It has been no secret that The Stars Group has desired a higher profile in the online casino and sports betting world. The company knows that those verticals are the key to a larger customer base and more profits, despite the company having been built primarily on the PokerStars brand.
The decentralization of online poker in the past several years, however, has been troublesome for companies like PokerStars. The markets are segregated and the licensing process in each of those markets is expensive. Most significantly, though, the separate markets have contributed to the downsizing of the overall global poker market. Internet poker simply isn’t the revenue generator that it once was.
That’s why the third quarter results for The Stars Group were a bit startling yet not exactly surprising to poker fans.
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Essential Numbers
The third quarter results showed poker accounted for the majority of The Stars Group’s revenue but not by much. The 36% number is down 3.9% year-on-year to $212.8 million, attributed to foreign exchange fluctuations, the departure from some markets like Australia, and cross-selling to other verticals. But that percentage is down dramatically from the 63% that it was prior to the acquisition of Sky Betting & Gaming that was finalized in October.
Sports betting revenue rose dramatically with the Sky acquisition, up from just 5% of The Stars Group revenue to 32%. Even before the deal, sports betting accounted for $21 million for the quarter, which was almost an 80% year-on-year increase.
The overall numbers for The Stars Group were positive with a 74% year-on-year revenue increase to $572 million, propelled by the Sky acquisition. Gross profit was $442.8 million, up 66% year-on-year. The Stars Group CEO Rafi Ashkenazi called it a “landmark quarter during a transformative year for the company as we begin to deliver on our vision to become the world’s favorite iGaming destination.”
Ashkenazi added, “As we continue our transformation and look towards 2019, we are excited to take advantage of the opportunities ahead of us by leveraging our leading positions in attractive markets, strong brands, technology and operating expertise.”
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Poker Not a Priority
The Stars Group didn’t exactly say that the PokerStars brand is no longer a priority, but the signs are all there. CFO Brian Kyle did admit, though, that PokerStars is now mostly a “large and low-cost customer acquisition channel.” In essence, poker players are great, but they’re even greater if they cross over and play some online casino games and wager on sports.
As has been obvious to anyone following the changes at PokerStars over the past several years, recreational players have become the priority. The Stars Rewards program replaced the VIP Club that previously held its regulars and pro players in higher regard and demonstrated that with financial incentives. The implementation of programs like Seat Me and multi-tabling limits continue to disadvantage regular players in favor of new, recreational ones. And many high-stakes players have left PokerStars in favor of incentives offered by sites like PartyPoker.
The Stars Group sees this s all positive and leading to a more profitable overall profit-based strategy. They refer to the new focus as an improvement to the poker ecosystem that benefits high-value customers that deposit more often, such as recreational players, while reducing the incentives for pros to compete. And putting a priority on cross-promotions and crossover play, the company is seeing the trend for which they planned and hoped, one that pushes players more toward sports betting and non-skill-based casino games with a distinct house edge.
All About Sports Betting
There is no argument to the assertion that sports betting is the vertical with the most potential for profit and growth, especially in the newly-opened US market. As states legalize sports betting at a rapid pace, some of them are opening their new industries to the online betting space, giving new companies a chance to make their mark on American wagering.
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The Stars Group wants BetStars to be that company, the one to storm the sports betting market in the US the way that PokerStars once did with internet poker.
The Sky acquisition was a key part of that plan. The Stars Group is going to use the methods by which Sky became a leader in the UK market to try to do the same for BetStars in the US. Per Ashkenazi, “With the Sky Bet business, we have a proven model of integrating betting into mainstream sports media and believe we can replicate this to add value to both us as a business and a media partner.” He added that the UK success “could be replicated in the US” with the right relationships.
With that goal in mind, The Stars Group is in talks with many media companies. It would not be a surprise to see a significant announcement on that front before the end of 2018.
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