The third quarter was poised to be a turnaround quarter for World Poker Tour Enterprises, perhaps witnessing when the seeds of their beleaguered strategy for online gambling would finally start to flourish. But during WPTE's earnings conference call on Monday, even President and CEO Steve Lipscomb scored the venture's performance as disappointing to date.
WPTE posted revenues of $4.4 million and a net loss of $2.2 million, or a loss of $0.11 per diluted share. For the same period a year ago, the WPTE had revenues of $5.9 million and a net gain of $2.7 million, or $0.12 per diluted share. For the same period a year ago, the WPTE would have also shown a loss if not for an after-tax gain on the sale of PokerTek, Inc. shares. The largest part of the revenue decline this quarter was driven by domestic television license fees, which were down to $1.4 million from $3.2 million in the same quarter last year; the difference was primarily due to the absence of PPT [Professional Poker Tour, now defunct] revenues. WPTE also said to expect lower margins from domestic television in the future as they enter their new deal with GSN.
Selling, general and administrative expenses increased to $5.7 million from $4.5 million in the third quarter of 2006. The increase was primarily due to higher headcount and operational costs in online gaming, as well as increased costs associated with the launch of WPT China. One bright spot in WPTE's earnings was the increase in hosting and sponsorship fees, which came in at over $1.5 million as WPTE's agreement with PartyGaming kicked in.
The third quarter was the first full quarter of operation for the WPTE's re-launched online gambling site. Online gambling revenues were $100,000, representing a drop from $900,000 for the same period a year ago. The meager performance of the online site was a result of a decline in player activity, blamed both on lower than expected migration of existing players to the new platform and marketing campaigns that failed to connect with online players. Despite offering bonuses of up to $1,500, WPTE was only able to migrate less than 20% of its online players over from WagerWorks. One unexpected issue they encountered was that many of the players in their player database were already inactive by the time migration to the CryptoLogic platform occurred.
Andy Goetsch, WPTE's newly hired executive vice president of online gaming (and a former CryptoLogic marketing whiz), debuted for WPTE on the earnings conference call. When asked about detailed marketing plans for WPTE's online site, Goetsch got the only laughter of the call answering, "I could tell you, but then I'd have to kill you." But both Goetsch and Lipscomb were more candid and forthcoming about strategy and plans than in past calls, perhaps reflecting a new philosophy of transparency with the investment community.
WPTE disclosed plans for a large marketing campaign for its online site, dubbed HOP (Heart of the Online Player), to be executed in the first two quarters of 2008 with a budget of approximately $5 million. It was inferred that some of those dollars may be spent on time-buy television programming, similar to past invitational and promotional events aired by competitors Full Tilt and UltimateBet. When asked why the new marketing effort was being delayed until 2008, Lipscomb disclosed that while Goetsch's background and experience indicated that he could hit the ground running, WPTE was in the process of completely revamping the marketing team under Goetsch's new control.
Lipscomb also disclosed that it would be late 2008 before the WPTE would see any monetization from its current investment in China and that they expected to incur expenses of about $100,000 a month as they built up their team there.
Lipscomb's disappointment was understandable; WPTE has a strong cash position, carries no debt and continues its attempts to establish a strong brand name in the industry. This was to be a turnaround quarter where increasing online revenues would signal WPTE's successful transition from a television programmer to a contender in the competitive online gambling space. For now, it appears that WPTE and its investors will have to wait another couple of quarters for that signal.