Monday, October 28, 2013

Why the World Poker Tour Failed (Part 3 of 3)

In early September of 2003, I got the call I had awaited for over a year - Steve Lipscomb, CEO and founder of the World Poker Tour opening the door to PokerStars possibly joining the WPT.

The call came completely out of the blue. I had made my monthly call to Steve a few days before, and had no reason to believe that it had any more chance of success then the 14 calls that had preceded it. I picked up the phone and heard Steve's always-ebullient voice exclaim "Dan Goldman!", as though he had just invented the name.

"Hi, Steve," I responded, puzzled and at a rare loss for words.

"I have Lyle Berman on the line with us," Steve said. I had met Berman once at a poker tournament in LA. I knew him mostly as the CEO of Lakes Entertainment, operator of several casinos in the Midwest, and as a world-class poker player (he has three World Series of Poker bracelets in three entirely different events - Limit Omaha, No Limit Hold 'em and No Limit Deuce-to-Seven Draw). Berman was the money behind the WPT, having been an original investor and ~80% stakeholder.

During our last call, I had taken a slightly different approach with Steve at the suggestion of my boss, Isai Scheinberg. I asked one key question: 

"If money were no object, how much would it take to get PokerStars on the WPT?" 

Steve said, "It's not that simple, and it's not just price." 

I responded, "Well, if I offered you $100 million, I'm pretty sure you'd take it." 

Steve laughed and said, "You're probably right."

Without missing a beat, I said, "OK, so we know what kind of girl you are. Now we're just negotiating price." This actually made Steve hysterical. "I knew where you were going, but I just had to let you finish," he said. The call ended soon after, but I had made an impression.

Back to the surprising call. "Let me help Steve cut to the chase here," Berman said. "Steve tells me that you've suggested you're willing to pay a premium to join the WPT."

"We're certainly willing to consider anything," I said cautiously. "You guys are having an impact."

Steve chimed in. "You know we really like PokerStars," he said. I didn't, but said nothing. "Everyone says you have the best software in the business, and you definitely now have a recognizable name associated with you [Chris Moneymaker]." I still said nothing.

After a somewhat uncomfortable silence, in which I imagine I was supposed to agree with him, Berman said, "We've had some discussions with the partners who we thought would object to another online partner, and we can get around it. So, we're willing to offer you a spot on the tour for 2004. The price is $XXX." 

I'm not sure if I'm still bound by confidentiality on this issue, but suffice to say that $XXX was substantially more than an order of magnitude greater than any other partner on the tour was paying. It was a staggering amount of money for what was essentially still a very small company. I had no authority to commit to that amount (it was, in fact, almost exactly equal to my marketing budget for the current year).

"You know we want to be on the tour," I said. "I need to take this back to management at PokerStars. But just so you know - I think it's the right thing to do. Give me a few days to work on it."

We exchanged the usual niceties and hung up. I sat looking at the phone, trying to figure out how to tell Isai that we'd made a bigger-than-pot-sized bet and been called. As it turned out, I was over-dramatizing the situation - PokerStars was willing to pay the WPT's extraordinary number. And this is when I began to see the seeds of the WPT's undoing, just as they were entering their most successful stage.

Before I go into any further detail, this is a good time for a few disclaimers. First, while my memory for detail about these events is pretty good, it's not flawless. Second, much of what follows is my personal opinion. I've been in marketing for 30 years, so my opinion has some heft, but it's still opinion. 

Last, and perhaps most important, I should clarify the definition of "failure." Yes, the WPT is still on the air, so I suppose by some definitions you could say that it's a success. I consider the WPT a failure because, 10 years after its first broadcast, the WPT now languishes on Fox Sports 1 (the successor to the Speed Network), sandwiched in among Pac 10 football, a few UFC fights and the NASCAR Sprint Series. Poker is played by an estimated 55-75 million Americans (according to American Gaming Association estimates), meaning that it has the biggest potential audience of actual participants of any sporting event or game. And despite these numbers, the WPT has never achieved greater than a 1.0 Nielsen rating - the current season averages about a 0.6, which translates to about 670,000 viewers per week.

This is incomprehensible to me. Here Comes Honey Boo-Boo gets 3.5 million viewers. Duck Dynasty routinely exceeds 9 million viewers. And a weekly broadcast of America's most popular game can't scratch a million viewers together? What happened?

There were a lot of factors that contributed to the WPT's downfall. I'm not doing a research paper here; I'm going to focus on the five that I consider the most egregious.

The WPT made enemies of its players
From the day the WPT shot its first episode, it treated its players with bare tolerance. The players on WPT episodes weren't invited to play on the broadcast - they paid cash out of their own pockets to play WPT-affiliated events. In many cases, the buy-ins for these events were $5,000 or $10,000. The WPT contributed nothing to the prize pools of these events. Despite this, the WPT dictated terms about WPT-affiliated events that were nearly unbelievable to players.

Example 1: Structures and payouts. The WPT's contracts with its venues allowed it substantial influence over not just the tournament structures (blinds, antes and length of rounds) but over payouts. From the beginning, the WPT pressured its partners to adjust payouts to pay at least $1 million to first place. This resulted in highly lopsided payouts in some events, although this problem corrected itself as the Tour events grew. 

Perhaps more egregious: the WPT had the right, which it exercised at almost every event, to change the tournament structure at the final table. This was to avoid having a 6-player final table take 12 hours, which could easily have happened. But this fundamentally changed the game, something players recognized but didn't do anything about until much later in the WPT game.

Example 2: Final table deals. The WPT explicitly forbade final table money deals. Think about this for a moment - players are putting up their own money, are sometimes subjected to playing for payouts that don't reflect normal tournament payouts, and yet are not allowed to do something that has always been a part of tournament poker - negotiate at the final table to flatten payouts and minimize variance.

Example 3: No logos. The WPT barred players wearing logos of any kind for many years. In interviews on this subject, Steve Lipscomb put the blame for this on the WPT's contract with the Travel Channel. Without attempting to pass judgment on the veracity of this claim (remember that PartyPoker and UltimateBet had actual events on the WPT, with their logos on the felt), if this were the case, it was incumbent upon the WPT to negotiate a deal with a network that understood poker.

One additional note here: as poker really began to boom in 2003 and 2004, more and more players received sponsorship money from online poker sites, live poker rooms and even mainstream product lines. The ultimate benefit to these companies is having their name and logo associated with winning players. There is no question that the WPT's rules had a dampening effect on the very boom they were trying to promote.

Example 4: Attempting to own player marketing rights. The WPT required all players in their events to sign a broadcast waiver, which was intended to convey to the WPT the necessary rights they needed to put together and broadcast their shows without further compensation to players. Very few players objected to this in principle, and these waivers were required in World Series of Poker events, as well. But in 2004, the WPT added something to their waiver that caused a near-revolt in the poker community. Here's an excerpt:
[Player] grants a perpetual release for the exploitation thereof and of other audio-visual works (including, without limitation, "behind the scenes" productions and public service announcements) and any and all derivative, allied, subsidiary and/or ancillary uses related thereto (including, without limitation, merchandising, commercial tie-ins, publications, home entertainment, video games, commodities, etc.)
Translation: if you play in a WPT event, you grant them the right to use your name and image, in perpetuity, without compensation, for any purpose they choose. Remember that this was in the midst of the poker boom, when you could visit Walgreen's and find no less than five different branded poker chip sets, often on point-of-purchase displays at the register. The WPT, WSOP and many others were actively promoting their brands in video games. And here was the WPT, declaring that they had the right to player images, depriving the players of their ability to market themselves. 

As a counterpoint - I don't usually hold up Harrah's (now Caesar's) as a model of corporate responsibility, but compare the above language to the language that the WSOP used that same year:
In consideration of my being permitted to participate in said promotion, I do hereby accept and irrevocably authorize [the host casino] and its successors and assigns (including but not limited to ESPN) to print, publish, televise or otherwise utilize my photograph or any likeness of me for promotional purposes without compensation.
In some cases, the WPT waiver actually prevented (or could have prevented) players from playing in WPT events because they would have been in violation of other contracts. Chris Moneymaker is a perfect example: his contract with PokerStars explicitly prohibited him from relinquishing marketing rights to any other company in this way. In his case, and a few others, the WPT quietly agreed to remove the marketing language. 

The situation became so bad that I was faced with a player revolt at the PokerStars Caribbean Adventure event at the Atlantis Resort & Casino in January of 2006. Greg Raymer had just signed a deal allowing his image to be used in a videogame, and the WPT agreement was incompatible with it. The WPT refused to budge. Greg got other players to rally around him, and several did, in fact, boycott our event that year, including Greg.

To his credit, Steve Lipscomb did attempt to take the issue head-on in an open letter to the poker community in December 2005. Unfortunately, the letter only served to confirm players' worst fears - that they were indeed giving up marketing rights to the WPT. The full text of the letter is here. [Note: In this letter, Steve refers to an ad run by an affiliate of the WPT promoting the WPT's new online poker site. He claims that he removed it "because the players asked us to," but the reality is that I threatened legal action if it wasn't removed - Chris Moneymaker was one of the players.]

The WPT entered the market underfunded
The WPT raised $32 million in its 2004 IPO. This began what was, in my opinion, the company's most egregious mistake.

Most people watching the WPT back then speculated that they did the Travel Channel deal because they couldn't take the company public without it. The original deal was of five years' duration, and yielded negligible revenue for the WPT. But by mid-2005, the WPT's stock had risen from $8 to $18 despite continuing losses. 

Their market couldn't possibly have been hotter. What they needed to do was issue additional stock and use it to buy their way out of the Travel Channel contract (or buy it out with stock). The WPT would have done far better in this key period on one of the Big Four networks, even if it meant doing a time buy (paying the network to broadcast the show, rather than vice-versa).

The WPT saw something shiny
The WPT took their eye off the ball at several key points in the crucial years of 2004 and 2005. Perhaps the worst of these was their ill-fated entry into the online poker market. The company realized that there was substantial risk in pursuing this market in the US, so they launched a WPT-branded site in Europe, as well as a subscription-based service in the US. This put the WPT in direct competition with its online partners, and angered its land-based partners.

They also attempted to launch a poker tour specifically for professional poker players. Called the Professional Poker Tour (PPT), this new event had potential, but it was a money drain when the company couldn't afford it - they conducted and filmed five PPT events at a total cost of almost $5 million (including prize pools) without a network commitment to broadcast them. The PPT events were filmed in 2004 (I played in one of them - the Bay 101 event), but didn't show up on TV until almost two years later. By the time they were broadcast, they were dated and garnered very little interest.

The WPT erroneously believed that the WSOP was their competition
In 2004, poker was booming in ways that are almost impossible to describe. Poker books started to crack the top 100 on Amazon. Bookstores (remember those?) like Borders and Barnes & Noble had free-standing displays dedicated solely to poker paraphernalia like chip sets and cards, as well as books. Poker players were recognized on the street, elevated to the level of rock and movie stars.

Back then, there were two major forces in poker on TV: the World Poker Tour and the World Series of Poker. There were many minor players, as well - Celebrity Poker Showdown (truly awful poker, narrated in horror by pros), the Heartland Poker Tour, Poker Royale and about a dozen more.

The WSOP, to their credit, quickly realized that they were swept up in a national frenzy. Lon McEachern and Norman Chad, hosts of the WSOP broadcasts, freely referred to the WPT, even pointing out WPT champions at televised WSOP tables.

The WPT did exactly the opposite. When Chris Moneymaker appeared at the final table of the WPT Bay 101 Shooting Stars event, ultimately finishing second to Phil Gordon, the caption below his name read "Major Poker Championship Winner."

The WPT and the WSOP were far from competitors, especially during the key boom years of 2004-2006. No one had to choose between them - the shows appeared on different nights. And they were fundamentally different shows - the WSOP was a sports broadcast with cards, the WPT was a game show with cards. Had either the WPT or Harrah's had the guts to try to work together, even in the most general and benign of ways, the result could have been an even greater poker frenzy. Imagine an event pitting the last six players in the WSOP against the final table of the WPT Championship as the simplest of examples.

The WPT didn't focus on corporate sponsorships
One of the greatest irritants to players was the fact that they put up their own money but had to submit to the often-arcane WPT rules (as described above). Perhaps the smartest play the WPT could have made in its early days would have been to bring on corporate sponsors who were responsible for putting up prize pools. 

They started down this path with the Professional Poker Tour, but missed the mark by creating a speculative event rather than focusing on the key sponsors that could have put up big money. We discussed this with Steve Lipscomb on more than one occasion, but at the time (well prior to the UIGEA, which may have been the final straw on the overburdened WPT's back) the WPT believed in its model and was unwilling to relinquish the degree of control required for a corporate-sponsored event. It would have taken considerably less than the rumored $5 million a year that Jack Link's pays Caesar's for WSOP sponsorship, and could easily have started a stampede of corporate-sponsored televised poker events.

As a reminder, everything that I have said in this series is personal opinion and/or speculation on my part. I probably have given them less credit than they deserve for their role in the poker boom, and have likely been critical in hindsight in a way I couldn't have been in real time. But I can't help thinking that a huge opportunity was squandered because of a handful of mistakes that seem obvious in retrospect. And although the original principals (particularly Steve Lipscomb) are no longer involved, I still wish them success. It can only be good for the game I love.

Friday, October 25, 2013

Why the World Poker Tour Failed (Part 2 of 3)

Part 2: WPT helps launch a boom

[Note: This was originally intended to be a two-part story, but there's just too much to do it in two parts. This is part two of what I now expect to be a three-parter.]

The World Poker Tour did quite a few things right back in 2002-3, just before and during their broadcast launch. They were also in the right place at the right time. The WPT brought a glitzy program with high production values to market just when two other key factors fell into place: online poker started to gain traction, and a 27-year-old accountant from Tennessee parlayed a $39 $86 online tournament entry into a $2.5 million prize. [note: apparently we got the $39 number wrong for many years while I was at PokerStars. It was so firmly entrenched in the legend that apparently even Chris believed it - the subtitle of his autobiography is "How an amateur poker player turned $40 into $2.5 million at the World Series of Poker." Thanks to Michael Josem for the correction.]

It was in the spring of 2002 that I came into the picture. I had heard about the WPT, but PokerStars had only been live for a few months and had essentially no market presence, so my hopes for getting us involved in the WPT were slim. But two of our biggest competitors, PartyPoker and UltimateBet, were already part of the WPT and it was clear to me that we needed to find a way to get our foot in the door.

I called and emailed Steve Lipscomb, founder and president of the WPT, relentlessly. He finally agreed to meet with me in October of 2002. I drove to the WPT's offices in LA, where Steve showed me the WPT's sizzle reel and some in-process footage, and gave me a rundown of how they intended to market the show, which didn't yet have a broadcast slot.

We went to lunch at a pleasant outdoor cafe nearby, where Steve gave me the bad news: there was no way the WPT would entertain a third online site. In fact, there was no way the WPT could add us to the roster - according to Steve, their contracts with the Bellagio, the Bicycle Casino and the Commerce Casino expressly forbade it. We parted company that afternoon agreeing to "stay in touch," which I knew was the Hollywood kiss-off.

I was dazzled, too much so to drop it. The sizzle reel and the early footage were so far superior to the mediocre TV broadcasts of that time that I decided PokerStars needed to be involved. In fact, I was very concerned that the WPT could launch PartyPoker and UB into the stratosphere, leaving us behind. 

So I set a monthly reminder to call Steve. At the very least, I wanted to make sure he remembered who we were, just in case something changed. And to his credit, he always took my calls. He said no, but was always willing to talk, perhaps knowing as I did that we had a future together.

In early 2003, the WPT broadcasts started to air on the Travel Channel. This seemed like an odd choice to me, but I suspected that network TV wasn't read for an all-poker broadcast yet (that would soon change), so the WPT had likely been left scrambling. They had almost a full season of shows already in the can, some reasonable buzz in the poker community and a cable network that was willing to pay, so getting on the air was a higher priority than waiting for the right opportunity.

UltimateBet's Aruba Classic was the first online poker-sponsored event broadcast, on April 9, 2003. While it gave UB a decent boost, it was far from the bombastic result I had feared. Nonetheless, I still made my monthly calls to Steve. He continued to politely decline.

In late April 2003, PartyPoker did something I hadn't expected - they started buying TV spots on the WPT broadcasts. PartyPoker was a little bigger than PokerStars, having gotten started about a year before we launched. I was very surprised that they were willing to make the investment in TV commercials, especially since we were all operating in a marginal area - it wasn't clear whether the US DOJ would decide to come after any or all of us. But they did, and their numbers immediately reflected it. Paradise Poker, which had always been the 900 pound gorilla of online poker, slipped substantially. PartyPoker went from a distant second, to a close second.

And then, on June 11, 2003, the PartyPoker Million aired, and everything changed. This event had a hard-to-beat marketing triple threat: a branded WPT event, hosted by Mike Sexton (who was also the face and voice of PartyPoker), with PartyPoker commercials. In a matter of weeks, PartyPoker became the #1 online poker site, and within just a few months, Paradise Poker had sunk to #4, this after sporting a 75% market share on January 1. UB was in second place, PokerStars was a close third. But it was crystal clear to everyone, particularly to me, that PokerStars ran the risk of irrelevancy if we didn't do something right away.

Fortunately for PokerStars, our guy had just won the World Series of Poker. In case you missed them, here are a few posts about the 2003 WSOP:

Dancing with Moneymaker
How Olof Thorson broke my heart, and made history
2003 WSOP: The last lap to the final table
Poker's tipping point: the 2003 WSOP final table

These events had taken place just three weeks before the fateful WPT broadcast. So even though PartyPoker had a huge edge, PokerStars had arguably the biggest star in the business, although no one yet knew who he was (the WSOP broadcast that year wouldn't air until mid-July). So I brought Chris Moneymaker to LA in late June, and we shot three truly awful TV commercials. I bought a huge array of 30-second spots on the WPT broadcasts, and also tried to buy some spots on the upcoming ESPN broadcast of the WSOP, but they had no interest at the time (which would change).

The effect of the TV spots was immediate. For reasons none of us could figure out, UltimateBet chose not to air TV spots yet, and it cost them. We shot by them to #2 in a matter of weeks. This effect would be amplified just a few weeks later, when the PokerStars logo was highly visible on the WSOP broadcast (the "Dancing with Moneymaker" blog post includes a memorable, long look at the PokerStars logo on my jacket, which almost brought our site down).

A few weeks after the WSOP broadcast, something else happened that would completely change the landscape. I had started calling Steve Lipscomb in June of 2002, and called him every month thereafter. Not long after the WSOP final table broadcast, Steve called me for the first time. And he said the words I'd been waiting to hear for over a year:

"Just how badly do you want to be on the World Poker Tour?"

Next up: Five mistakes that nearly killed the WPT 

Monday, October 14, 2013

Why the World Poker Tour failed (Part 1 of 3)

[Author's note 1: I'm sure I'm going to hear from some of my old friends at the World Poker Tour about this - well, not about today's post but about Part 3. I'm just relating things as I remember and view them. If I've gotten anything factually wrong, feel free to take me to the woodshed.]

[Author's note 2: This was intended to be a two part story but needs to be three. I'll do my best to get Part 3 done in the next few days.]

I've been around casino poker for about 25 years now, the first half as a player and the past 12 years as both a player and an operator/marketing guy. Poker has always been popular, but it had never been a big draw for casinos in Las Vegas, Atlantic City and elsewhere because the upside wasn't big enough - casinos could make far more per square foot with a slot machine. Many casinos had poker rooms, but for the most part they were small (3-6 tables) and well off the casino floor. The theory was that poker players would also gamble (true) and their spouses might play slot machines (also true), so it was worth at least a hand-wave.

When I first started playing poker outside of home games (the topic of a future post), it was in California cardrooms. California has a long history of tolerance of cardrooms - I'm aware of one, Artichoke Joe's in San Bruno (about 5 miles from SFO) that has been in continuous operation since 1909. California left the decision about whether to allow cardrooms to local governments, and a few, like Gardena, Bell Gardens and San Jose, flourished as a result. (I heard years ago that 25% of the operating revenues of the city of Bell Gardens comes from the Bicycle Club, one of the world's largest standalone cardrooms.)

I first started playing in 1988 at a club in Gardena called the Normandie. The Normandie had about 50 poker tables and was hopping most of the time. I played low stakes limit hold 'em (mostly $3-6), and back in those days, at the hours I played (early evening) there was always a wait for a game. Poker was a pretty stable business back then - it seemed to be growing at a slow but steady rate, and most of the poker rooms in Southern California were expanding.

In 1994, Southern California cardrooms felt a mini-boom as a result of the first major new cardroom in many years - Hollywood Park Casino. Hollywood Park was located adjacent to the famed Hollywood Park Racetrack, and just down the block from the then-home of the Los Angeles Lakers, The Forum. From its opening day, Hollywood Park was packed. It wasn't unusual to wait two hours for a table at lower limit games, despite the club's having over 150 poker tables. 

In 2000, another boomlet resulted from the opening of the Hustler Casino, owned and operated by Larry Flynt of Hustler Magazine fame. Most of us expected a sleazy operation, with topless dealers dealing from porn decks. We were all stunned to discover that Flynt had built a real first-class joint, with padded walls to absorb sound, decorated with full-size, impressively realistic reproductions of Gustav Klimt paintings, and boasting unquestionably the best food in any poker room in the world (including a surprisingly high quality sushi bar).

If you've gotten this far, you may be wondering what all of this has to do with the World Poker Tour. Your patience is about to pay off.

Over the years, I've been interviewed in print, on radio and TV about the poker boom of the early 2000s. My answer has always been some variant on the following: 

There were three things that set off poker's bombastic growth:
First, online poker brought casino poker into people's homes. You can infer the rules of most casino games just by watching, but poker has its own mystique, protocol and even its own lingo that is intimidating to the average player. Online poker allowed players to learn the protocol and the lingo safely, without fear of embarrassment.
Second was poker on TV. Sure, there were broadcasts of the World Series of Poker back in the 90s and even 80s, but without hole cards, it couldn't have been more boring. But once hole cards were exposed, and ESPN and the World Poker Tour added quality commentary, poker looked much more like a game show than a documentary.
And last was Chris Moneymaker winning the World Series of Poker in 2003. All over the country, 27 year old accountants were saying to themselves, 'Hey, I could do that, too.' And they turned out in droves, packing poker rooms and online poker sites all over the US.
In July 2002, the World Series of Poker broadcast selectively showed players' hole cards for the first time. It used an extremely cumbersome system that had an under-the-table camera mounted just to the right of the dealer's box. Upon being instructed by the show's director via an earpiece, the dealer took specific hands and showed them to the camera. This was clunky and undependable, and players hated it. But it gave viewers a preview of what poker would become in the very near future.

The World Poker Tour was founded in 2002 by Steve Lipscomb, an attorney (he was with Gibson Dunn, one of the US' oldest law firms) turned director-producer (Turn Ben Stein On, Beyond Future Shock). Lipscomb produced the well-received documentary, On the Inside of the World Series of Poker, for The Discovery Channel and got his first real sense of the huge audience for poker on television and how underserved it was. A few years later, he produced and directed the 2001 Tournament of Champions of Poker (a tournament conceived and executed by his future host, Mike Sexton), and realized that the market was even bigger than he thought. And thus, the concept of the World Poker Tour was born.

Lipscomb knew that the 900 pound gorilla of poker was the World Series of Poker (WSOP), run each year at the legendary Binion's Horseshoe Hotel and Casino in downtown Las Vegas. He also knew that the WSOP broadcasts were poorly done, had no real production values and were shot and broadcast with little real regard for the audience. Lipscomb had access to all the right elements; the only thing missing were the tournament venues.

Until the advent of the World Poker Tour, there was a handful of large buy-in poker tournaments in the US. Most tournaments cost $100 to $1,000; Lipscomb was looking to reproduce the excitement of the $10,000 buy-in WSOP Main Event once a week on national television. He started by producing a demo reel of how he envisioned WPT events to be broadcast: part poker, mostly game show, lots of glitz, plenty of information so seasoned players and novices alike could enjoy the game. He brought his friend Mike Sexton into the picture as host, as well as a Hawaiian Tropic model, Shana Hiatt, for the true game show touch.

Lipscomb then took the demo reel on tour, presenting it to the largest poker rooms in the US. It resonated; within a few months, Lipscomb had signed nearly all of the US' largest poker rooms, with the elegant Bellagio poker room as the home of two annual events - the Five Diamond event and the WPT Championship. Each participating poker room paid the WPT a nominal fee (rumored to be $25,000 to $50,000, depending on the venue), and agreed to give the WPT exclusive rights to broadcasting poker events from their venues. The fees weren't where the WPT expected to make their money - that was just to ensure that the venues had skin in the game. Lipscomb believed that the WPT would reap their biggest profits from sale of broadcast rights to network television, and from marketing rights that they would extract from players in return for national exposure.