How poker websites hold a winning hand

Angus McCrone, Evening Standard

EDWARD G. Robinson outwitted Steve McQueen in The Cincinnati Kid with a hand of the eight, nine, 10, jack and queen of diamonds. Through a dense cloud of cigarette smoke, Robinson's character, Lancey Howard, drawled: 'You're good, kid, but as long as I'm around, you're second best.Few activities have stayed as popular, and yet changed as radically, as poker in the 40 years since that classic film was made. For a start, poker is now big business. It has moved to the verge of the top division of the quoted company arena, at least in London, and is making huge profits for its organisers - not just for a few top players.

The game itself has also undergone a metamorphosis. The five-card stud favoured in The Cincinnati Kid has been superseded by more flexible variants such as Texas Hold 'Em, and poker has become an even bigger pastime online. A smoke-filled room and sweaty spectators are no longer necessary.

The question facing analysts and investors is whether this boom is part of a long-term growth trend, whether it will soon give way to a plateau or whether it will be exposed as a temporary craze.

The statistics are striking: according to independent website, the number of people playing online poker worldwide was 1.78m in January, and is growing by 10% a month. In the past two years, the industry has grown 15-fold.

Dennis Boyko, chief executive of Pokerpulse, says: 'We can't expect to see 1400% growth over two years ever again, but I think there are a few more doublings left. There are 2m active online poker players but 100m people who have played conventional poker at some time.'

Providers of the online game make their money with a small 'rake' from the pot in each game plus, to a lesser extent, tournament fees. This has powered hefty increases in sales and profits.

Paradise Poker, the US-focused firm bought for £169m by Britain's Sportingbet last autumn, had turnover of $37.2m (£19.7m) in the seven months to July 2004, and profits of $21.3m.

PartyGaming, the sector leader with a share estimated at 50% of the overall market for its Partypoker offshoot, is believed to have made profits before interest, tax, depreciation and more than $350m in 2004.

If it floats on the London Stock Exchange, as it is considering, it would be likely to command a market value of more than £2bn and be a candidate for inclusion.

Online poker is already represented on the UK stock market through Sportingbet, William Hill and Hilton, owner of Ladbrokes, the second-largest poker-room operator in Europe. It had 33,000 active customers last summer and Hilton says profits doubled in the year to June 2004.

Another British firm now moving in aggressively is Betfair, the privately owned, Fulhambased betting exchange.

Ben Fried, head of poker at Betfair, says: 'Online poker is a skill game, rather than a luck game, and that attracts many players. People also like the fact that it is anonymous, not face-to-face. You don't have to look like Steve McQueen.'

Interest is building on the back of American TV coverage of conventional poker matches and publicity about the millions bagged by tournament winners in Las Vegas. Closer to home, Fried says one notable win was an Irish scaffolder's $26,000 prize in a tournament last autumn. The reality, of course, is that there are more losers than winners. Still, the industry's growth has enabled a small number of people to try to earn their living out of online poker. One of these is Russell Cowley, a 33-year-old former sales and marketing man who learnt the game playing in pubs and clubs in his late teens. His poker name is Ariston, because at one tournament, he talked on and on and on.

He says: 'The online version is very different from face-to-face. It is much faster and you have to play more mathematically. However, it is not just about judging the probabilities - you can keep notes on other players and how they play, and use that to help you decide when to make

What do the sceptics say about internet poker? Many thought Sportingbet overpaid for Paradise Poker last autumn, but the conventional wisdom now is that it got a good deal. Its shares have surged from 100p to 269p in the four months since.

But there are risks. One is that US law is at best ambiguous, and at worst hostile, to online gambling and it is impossible to rule out a clampdown by authorities. All the main poker providers are careful to base their operations outside America. Betfair even refuses to accept US-based clients. A second risk could yet be negative publicity, perhaps over addiction.

Mark Griffiths, professor of gambling studies at Nottingham Trent University, says: "With online poker, you can in theory play all day every day. You are gambling with electronic money and that is a potential worry because people tend to be bolder with that than with real cash.'

But he adds: 'The genie is out of the bottle and will not go back in. Most responsible operators will do their best to make the product as safe as possible for their customers.'

Another potential risk for investors is a price war, with new operators offering free or almost free poker rooms.

City fans will hope, however, that critical mass, the power of the brand and the lure of tournaments will keep customers loyal to the established firms.

Spawning a new breed of game THE most popular species of poker online, Texas Hold 'Em, can involve any number of players from two to 22, although somewhere between eight and 11 is normal.

The main difference compared with the old-fashioned game is that it ends up with five open cards on the table usable by everyone - a 'flop' of three cards, plus two others called Fourth Street and Fifth Street.

All players receive just two additional, hidden cards and make their bets on the basis of these two plus three from the 'flop', one hidden card plus four from the table, or even all five from the table.

The faces making a name for themselves MIKE SEXTON is the poker face. Let's rephrase that: Mike Sexton is the face of poker. A former professional player and commentator, he is now the grinning, tuxedo-clad frontman for, the world's biggest online provider.

His fame and omnipresence - one source describes him as the Gary Lineker of the card game - contrasts with the low profile of the other key individuals at Party Gaming, the parent company of

The firm was founded by Ruth Parasol, an American lawyer, and Anurag Dikshit, a software specialist from India. Parasol remains a shareholder but is no longer involved on an executive basis.

Now the Gibraltar-based firm is run by chief executive Richard Segal, a British executive best-known for spearheading the sale of Odeon cinemas to German bank WestLB in March 2003, for £431m.

Given the unfriendly attitude of the US authorities to online gambling, the firms are often based in exotic locations such as Costa Rica - in the case of Poker Stars, the second-largest firm, and Paradise Poker. Their servers are often based in even more bizarre places: Paradise hardware runs from the Kahnawake Mohawk Indian reservation in Canada.

Paradise was bought by Sportingbet of the UK for £169m last October without revealing the identity of its owners, who got 56m shares as part of the deal. This shyness is quite typical among the privately owned firms in the industry.

Most companies, however, have well-known names with job titles such as poker room manager. This role, at Poker Stars, is taken by Lee Jones, a former computer engineer who became a professional poker player and is author of a book called Winning Low-Limit Hold 'Em.

Europe's biggest poker room, apart from PartyPoker, is run by Ladbrokes, the gambling subsidiary of the publicly quoted Hilton Group headed by chief executive David Michels.

Ladbrokes sponsors a professional poker player, Roy 'The Boy' Brindley. The company says: 'In this role, he provides consultancy advice to the Ladbrokes poker managers, as well as playing regularly under his own name.'

Finally, the most important question: who is the world's top poker player? There are so many events that several players probably have claims to this title, but the 2004 World Series of Poker champion was Greg 'Fossilman' Raymer.

The burly patent attorney from Stonington, Connecticut, won $5m at the event at Binion's Horseshoe Casino, Las Vegas, last April. The top-placed Brit was Londoner Gary Jones who collected $175,000 just for finishing 17th.

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