Will Jeffrey Pollack’s Federated Poker League Work?

A league of his own.

Last week, Federated Sports + Gaming announced the formation of  “a new, revolutionary professional poker league” led by former WSOP commissioner Jeffrey Pollack. The company intends to establish “the PGA of poker” with four initial events featuring around 200 of the top live tournament poker players and juiced prizepools.

For many, the announcement sounded just like a little bit of history repeating. Similar tours have quickly come and quickly gone over the years.

But to Federated’s credit, they received broad and glowing press coverage on the announcement. Fortunately for them, much of that coverage seemed to overlook fundamental and inherent flaws with their business model, and subsequently, chances for the tour to actually be successful.

Over the past week, we talked to a number of industry leaders, players, and media members for their take on the new Pollack venture. The following post details a number of the challenges we, as well as many others, believe the Federated league faces.

:: How will the Federated league make money? It’s the $100 million dollar question. Can a PGA style tour for poker make money?

There has been talk for years about establishing a “PGA tour style” poker league. On the surface, it’s a great idea. For poker to burst into the mainstream and continue growing and expanding the base (and in turn, generating more revenue opportunities for us all), we believe there needs to be some tour consolidation or more defined way for the casual fan to measure who are the best players.

Privately, many players we spoke with were skeptical about the ability of Federated to pull off such a tour.

But other pros were excited at least of the prospects of a Pollack league. Allen “Chainsaw” Kessler, who cashed in more WSOP events in 2010 than any other player, told us, “I liked the announcement [about a PGA style tour]. It reminded me of the PPT with the World Poker Tour.” Echoing the feedback we received from some, Chainsaw continued, “When I’m watching TV events, if I don’t know the players, then I’m not as interested in it.”

However, labeling Federated’s endeavor a PGA style tour–and setting up similar revenue models to build a business around it–simply isn’t accurate as either a company descriptor or business model.

If there’s one person in the poker industry who should know something about the PGA Tour, it’s Brian Balsbaugh. A former golf agent, Brian founded Poker Royalty, a player representation and marketing agency, in 2003. He says of the Pollack venture, “I’ve seen all the iterations of the potential professional poker tours- I met extensively with [WPT Founder] Steve Lipscomb prior to the launch of the PPT and spent several evenings in Chip Reese’s study talking through the details of the PPL.”

Balsbaugh continues, “As a former golf agent, I have a detailed understanding of the PGA Tour and how it operates. It is a tax exempt entity that exists to organize tournaments for its members- the actual players.  So in effect, the players ‘own’ the PGA Tour.  In all my discussions with players over the years about this issue, they always agree that a ‘PGA Tour’ of poker would get universal support.  I don’t know who ‘owns’ Federated, but I know it’s not the actual ‘members’ of the proposed tour.  Therefore, I don’t think it’s appropriate for them to refer to it as the ‘PGA Tour’ of poker.”

So while most of the players we spoke with do like the idea of a PGA tour style model for poker, they just don’t like or believe in the one Federated is apparently proposing.

Daniel Negreanu is inarguably one of the top two or three biggest personalities in poker–and one many in the industry believe must be involved in the Federated league for it to be successful.

Negreanu noted to us, “… the late Chip Reese worked tirelessly with the players to try and create the PPL which was much closer to a PGA model than this new idea. The PGA is owned by the players as the PPL would have been. That doesn’t appear to be the case with this new concept.”

PGA tour-style or not, you need to have a real and robust revenue model to sustain such an endeavor.

Based on the information currently available to the public, Federated only really has one of two ways to generate meaningful cash-flow and build a successful business: 1) television production and advertising, and 2) Social Media Gaming (SMG).

1.  Television Production: From all we can tell, this will end up being a MAJOR cash drainer, not generator.

For comparison purposes, we base this on two different TV-production-as-a-business models: the World Poker Tour and Mansion Poker Dome.

When the WPT was in its early heyday, they were banking around $250,000-300,000 per episode. This was through a combination of Travel Channel paying the WPT for the programming plus advertising and licensing.

However, as ratings dropped and the Travel Channel (who had internal squabbles about carrying the poker show) stopped forking over the large amounts of cash per episode, the WPT began absolutely hemorrhaging money. The primary thing that kept the WPT afloat during the post-UIGEA and tumultuous last Travel Channel years was the enormous amount of cash reserves they had in their war chest from a very successful early IPO.

And keep in mind, the WPT didn’t have to pay for air-time or juice the prize pools.

Now, we don’t know if Federated will end up having to make a time-buy for air-time. But we do know that with the exception of the WSOP and NBC Heads-Up, just about every single poker program out there is a time-buy or barter. On average (on cable) you’re looking at around $5,000 to $12,000 per hour for a time-buy, depending on the channel and which hours you’re actually purchasing (for example, primetime obviously comes at a premium).

And if you’re on a major network, those figures increase.

Given the general ratings for poker programming though, we can’t envision a broadcaster actually paying a production company for a show–at least not a new one with no track record whatsoever. The WPT-Travel Channel days are long gone.

Best case scenario, you’d be looking at some form of an advertiser revenue share (say, free air-time and a 50/50 advertiser split).

But who are the advertisers?

Given how much they’ve invested in their own tours and TV properties, can it really be expected that PokerStars and Full Tilt Poker will step up and outlay even more cash to a potential competitor? (more on this in a minute)

It’s doubtful.

And while the WSOP has brought in mainstream advertisers (like Jack Links Beef Jerkythe juiciest jerky out there), that brand has an established track record, massive re-airs, and a long history for success.

Jon Miller, EVP of NBC Sports, told us that, “Mainstream advertisers are looking for a value proposition. With a sport like poker, they need a clear benefit to become involved. We have had mainstream success with NBC Heads-Up. The fact that it’s the highest rated poker show on television–it’s all stars all the time–it’s extremely well produced–all contribute to that. Advertisers feel like the program delivers, which obviously is important.”

But we ask, what is the value proposition from the Federated league that will draw in mainstream advertisers out the gate? And where NBC Heads-Up has a distinct and unique format, will Federated be viewed that way? It’s a big leap of faith to make.

So considering the costs of putting on a quality poker TV production (in this case, you’re looking at the $100,000-150,000 per episode range depending on a few factors), costs of a time-buy, juiced prize pools, and a $1M championship freeroll–a four-stop “tour” isn’t going to rain money from the sky for Federated.

The other example we cited, Mansion Poker, considers some merit as well.

Similar to Federated’s apparent model, Mansion went about trying to “reverse engineer” a tour.

By reverse engineering, we mean this: Stars and Tilt have more or less built the template on the television model. Once they achieved critical mass on their respective sites and were cash flowing, they began launching tours and TV properties to reinforce branding and, of course, acquire new customers.

Mansion, on the other hand, had a gaming brand–but not a poker one. They built a property in downtown Las Vegas and dumped an estimated total of $100M into their Poker Dome show in an effort to make a dent in the marketplace and acquire new customers.

Did it work? Even taking the UIGEA out of the equation, how many of you ever opened a real money Mansion account?

In the end, it costs a lot of money and returned very little on the investment.

2.  Social Media Gaming: In their press release, Federated mentioned a foray into social media gaming, or specifically that they “will enter the social media gaming market to engage poker enthusiasts at home…”

Those who have been following the industry closely are aware of the absolutely booming SMG market–and particularly how Zynga Poker has exploded (with an estimated 36 million customers and counting). Overall revenue for the SMG market is expected to top $1B in 2011.

Now, there are models for success in converting television viewers into paying SMG customers. The Game Show Network, for example, has completely transformed their business model around SMG customer acquisition (industry sources speculate they’ve increased their revenues at around a 5x multiple over the past few years with a focused SMG strategy). So leveraging television programming to generate revenue via social media games is 100% plausible…

…if you are actually operating a channel dedicated to creating shows that are easily convertible to online games.

Federated isn’t doing that.

A more effective comparison for Federated would be the WSOP.

The WSOP struck a SMG partnership with one of the biggest providers out there–Playdom–which was a huge score for Caesars Interactive and potential game changer in the industry.

As fans of poker are well aware, the WSOP gets re-aired on ESPN channels like it was the Real World on MTV in the ’90s. It’s one of the most consistent programming fillers for the Global Sports Leader.

And even with this constant programming presence, the WSOP SMG poker platform hasn’t become a cash-flowing category killer (yet at least, but give it time).

So why would Federated be any different? They’d be of significantly lesser profile than the WSOP and receive about 1/100th of the actual air-time (if that). Additionally, the marketing budget required to make a dent in the space is so significant, the odds of creating a difference-making SMG site are, realistically, minimal.

:: League Fees and Buy-Ins: Whether or not Federated is counting on at least a portion of their revenues to be derived by some form of player/pro dues, we don’t know, it hasn’t specifically been announced yet.

The bigger issue for Federated’s venture though is the assumption that pros–or more specifically–their online sites and/or backers–actually want to pay those dues and buy-ins.

The online sites (and backers) already have a major financial commitment to the various tours and events out there. Cluttering the market with either additional association fees, or buy-ins, or both, is by no means a given. Especially when considering the potential SMG play.

In discussing the possibility of major online site support, Daniel Negreanu told us, “Since it seems blatantly obvious that the [Federated] revenue stream will come from online gaming, I doubt very highly that either Stars or Tilt will support a league ultimately designed to compete with them for business.”

And if Stars and Tilt don’t support the league? Bluff Magazine Editor-in-Chief Lance Bradley summed it up well, “There’s some real challenges in front of them for sure. They’ve kind of thrown down the gauntlet by saying the tour will be what defines a professional. Based on what we think the criteria will be, somebody like Tom Dwan isn’t going to be eligible since his live tournament record isn’t what his career is built around. PokerStars puts a lot of resources into their international tour events like the EPT and NAPT and they want their players at those events. If Stars decides that the new league isn’t a priority for them it diminishes the league a great deal. No Greenstein? No Negreanu? No Mercier? They’d be missing a soon-to-be Hall of Famer, the all-time money winner and arguably the best tournament player in the world.”

:: If you build it, will they really come? From both a player and media perspective, it’s certainly not a given that there will be much sustained coverage of the Federated league even if they actually do play a real event.

Building on what Negreanu and other players have told us, the online sites may very well just tell their players they can’t participate in any “pro league” if they believe the likeness of their players–as well as their advertising dollars–will ultimately just be used to help build a competitor in the gaming space. The general industry consensus is that Full Tilt will be more liberal on letting players participate than PokerStars and, to a lesser degree, UB, but all of that still remains to be seen.

Regardless, some players would very much welcome an invite into the Federated league. Allen Kessler said, “I would be really disappointed [if I didnt’ qualify] and I’ve had a tremendous record.”

Aside from players, there’s also the media component to consider.

For the most part, poker tournament reporting is now a paid-for endeavor by the online sites. PokerStars pays Poker News to cover EPT, APT, LAPT, and NAPT events. Full Tilt pays Poker News to cover the Aussie Millions. And either Stars or Tilt pay Poker News (and other sources) for WSOP coverage.

The World Poker Tour–which does online tournament coverage better than anyone by a mile–has a small, dedicated, efficient in-house team.

Will any poker media, after the initial interest in say, the first event, show up to cover other Federated tournaments if they’re not being paid?

Bluff Editor Lance Bradley notes, “The poker calendar is already pretty full and the poker media’s budgets are fairly tight as it is. If the big names they plan to have involved are involved, which isn’t a guarantee, we’re going to cover the league. I’m just not sure how extensively. They’re seems to be a little bit of wait-and-see attitude from some of the poker media in terms of how they’ll approach this one.”

:: And what about the Palms being up for sale? A surprisingly underreported story in the gaming world is that the Palms, in fact, is up for sale.

Federated announced in its press release that the Palms casino will be its venue partner. However, given the potential sale of the property, is that a commitment than can be relied upon? If the eventual Palms purchasers doesn’t have an appetite for hosting such an event–then what?

Conclusion
To say that Federated has an uphill climb at building a sustainable league–and in turn a successful business–would be an understatement. The obstacles are plenty. In our view, it’ll take major financial resources, a lot of luck, and almost 100% accuracy in the decision-making process concerning the business model to achieve success.

The good news is there at least seems to be an appetite for a PGA-style poker tour. And the resumes of those involved in the project are, at least on paper, as solid as they come.

But there is really very little middle ground here. Either the Federated league will be an unbridled success–or an epic failure.

While we hope for the former, we’re betting on the latter.

 

18 Responses

  1. Joachim the Prince

    January 25, 2011 11:58 am, Reply

    Great article, and good insightful analysis. Thanks for taking the time to do this.

    They key point you have understated here is that the whole league appears to have been carefully crafted as a deliberate medium-term acquisition tool for “play money” online poker players who will later become “real money” online poker players once Nevada regulates online poker and the new owner of the PALMS acquires a license to operate in that space. It’s the same strategy as Caesars with WSOP.com today, where they are trying to grow a database of customers to sell their soon-to-be-regulated-in-Nevada-and-elsewhere real money online poker site to.

    The ploy is brilliant, and I assume that once potential buyers of the PALMS have signed appropriate NDAs they are given a peek up the kimono…

    Joachim

  2. Bluff Magazine

    January 25, 2011 4:53 pm, Reply

    As the owner of Bluff, I can tell you that we will cover this regardless of being paid or not. Lance Bradly, speaking on behalf of Bluff was misquoted. We at Bluff look forward to the start of the new professional league and believe its a long time over due.

    Eric Morris

  3. Bluff Magazine

    January 25, 2011 8:25 pm, Reply

    Chops, the quote was made to sound that any real coverage would be based on advertising dollars or who would be compensated. Not just the quote but the overall tone of the post.

    Still love you guys, but don’t want people to think money will dictate our coverage.

  4. Bluff Magazine

    January 25, 2011 8:44 pm, Reply

    Just to clarify, I was only trying to point out that we don’t only cover tournaments because they pay us. My bad. We support Lance 100% and I don’t want that post misinterpreted as if that isn’t the case. I probably should not have used the word misquoted.

  5. KD

    January 26, 2011 12:05 am, Reply

    Really nice article.
    Yup, This game is not Golf. Don’t need pro licence.
    basically Poker benefit is easy to learn, mass players are easy to commit to playing game.

    Live Poker Tour/Series is already red ocean. So many big buy-in, long tourney already scheduled now. Poker skill level was flatten in No-Limit Tourney in 2010. nearly Nash equilibrium.

    in this environment New invitational only poker league? SUPER bad timing.
    I like TV pros. They played on Poker After Dark, High Stakes Poker, The Big Game type TV program. that’s worked. already.

    “PRO” deification is simple, Winning money in high stakes in online/live any cash game, any tourney. absolutely A vain effort 200 player ranking making, that would not mean anything.

  6. Chinaman

    January 26, 2011 1:59 pm, Reply

    Poker players are dirtbags, that’s why tours that require organization and partnerships among players don’t work. Good thought, though.

  7. felicitas

    February 2, 2011 12:15 pm, Reply

    Playing poker is so much fun! I love having the opportunity top lay free poker online… it is amazing! From the comfort of my own home… does it sound great? You bet! Everyone should join me for a game! Contact me! Felicity -> poker bonus.

Leave a Reply

(*) Required, Your email will not be published