ShuffleMaster blinks, folds to IGT ?

[DonkeyQuixote]

In an interesting development, that has implications for the future shape of the online gaming industry in the US, Shuffle Master today folded its hand and pulled out of acquiring OnGame from bwin.party.

While there may be a number of unstated reasons, .... OR IGT has paid enough to crush the already-licensed opposition in the "market-ready" supplier chain for online poker:

ShuffleMaster explained it had been playing short-stacked, it was looking at OnGame as a break-even, pending opening of US,markets:

"When we signed the definitive agreement in February, we believed that general market conditions and Ongame's sales pipeline supported the purchase being neutral or modestly accretive to the Company's EBITDA. Business conditions in Europe have deteriorated since February and as a result, it has become evident to us that Ongame's operations post-acquisition will not achieve the near-term results we initially expected and will require a larger ongoing investment than anticipated. Although we believe in its eventuality, there is also uncertainty surrounding the timing of legalization and the rollout of online poker in the U.S. at both the state and federal levels," continued Isaacs. "Although we are disappointed in the outcome, after thorough due diligence we believe this is the right thing to do for our Company and our shareholders. We will continue to pursue opportunities to achieve our growth objectives in the online space, including leveraging and protecting our strong intellectual property and brands, and will investigate all prospects - both organic and acquisitive - that make strategic and financial sense."

This affects the legislative arena with repsect to proceeding either State by State or federally.

1. Only very deep pockets will play in this game.
2. Models built on future, international liquidity will require deep pockets.

IGT should be happy, as should lotteries. However, bwin.party, bally, aristocrat and shufflemaster can play on, but they appear short-stacked in any race to market in Nevada or the US other markets.

Stations remains an option, because it did not pay too much for Cyberarts and has a strong marketing base.

[LastLife]

I'm sure that all they had to do was look at state proposals. They wouldn't be allowed in IL/DE. NJ is a long shot, and there will probably only be 1 profitable California site, if that. We also don't know the demand for partnerships. Imo, companies would rather partner with bwin instead of a company that just acquired leftovers from bwin, not to mention no experience in this industry.

[DonkeyQuixote]

Originally Posted by LastLife

I'm sure that all they had to do was look at state proposals. They wouldn't be allowed in IL/DE. NJ is a long shot, and there will probably only be 1 profitable California site, if that. We also don't know the demand for partnerships. Imo, companies would rather partner with bwin instead of a company that just acquired leftovers from bwin, not to mention no experience in this industry.

My point was that they waited until the river before folding. They announced, they gathered prospective partners and, looking at how short theiir stack was, folded instead of going forward ...... because OnGame was losing money ????

For its part bwin.party either needed the money or it needed to shed some unperceived liabilities or a dog product ? Either way, ShuffleMaster was too short-stacked to close on its chosen route to market.

Leaving aside that you are putting the "partner" horse before the "pass legislation" cart, imo, prospective operators would rather partner for software with IGT (casinos) or G2Tech (lotteries) or someone with network experience like Playtech instead of bwin.Party.

[knircky]

Originally Posted by LastLife

I'm sure that all they had to do was look at state proposals. They wouldn't be allowed in IL/DE. NJ is a long shot, and there will probably only be 1 profitable California site, if that. We also don't know the demand for partnerships. Imo, companies would rather partner with bwin instead of a company that just acquired leftovers from bwin, not to mention no experience in this industry.

They probably realized they have no shot in EU in already established markets that are declining.

Germany which is the biggest market just made online poker illegal with a newly ratified law and the only german state that just signed a somewhat perfect online poker law ( schleswig holstein ) will not issue poker licenses as anticipated and prolly reverse the law due to new government.

The US looks bad anyhow and NV is so small that it does not matter.

I hate the greed and corruptness of our so called democracies both in EU and US. If online gambling would be a fairly regulated market it would be so profitable. But with politics driven by special interest it becomes a world that feels like it is run by the mafia.

Nevada is no exception. The fact that only existing casinos can open these businesses is a joke.

[LastLife]

Originally Posted by DonkeyQuixote

Leaving aside that you are putting the "partner" horse before the "pass legislation" cart, imo, prospective operators would rather partner for software with IGT (casinos) or G2Tech (lotteries) or someone with network experience like Playtech instead of bwin.Party.

My point was a partnership with Bwin is better than shuffle master. Regardless, as of right now, bwin has more poker partnerships that anyone and that isn't likely to change.

For its part bwin.party either needed the money or it needed to shed some unperceived liabilities or a dog product ? Either way, ShuffleMaster was too short-stacked to close on its chosen route to market.

Bwin would leave ongame if the deal went through. That would both make ongame less valuable and party more valuable.

[LastLife]

Originally Posted by knircky

They probably realized they have no shot in EU in already established markets that are declining.

Germany which is the biggest market just made online poker illegal with a newly ratified law and the only german state that just signed a somewhat perfect online poker law ( schleswig holstein ) will not issue poker licenses as anticipated and prolly reverse the law due to new government.

The US looks bad anyhow and NV is so small that it does not matter.

I hate the greed and corruptness of our so called democracies both in EU and US. If online gambling would be a fairly regulated market it would be so profitable. But with politics driven by special interest it becomes a world that feels like it is run by the mafia.

Nevada is no exception. The fact that only existing casinos can open these businesses is a joke.

The deal was completely reliant on US legislation. They were thinking US market. I'm also pretty sure German legislation passed before this deal wet through.

[TheEngineer]

I knew who started this thread simply by the title.

Spoiler:

And not just because of the space preceding the question mark.

[sba9630]

Originally Posted by TheEngineer

I knew who started this thread simply by the title.

Spoiler:

And not just because of the space preceding the question mark.

Wow. I usually need to see a shot at the PPA, sucking up to a lottery, sucking up to the DOJ, or some combination of the aforementioned before I know who posts this kind of stuff.

I'm impressed.

[DonkeyQuixote]

Originally Posted by sba9630

Wow. I usually need to see a shot at the PPA, sucking up to a lottery, sucking up to the DOJ, or some combination of the aforementioned before I know who posts this kind of stuff.

I'm impressed.

"This kind of stuff", meaning a major shift in strategy perhaps forced upon an anticipated supplier of poker software to the US online poker industry, who is up for license approval soon in Nevada, and which gives back to bwin.party a "major" poker network ?

(Didn't some other companies already sign on to the OnGame bandwagon ride to a near term launch in Nevada ?)

If you want to understand how and why legislation is or is not passed, where it is likely or unlikely, and who stands to influence the process, a little insight into the industry actors helps. It also helps give background in answering the perpetual, "But WHEN WILL IT launch ? inquiries.

Shufflemaster is the major competitor to IGT for the role of supplier to an emerging casino-centric online industry in Nevada for any near-term launch.

The abrupt reversal by ShuffleMaster came on the day that an extensive interview with Lou Castle, their online strategist, hit my desk in the print version of Inside Poker Business. The detailed, extensive article described at length the reasoning behind the now-aborted Ongame acquistion, but struck a few hollow notes ..... For one, Castle/ShuffleMaster really wanted a "one click" product, not an old, downloadable product like Ongame. There was also discussion of the rpice of the deal, the constraints on a public company to do only a deal which would pay for itself, and the ongoing Ongame operation.

Reviewing the Ongame deal in light of the one-click prefeence for Shufflemaster may mean that ShuffleMaster undid a bad deal that did not really fit either its stated strategy for development AND recast its development horizon beyond the "rush to market" need which OnGame did seem to fit.

(There was an article today that cast this reversal in Nevada licensing terms, implying that shedding some current OnGame operations needed for approval would lessen the value/liquidity of OnGame. If accurate, then perhaps bwinParty was just handed back a tar baby they have to deal with re licensing as well ? Bet Jim Ryan is on the phone pleading with some Euro operator or a Merge to buy Ongame for pennies on the former price.)

Legislatively, this means that IGT will likely emerge as the dominant player in the near term market in Nevada, with the network role also dominant and some skin licensee stepping up, ..... unless Stations gives it a run as a standalone operator. Other States may see a wash of red ink, but they will also see a deep pocket network operator, with whom their casinos already have familiarity.

On the other hand, this also highlights the fragility of public companies focus on near term results versus the longer term available to either private companies or public backing for investment in online launches and spending now to get future market share or other perceived "first mover" rewards.

[DonkeyQuixote]

Originally Posted by knircky

They probably realized they have no shot in EU in already established markets that are declining.

Germany which is the biggest market just made online poker illegal with a newly ratified law and the only german state that just signed a somewhat perfect online poker law ( schleswig holstein ) will not issue poker licenses as anticipated and prolly reverse the law due to new government.

The US looks bad anyhow and NV is so small that it does not matter.

I hate the greed and corruptness of our so called democracies both in EU and US. If online gambling would be a fairly regulated market it would be so profitable. But with politics driven by special interest it becomes a world that feels like it is run by the mafia.

Nevada is no exception. The fact that only existing casinos can open these businesses is a joke.

You echo Lonely Island , .... "so I took that hotdog and threw it on the GROUND !!! I'm not part of your System !!"

That in Nevada only licensed casinos, and not even all of them, will be allowed as operators is a political reality. But guess what, THE BILL PASSED INTO LAW and online poker WILL be launched.

Contrast that with States like Delaware or even Illinois, where the Lotteries hold political sway. It is likely that online poker legislation would have to reflect those States' political REALITIES to get passed and online poker launched in those States.

Pointing out political realities, like that lotteries may be the prime movers in legalization in some States is not toeing the PC party line, but it is reporting, not "sucking up".

Online poker grew up outside "The System" politically for the US markets. There are still companies offering it in an unregulated market.

However, if you want REGULATION, then you are going to get what you likely consider "The System" ......

[PokerXanadu]

Originally Posted by DonkeyQuixote

...Legislatively, this means that IGT will likely emerge as the dominant player in the near term market in Nevada, with the network role also dominant and some skin licensee stepping up, ..... unless Stations gives it a run as a standalone operator. Other States may see a wash of red ink, but they will also see a deep pocket network operator, with whom their casinos already have familiarity...

What about Bally's Chiligaming platform - how well will that compete with IGT? They already have the Golden Nugget up and running on it for free play.

[DonkeyQuixote]

Originally Posted by PokerXanadu

What about Bally's Chiligaming platform - how well will that compete with IGT? They already have the Golden Nugget up and running on it for free play.

LOL, although that appeared to be the case, in the presentation at least, the reality is that Chili did not own the poker software ....

Rather, they licensed poker software from Playtech, including the Golden Nugget poker games you see.

So, Chili could not have sold poker software, at least not that software, to Ballys.

This state of affairs became clear when, on June 12, Ballys and ShuffleMaster and Ongame announced that Ballys would use OnGame software obtained through agreement with ShuffleMaster:

"LAS VEGAS--(BUSINESS WIRE)--Two of the leading global gaming suppliers, Bally Technologies (NYSE: BYI) and Shuffle Master, Inc. (NASDAQ Global Select Market: SHFL), and one of the leading poker platforms, Ongame Networks Ltd., announced a strategic alliance aimed at expanding their online gaming presence globally and increasing their online business-to-business (B2B) product offerings. ..."

I have no inside info, about what Bally or Ongame plans to do going forward.... maybe they will agree to something to replace/revive a possibly busted June 12 deal ?

[PokerXanadu]

Originally Posted by DonkeyQuixote

LOL, although that appeared to be the case, in the presentation at least, the reality is that Chili did not own the poker software ....

Rather, they licensed poker software from Playtech, including the Golden Nugget poker games you see.

So, Chili could not have sold poker software, at least not that software, to Ballys.

This state of affairs became clear when, on June 12, Ballys and ShuffleMaster and Ongame announced that Ballys would use OnGame software obtained through agreement with ShuffleMaster:

"LAS VEGAS--(BUSINESS WIRE)--Two of the leading global gaming suppliers, Bally Technologies (NYSE: BYI) and Shuffle Master, Inc. (NASDAQ Global Select Market: SHFL), and one of the leading poker platforms, Ongame Networks Ltd., announced a strategic alliance aimed at expanding their online gaming presence globally and increasing their online business-to-business (B2B) product offerings. ..."

I have no inside info, about what Bally or Ongame plans to do going forward.... maybe they will agree to something to replace/revive a possibly busted June 12 deal ?

Thanks. That clears that up.

[novahunterpa]

It doesn't mean that ShuffleMaster is folding(whatever OP means by that) to IGT. Deciding to back out of the deal for OnGame doesn't necessarily mean ShuffleMaster is conceding victory to IGT and that ShuffleMaster has decided to not compete in the online poker/gaming market.

It sounds more like as conditions changed both in the US and ROW ShuffleMaster made a strategic business decision that the OnGame platform no longer fit into there online poker business model, for w/e reason at the previously agreed price. Iv'e read nothing stating ShuffleMaster is giving up on being provider for online gaming.

ShuffleMaster may still be interested in online poker but they are no longer interested OnGame.

[DonkeyQuixote]

Originally Posted by novahunterpa

It doesn't mean that ShuffleMaster is folding(whatever OP means by that) to IGT. Deciding to back out of the deal for OnGame doesn't necessarily mean ShuffleMaster is conceding victory to IGT and that ShuffleMaster has decided to not compete in the online poker/gaming market.

It sounds more like as conditions changed both in the US and ROW ShuffleMaster made a strategic business decision that the OnGame platform no longer fit into there online poker business model, for w/e reason at the previously agreed price. Iv'e read nothing stating ShuffleMaster is giving up on being provider for online gaming.

ShuffleMaster may still be interested in online poker but they are no longer interested OnGame.

I can clarify the OP terminology asking if ShuffleMaster had "folded" to IGT.

What ShuffleMaster did do was fold their hand in playing for a "ready-to-launch" posture by, say, January, 2013....... pretty much leaving IGT with the value, if any, of that pot.

I am not saying that the pullout of the Ongame deal was a BAD play. To the contrary, but for its value in a first-to-market scenario, it never made much sense at the price or in terms of product.

I do know that about two years or so ago I was told by someone who worked there that ShuffleMaster was at the time working on developing its own poker software. I saw the OnGame transaction as a jump up the curve in getting to market early, for whatever value that might offer. (i.e. see the "alliance" deal announced with Bally based on the OnGame platform.)

I also read an extensive interview in May with Lou Castle, the Shufflemaster online development guru, about what he thought was needed for a one-click, nodownload, "best poker software" offering, and that description did NOT match with Ongame's product at all.

So, given the purchase price for OnGame, its product not really meeting what the guru apparently wanted to develop, the stated realization that OnGame future revenues would not contribute to Shufflemaster's bottom line, and the projected net cost of any "early launch" into a limited market, the pullout was likely a GOOD idea.

ShuffleMaster likely has not conceded online gaming development, my comments were directed at the aborted attempt to make a first-to-market launch date for Nevada licensees.

(In any event, it still leaves Ballys holding a bag, unless it wants to "double-down" itself and buy OnGame itself, to compete with IGT/DoubleDown for the early launch honors.

FWIW, early launch honors might actually be available through Delaware, but only if some very, very optimistic press is to be believed.)