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WPTE Posts Another Loss, Changes Online Gaming Strategy

WPTE Posts Another Loss, Changes Online Gaming Strategy 0001

Analysts were prepared for another loss from World Poker Tour Enterprises, Inc. this quarter. The shift from the Travel Channel to GSN for the televised WPT series had resulted in lower per episode fees, WPTE's online money site was still ramping up, and it would be at least another year or two before their China venture turned a profit. And on one hand, the analysts got what they expected. WPTE posted a $3.9 million loss for the second quarter, compared with the $3.3 million loss during the same period last year.

As predicted, domestic television license revenues were down, coming in at $2.4 compared to the $4.2 million from last year's second quarter. And going forward, domestic television license fees will all but vanish as WPTE transitions to FSN under a no-license fee agreement. Under the FSN deal, the World Poker Tour will exercise its rights to incorporate its own sponsors as well as receive four 30-second advertising spots per episode for the first two airings.

Analysts were surprised, however, by the continued lackluster performance of WPTE's online gaming business. Online gaming revenues came in at $298,000 for the quarter. This was only marginally better than the $260,000 for same period last year, which had coincided with WPT's relaunch under the Cryptologic software platform. And for the first half of 2008, online gaming revenues were actually down when compared to the first six months of 2007. But perhaps the biggest surprise of all was WPTE's acknowledgement that their online money gaming model no longer appeared to be viable.

For more than two years now, World Poker Tour Enterprises has been focusing its efforts on changing its business model from a television content provider to an online money gaming website. The company spent considerable resources to develop their own proprietary software platform, which later had to be abandoned for scalability issues. Last summer they relaunched their website on a Cryptologic platform, promising investors that with the right marketing campaigns online gaming revenue growth was just a matter of time. But over the last few quarters, online gaming revenue growth eluded WPTE. In the company's conference call, President and CEO Steve Lipscomb said, "We've witnessed the international online gaming marketplace becoming increasingly predatory with online gaming ventures often spending more than the lifetime value of a customer in order to acquire market share, something that we are not prepared to do. As such, we have been refocusing our resources on the revenue generating opportunities in our business…"

The company hasn't made any hard and fast decisions relative to its flagging online money business. During the conference call Lipsomb commented, "We are looking very hard at that business to see what makes sense for us because there are costs just in keeping it going. And so as we balance that we'd have to make the decision whether it makes sense to continue just by limping along or whether it's more expensive to do that. But we certainly don't want to have a money loser. So, we are in the middle of that analysis right now and I would say by the next quarter earnings call we will have a real solid understanding of what we plan to do going forward." WPTE share prices dipped following the release of earnings information by about 20%, to about 70 cents per share.

WPTE is rededicating its resources to its online subscription membership business, Recently the company announced a new venture with FSN for a television series based on the online site. The format of television show will be tailored to drive traffic to the site, where they are still targeting 16,000 to 20,000 subscribers by the end of this year.

WPTE feels that its shift away from a model based on television license fees and online money gaming toward a sponsorship-based model will return the company to profitability. Lipscomb said, "We made certain changes during the second quarter and have continued these efforts during the third quarter that will allow us to focus on the core areas of the business including domestic and international sponsorship, television production,, and WPT China. We believe by focusing on these areas and significantly reducing or eliminating costs in other areas we are preparing the company to be profitable in 2009."

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