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Deal Someone In

7/13/09 - Wall Street Journal - View Source

By Brett Arends

The World Series of Poker in Las Vegas is heading down for the final table. Thousands of wannabes in dark glasses are being winnowed down to nine. But the most coveted prize in the game isn't the only thing up for grabs right now.

Is TV's World Poker Tour up for sale?

"We can't comment... beyond saying we've provided confidential data to third parties," chief financial officer Tom Flahie told me last week.

Chief executive Steve Lipscomb, in the offshore gambling haven of Gibraltar last week for unspecified industry talks, went further. "We've had discussions with, and exchanged documents with, some companies that have expressed an interest," he said from his cell phone.

Sounds like it.

Whether a deal emerges is, of course, another matter. But it isn't hard to see why the WPT would be in play. Years of losses and missteps have left it looking like an impulse purchase for a major broadcaster or an online poker company.

With its stock at $1.25, parent company WPT Enterprises is now valued at a paltry $25 million. The company has about $18 million in net cash sitting on its balance sheet. Flahie confirmed that pretty much all of that would be available to an acquirer. So the "enterprise value" -- the net cost -- would only be about $7 million or so at current prices.

World Poker Tour depends on sponsorship for its TV programs (for which a deal for an eighth season on Fox Sports, which like MarketWatch is owned by News Corp., has just been signed). Lipscomb says, when he talks to potential sponsors, "The inevitable question when someone is about to pay you $3 million, or $4 million, or $5 million, is (for them) to look and say, 'Why don't I just buy your company?'"

Lipscomb adds: "Oftentimes the answer is: It's not for sale. But of course everything is always for sale."

What may sweeten the pot is that the company has, at least for now, stopped hemorrhaging money. It generated positive cash flow last quarter for the first time in more than two years. And Flahie says he's confident they will break even, or better, for the year.

Big drop for one-time highflier

It's a long comedown for a company that was once valued at half a billion dollars and revolutionized TV poker. Even critics concede Steve Lipscomb and the World Poker Tour played a key role in creating the poker boom. They launched the tour -- a series of high-stakes tournaments in various cities -- back in 2003. The key invention was the so-called "hole cam," a camera that let TV viewers see the players' hidden or "hole" cards during the betting.

In 2005, at the height, the stock hit $26 and poker legend Doyle Brunson was rumored to be mulling a $700 million bid.

What went wrong? Critics say the World Poker Tour was swamped on TV by too many copycats. Meanwhile it never found a way to convert its brand name into a reliable revenue stream. Even selling WPT-branded products didn't work: Online casinos give away many of the same things for free.

Company mistakes didn't help -- from a failed venture in China to letting costs get out of control. From 2004 to 2008 overhead trebled to $22 million while revenues, after a brief boom, fell backwards.

Yet while WPT has struggled, the worldwide poker boom has gone from strength to strength.
A record 61,000 people entered at least one of the events at this year's World Series of Poker (which is not connected to the WPT) in Las Vegas. And that includes about 6,500 who either found, or won, the $10,000 needed to enter the main event -- the No Limit Texas Hold 'Em tournament being played out right now.

That's down a bit from a peak a few years ago, thanks to the recession and the crackdown on U.S. Internet poker. But it's still 10 times the number who turned up as recently as 2002.
The poker boom in the U.S. isn't quite as manic as it was a few years ago. But overseas it is still growing like Topsy. There are moves afoot to organize poker like chess, with an agreed set of rules and an international governing body. International Federation of Poker president Anthony Holden, author of "Big Deal: A Year as a Professional Poker Player" and "Bigger Deal: A Year Inside the Poker Boom," says he hopes poker will join the mind sports "Olympiads" in due course.

This international boom may give World Poker Tour an opening -- if it finds the right partner and plays the hand right. It still has a number of assets, including a reasonably strong brand in a crowded field, expertise and valuable front man Mike Sexton, the most recognizable presenter in the game. You have to figure almost any manager could squeeze more than a few million dollars of value out of that.

Lipscomb says the World Poker Tour is now broadcast in more than 150 countries. In France, his second biggest market, episodes sometimes get more viewers than in the U.S.

Better times in the cards?

A lot may depend on the key issue facing the entire poker business -- whether the laws restricting online gambling in the U.S. are likely to change. If they do, you can expect a free-for-all as operators try to grab market share quickly. Online poker was booming before the Republican-controlled Congress cracked down with new laws in 2006.

Things are looking more promising these days. Rep. Barney Frank, D-Mass., is pressing to legalize online gambling, and recently introduced a bill to that effect. Poker players everywhere hope they have a friend in the White House, where a born-again recovering addict has been replaced by a bona fide -- er, card-carrying -- card player. Barack Obama, notes Holden, is the first poker-playing president since Nixon. He may be the keenest card player in the White House since Truman.

Other countries are also taking a second look at liberalizing online gambling laws. The big reason? Governments desperately need more revenues -- and legalizing, regulating and taxing online gambling may give them just that.

There are reasons to hope that things may look up for the World Poker Tour after all.

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