myself a bunch of questions, for instance:
- "Self, why was Harrah's on the sidelines for this battle against the UIGEA?"
- "Self, was Harrah's really on the sidelines?"
- "Self, does Harrah's make political campaign contributions?"
- "Self, how much money might Harrah's stand to NET due to the UIGEA?"
- "Self, exactly how many insider trades went off just before the LBO bid was announced?"
So I have decided to throw my hat into the ring and write up a piece that is part investigative and part conjecture. I am not trained in these things, but I hope to provide some facts and some insight so that real journalists (actually talented bloggers) or Keith Olberman pick up the torch and run with it. The theory I will follow is this "Follow the money, stupid”. So that is what I am going to do. Follow some money. I will provide you with some raw numbers and some back-of-the-envelope calculations as to why I think that the UIGEA will be a net win for Harrah's and why I don't think Harrah's is all that upset by its passage. I am still baffled by the WPT's stance, but then again I think Steven Lipscomb is an idiot of the non-savant variety.
POLITICS
First, let’s look at the political money. According to this website (http://www.tray.com/) Harrah’s Operation Company, 1023 Cherry Road, Memphis, TN and Harrah's Entertainment, Las Vegas made to following campaign contributions:
- 2002 Election Cycle - $763,620.00
- 2004 Election Cycle - $150,000.00
- 2006 Election Cycle - $52,670.00
If you login to that website you can get more details about to whom the contributions went. A cursory look seems like it was mostly to Democrats, but the Tennessee connection proves to be worthy of follow-up to see if there is any Harrah’s Frist connection. In addition I do not know the rules of reporting but the 2006 contributions seem small. So maybe there are more to come. No huge revelations, other than Harrah's contributed a bunch in 2002. One possible theory, Frist makes run for President in 2008 and taps home state Harrah's for large contributions. Frist works to get Harrah's a poker exemption. - Status: Doubtful.
BUSINESS
Harrah's will be the sole provider of satellites to the WSOP, of course these will be live sats, with higher juice. Online poker sites will no longer run satellites into the events because Harrah's will not accept third party registrations. I am going to run with numbers for the main event, disregarding the smaller events, for now. Here are some swag numbers:
I'll guess that in 2007 ME 6,000 entrants qualified online. The number might be higher. The average prize package was $12,000 for each of those entrants. That's $72,000,000 in prize money and I would guess $18,000,000 in juice for online poker. The juice number is higher than you might first think due to super satellites. How might Harrah's capture more of that $18M in satellite juice? Hold its own satellites all year long, of course
Now live satellites are something that Harrah’s already does. Harrah's typically charges around 10% juice for its live tournaments. To capture $18M they would need to have 1,800,000 people pay $100 for a shot at the WSOP ME. A likely Scenario is that Harrah's runs $100+$20 satellites to the WSOP in all of its casinos nationwide. Winner gets what amounts to $13,000 in value. The WSOP ME is $10,000 + $600, I believe: $10,600 buy in, $1,400 cash and a room for as long as 2 weeks ($1000). Believe me those rooms are being paid for out of the prize pool, not the pockets of Harrah's.
You need 130 runners to make that happen. Any entrant over 130 and an additional prize pool is set for finishers 2-5 or something like that. Harrah's take is 130*20 = $2600 per satellite in juice.
That means that Harrah’s has to run 6900 satellites or the equivalent, to capture the $18M in juice available. Assume they could run 25 larger buy in satellites per day that equal 75 of those described above for 30 days during the WSOP leading up to the ME. That takes care of 2250 of the 6900, leaving 4650 to be completed during the rest of the year. That’s 90 per week across 38 properties nationwide. Let’s say that 30 of those have poker rooms.
Now throw in the super satellite SNG's - $25+$10 10 players (yes that’s a lot of juice, but I think it’s realistic for the Joe Sixpack), top two cash for $240 total and $100 in juice. Now, they really have something. Harrah’s could run 5 SNG’s per day and 10/day on weekends, issue lammers, etc. 45 SNG's per week * 30 casinos * $100 *52 weeks. That's $7.02 million. Just from SNG's.
I am not saying that each of Harrah's properties could achieve or sustain these numbers, but on average across all properties I don't think this is too much of a stretch, especially when you consider the only way to Satellite into the WSOP ME is via Harrah's. Realistically, however……..
Last year Harrah's took in $5,217,838 from 8,773 runners into the ME. (Figures via Dr. Pauly). Let’s guess that they ran 10 satellites per week, on average and collected $1.35 million in juice in total from satellites. So the satellite revenue I am forecasting is not all incremental, but much of it is. That's $6.56 million in juice for the ME.
I think they will do better. Harrah’s could easily collect 2340 satellite entries (45 per week over 30 casinos) for $6.08 million Juice + $4 million in Super Sat Juice + 1.8 M in ME Juice (3000 runners) for a total of $11.88 M. And don't forget about the 2340*1000 in hotel revenue from satellites = $2.34 million. 13.88 M.
Harrah’s will run into less revenue from the advertising side. Party, FTP, PokerStars etc. will not be pouring money into the WSOP. In addition the sponsors such as Milwaukee's Best and Degree will pay less. However the tourney will be 1/3 as long, require less management and dealer problems. I doubt the advertising fees will be 1/3 as much. What is the structure of the ESPN contract? How long are they in bed to gether? Is it guaranteed?
I know that Harrah's ran satellites to the ME at properties across the country, but had serious competition for the easier to access and cheaper online poker sites. In addition when it is all said and done Jamie Gold, Greg Raymer and Chris Moneymaker are not out there stumping for Harrah's. Moneymaker and Raymer do make appearances at/for Harrah's Properties, but their main deals are with PokerStars.
I don't think it is much of a stretch to see Harrah's capturing a larger share of the now shrinking poker market. This could be a genius move. With the WPT unable to satellite Joe Sixpack into the events and the major stars of poker boycotting the WPT Harrah's is in a great position. The WSOP can still capture the Joe Sixpacks and the WSOP Circuit can crush the WPT. Harrah's could easily be "sitting this one out" knowing that it can capture a larger share of a smaller market, there by growing its business overall and then in the...
FUTURE
The future is actually quite easy to predict. Harrah's launches its own online poker site by getting an exemption or finding a creative way around existing laws (such as using frequent player points online that can be earned and redeemed in real casinos). Because it has been the only game in town for quite sometime due to the marginalization of other online poker sites Harrahs.com/poker becomes the go to place on the web. It is, after all, the only place you can qualify online for the WSOP. The WPT at this point is defunct and Steven Lipscomb is sitting on a pile of cash that he made mostly from his "Champions of Poker" slot machines for which he had to pay no royalties.
CONCLUSION
I by no means am trying to say that Harrah's supported the UIGEA. I am saying that their silence was not necessarily one of ignorance. I think Harrah's stands to profit handsomely from recent events. It will take some time to pan out, but in the long run Harrah's will own American Poker.