The Party is Over For Poker Skins

PartyGaming, currently the leading online poker site, took several steps to ensure its supremacy over the poker world recently and might have toppled an "Empire" in the process.

Late last week, PartyGaming bought two of its "skin" operators and announced a split with a third skin as well. In a move to consolidate its profits and to strengthen its brand, PartyGaming recently changed its position on the skins. Originally, skins were a way for sites to collect a slice of the profits generated by online players. The skins directed users to actual poker operators like Party Poker and made a pretty penny doing it.

But times have changed and the industry is shifting, especially with PartyGaming's recent moves. Last month, PartyGaming single-handedly undermined the economics of skin operators business by switching its own directly culled users to a new, souped-up version of Party Poker. This left the skin players with the option to changes sites or play on an inferior version of Party Poker. Ultimately, many players resigned with PartyGaming and eliminated the commissions made on each player by the skins.

In addition to this dramatic shift in policy, PartyGaming took additional steps late last week to further secure its position as the leading online poker site. PartyGaming announced it is acquiring two skins and severing ties with a third. The addition of the two skins users should add close to 300,000 new players to Party Poker's colossal player list.

PartyGaming's first move is buying out skin, MultiPoker for $14.5 million (US) in cash. The predominantly Scandanavian filled site will bring 200,000 players alone. PartyGaming continued its attempts to cut skin payouts by acquiring Intertops Poker for $4 million, but unlike its deal with MultiPoker, site owners may continue to recruit players for Party Poker as a commission-based affiliate.

A third skin has decided to fold its hand with PartyGaming. Coral Eurobet, Party Poker's second largest skin, has decided to take its players to a new platform in the upcoming weeks. According to a recent Guardian article, Coral Eurobet simply found there was no point in trying work within PartyGaming's new structure and is signing with ONGAME.

In another recent statement about Coral Eurobet's decision to separate itself from the online giant, a PartyGaming spokesperson commented that, "Coral Eurobet is pursuing long-term strategy for its poker business."

According to a recent Times of Malta article, PartyGaming's chief executive Richard Segal believes the upcoming changes will work in favor of the company. "We now look forward to the launch of the Party-branded integrated platform in the first half of 2006, when we will expand the number of games available to our customers."

These three strategic moves have further eroded the position of Party Poker's only remaining skin Empire Online, which ironically, is its largest skin. PartyGaming made an offer last week to Empire, but may offer less now that Empire's share price dropped 20% since the offer.

According to Evolutions Securities' Robin Chhabra, PartyGaming's moves have tilted the negotiations between the two companies in favor of PartyGaming. "PartyGaming is using this to further squeeze down the price it pays for Empire. They're just deciding now if they're going to squeeze it and then buy it or just kill it."

A PartyGaming spokesman recently commented that the analysis of Empire continues and will be thorough. "We are dotting all the 'i's' and crossing all the 't's' and we will look under the floorboards to see if there is any dry rot there."

Empire Online, founded by net marketing superstar Norm Lanir, was listed on London's junior AIM stock market in early June. Unfortunately for Empire, in early September a £790 million bid by rival European leader, Sportingbet fell through.

It was at this point that PartyGaming's new tactics toward skins began to have an effect, demonstrating the vulnerability of Empire's customer base. Empire is currently valued at around £250 million, but could suffer even more with PartyGaming's acquisition and elimination of its other skins.