At PartyGaming, Everything’s Wild!

If you have more recent knowledge of the online gaming industry, you will likely think of PokerStars as the dominant force in the space.

However, you may not know that one of their competitors, PartyPoker, blazed the trail into the online poker space, quickly becoming a juggernaut with the majority of the market share of players and revenue.

We are going to give you a full history of the company, from its launch to becoming the most valuable gaming company on the planet, and the eventual shift in focus that allows it to be where it is today.

The Early Days
The initial idea for PartyPoker came from one of the company’s founders, Ruth Parasol, an American born in San Francisco.

Before getting into the gaming business, Parasol worked for her father’s company, which had a series of 900 numbers used for psychics, weather, and porn.
This was a very lucrative business in the 1990s, giving Parasol an excellent base of income to invest in her own business.

In 1994, Parasol saw the potential in the Internet (many of her father’s businesses were moving from telephone to online). In fact, one of her companies was responsible for the release of the massively in-demand Tommy Lee/Pamela Anderson sex tape.

Being in the porn business, it wasn’t long before Parasol made her way into the other vices; she saw the rise of online gambling sites very early on and was able to leverage the massive databases of her and her father’s companies when she launched the Starluck online casino in 1997.

As there weren’t that many online casinos in the market at that time, Parasol was able to capture a significant number of real-money players to her casino brand. She opened a couple of other brands to help cross-promote to her growing database.

As the 2000s began, online poker was starting to enter the conversation, and Parasol knew she needed to be in that game.

In 2000, Parasol offered shares in her company iGlobalMedia to Anurag Dikshit, a software developer from India, in return for his development of a multiplayer poker platform. Dikshit had a very successful business of his own, and he invited Parasol to become a partner in his business as well.

The two added two more founders to the initiative: Parasol’s husband Russ DeLeon would become the COO, and Vikrant Bhargava would head up marketing. With that, the core of PartyGaming was formed.

PartyPoker was launched in 2001, with the company also offering other operators the chance to share in pooled liquidity by licensing a “skin” of the game on the same network. Several big casino sites jumped at this opportunity, and the iGlobalMedia poker network was live.

Massive Growth
Parasol’s bet on the poker industry could not have been better timed. Poker was about to become very popular as a spectator sport with the introduction of the hole-card camera invented by Steve Lipscomb, founder of the World Poker Tour.

The fact that PartyPoker had a network of operators, combined with the massive database of gamblers and potential gamblers that they held from their time in the casino world, added up to a massive rate of growth over the next couple of years.

By 2003, the company had over 60% market share of the world’s real-money online poker players.
The site was taking on tens of thousands of concurrent players each day, and while this was fantastic from a revenue standpoint, the original platform was bursting at the seams. It was up to Dikshit and his development team to re-write the software in such a way that it could handle a much higher volume of players.

The company was growing by double digits month after month, and it seemed that the only thing that could derail the business was a software meltdown. The development team worked diligently and released updates that would allow for more extensive liquidity pools moving forward.

This was critical for the business, especially when they decided what they were going to do with their new-found profits.

The World Poker Tour and Mike Sexton
With the advent of the in-table camera, poker was no longer a fringe event that was buried in late-night coverage once a year on ESPN; it was now a much more viewer-friendly product, as viewers could see the cards being played by some of the best players in the world.

Mike Sexton at WPT
The World Poker Tour quickly became a hot commodity; they ran and filmed many events across the U.S. These events not only attracted many of the top professional players, but they were also being broadcast around the world, thanks to excellent distribution partnerships.

By the second season of the WPT, it was evident that this was no passing fad, and the group at PartyPoker wanted in. Online poker was giving amateur players a vehicle with which to qualify for huge buy-in live events for a fraction of the price (something that changed the industry forever in 2003 when Chris Moneymaker won the WSOP Main Event).

PartyPoker, then the leader in the online space, decided to enter a partnership with the tour – they would have their brand all over the broadcast and would become the official site for qualifying events to be played.

Taking it a step further, the site decided to also offer a partnership arrangement to Mike Sexton, who was the voice of the WPT. Not only was Sexton a professional player himself, but it was also clear that he was becoming the leading broadcaster for the sport, so having him as the spokesperson for PartyPoker could not have a negative impact.

Now, PartyPoker had locked up sponsorship of one of the biggest poker tours, and its bombastic ambassador. Times were indeed very good for the four founders of the site, who had now relocated to Gibraltar.

The Next Logical Step
With this investment in the WPT, combined with their large licensees like Empire Poker generating extra revenue for them, PartyPoker was in the place everyone sought after in 2004 – the top of the mountain.

By 2004, PartyPoker was earning 500 million USD in profit annually.
To maintain and expand their market share, the company decided it made sense to raise money through an IPO. Given the uncertain legal status of online gambling in the United States at the time, the company prudently chose London as the place to stage their public offering.

However, to go public, the company had to make a decision about their story: were they a poker network in which they operated a skin, or were they going to focus on being an operator only?

It was evident that by 2004 the company did not need the revenue that came from their skins, so they started a discussion with them all to determine the fate of the licensing program. As a result, PartyPoker ended up buying a couple of skins from their owners; the rest still wanted to operate their own businesses.

In a risky yet calculated move, the company did a software update in the middle of the night that separated their skins onto their own version of the network that was independent of the PartyPoker brand.

However, that also meant a major blow to the liquidity on that network, causing the operators to become furious that it had not been handled better.

The largest of these skins, Empire Online, would be the most vocal; they sued the company for breach of contract and ultimately ended up settling with the firm and selling the assets to PartyGaming.

In June of 2005, everything was in place, and PartyGaming made their initial appearance on the FTSE. Results were incredible; the founders sold 23% of the company in the IPO, raising over one billion GBP.

This resulted in the valuation of the company being set at 4.64B GBP. The founders were instant billionaires.

The Rush Continues
Soon after the IPO, the stock was a huge hit; it quickly grew the company to a valuation of over 12B GBP. This was significant because in early 2006, PartyGaming was worth more on paper than Harrah’s, which up until then had been the most valuable gaming company on the planet.

The main difference? PartyPoker had no land-based properties to manage, while Harrah’s had dozens across the world. Four founders sitting in Gibraltar and the Isle of Man had grown their little online poker business to the pinnacle of the gambling world in only five years.

So, what does a company like PartyGaming do for an encore?
Well, they started by producing a lot of their own content for television distribution. Programming was in high demand; poker shows didn’t seem to have a timestamp, so they could be replayed over and over without losing much in the way of ratings.

The company started to spend more money in markets locally, tapping into specific likes and dislikes in each country that would allow them to promote their brand more regionally.

While their sponsorship of the World Poker Tour continued, the big news in the industry was that the company had secured a lengthy sponsorship arrangement with the World Series of Poker. The most desirable tournaments in the world would now have PartyPoker logos splashed across them for years to come… or so they thought.

The Site Hits a Wall Called the U.S. Congress
Everything was going the site’s way. Despite the gains being made by PokerStars and Full Tilt Poker, the company still had the largest piece of the pie, controlling over 40% of the market and generating hundreds of millions of dollars of profits annually for their shareholders.

In October 2006, everything changed for PartyGaming (and the rest of the U.S. gaming market) when the U.S. Congress passed a bill called the Unlawful Internet Gaming Enforcement Act (UIGEA). This act would make payment processing of gaming transactions by Americans illegal for U.S. banks, and anyone associated with them.

Not shockingly, this news was met with panic across the industry. Companies started scrambling to understand what this meant for their business, while American players made a mad dash to withdraw their balances.

While it meant something different to every site, with PartyPoker being the largest and with over 75% of their revenue coming from the United States, they had the most to lose.

The company started to think through all the options in front of them. Merging with other companies in the space was one option. They also considered the idea of purchasing a bank in a gaming-friendly jurisdiction and taking on the processing arm in-house.

However, each of the ideas faced a significant roadblock: as a publicly traded company, PartyGaming had a fiduciary responsibility to their shareholders.

After much debate, the company decided to make an announcement.

Although it was going to kill their business in the short term, the group decided to exit the U.S. market, leaving their American players without a home.
This had a major impact on the company from both a liquidity and a valuation perspective. Overnight, the company cut off three quarters of their incoming revenue, and the market reacted accordingly; the company’s stock tumbled 60% overnight, and even more in the coming days, reducing PartyPoker to lows they had not seen since inception.

The industry was shell-shocked by the decision of PartyGaming. Other public gaming companies followed suit, while companies like PokerStars remained in the U.S. and received massive growth figures.

As a result, PartyGaming had to move on to new markets and new products to build back the confidence of their shareholders and to grow their company once again.

The Post-UIGEA Landscape
Even before the massive blow the company took in October 2006, PartyGaming had seen some significant changes. First off, both Dikshit and Bhargava had resigned from the board of directors of the company; they were ready to move onto to new ventures.

In mid-2006, the company released a new piece of software that included access to games aside from poker, allowing players to access these games with the simplicity of one centralized account.

The company also took on a new CEO. Jim Ryan, previously the head of Excapsa (Ultimate Bet) and the CFO of the casino software provider CryptoLogic, was brought into the fold.

His mandate was clear: come up with a strategy to preserve the PartyGaming brand while finding new avenues to grow the business.
The problem with this plan was that the European market was saturated with gaming companies. The laws were significantly better for players and operators in Europe; gambling was part of the backdrop of the region.

The majority of gambling came in the form of sports betting, and while PartyGaming had launched their own sportsbook, it was clear they were fighting an uphill battle against the incumbents.

Cleaning Up the Mess
Before the company could move forward with any new business, they had to deal with the fallout of what had happened in 2006 in the U.S. In 2008, Anurag Dikshit settled with the Department of Justice; in return for all charges being dropped against him, he paid a fine of over 300 million USD.

This was, however, a personal settlement that had no impact on the charges filed against the company. To date, he is the only founder that has agreed to a settlement.

Jim Ryan had been in discussions with several parties with regards to potentially merging businesses, but before that could happen, he had to negotiate with the Department of Justice as well. After lawyers spent months going back and forth on the topic, in 2009 there was an announcement: PartyGaming was going to settle with the DOJ.

In return for pleading guilty to mail fraud and paying a fine of just over 100 million USD, the U.S. government would drop all other charges against the firm.

This was a significant announcement for a couple of reasons. First, it was not nearly as big a penalty as Dikshit had paid personally, which would set a precedent for other settlements to come.

More importantly, however, this settlement would allow PartyPoker the chance to return to the U.S. market if it was ever possible. In agreeing to the terms, PartyPoker never accepted that they were operating illegally in the country, which would come to be an important distinction soon after.

Doubling Down on a Deal
Also in 2008, the company started talks with the World Poker Tour regarding their relationship. The tour was in trouble. Without online sites competing for advertising and sponsorship deals, the tour lost a major chunk of revenue, which they had used to fund the expensive costs of filming the events.

After months of discussions, PartyGaming agreed to purchase the tour and its assets for 12.3 million USD.
This seemed like a steal at the time; Party was acquiring a competing asset to PokerStars’ European Poker Tour. The costs of the tour were making a barely break-even proposal; however, to defend some territory, the brand thought it was the right thing to do.

At the same time, PartyGaming re-upped with Mike Sexton as a spokesperson. With their new ownership in the land-based tour and a subscription-based poker site in Club WPT, Sexton remained a fixture for the brand, and he continues to be a proponent of the site to this day.

The Dealmaker Keeps Moving
Now, with all the U.S. hassle far behind them, the company could turn their attention to the future of PartyGaming. The industry was more competitive than ever; as popularity in poker was slowing, a focus on casino and sports was coming. Also, the delivery methods were changing. Having a robust mobile platform was increasingly important, no matter what games a site offered.

All of this change would cost companies a lot of money in development, further cutting into profits. Jim Ryan, ever the dealmaker, started many conversations with other CEOs.

He found a dance partner in Manfred Bodner, the CEO of bwin. bwin was a sports-first site, and had been an industry leader for almost a decade. They were also ripe for a change to become more streamlined and competitive.

While rumors of a merger between the two companies had been swirling since late 2009 (the industry is very tight-knit), it wasn’t until late 2010 that the two groups confirmed that they were in discussions to bring the two companies together under one umbrella.

As both companies were approximately the same in size, the details of the merger were difficult to negotiate. This was to be a true merger, rather than one company acquiring the other.

Finally, in early 2011, the deal was completed. The new entity was formed, and Digital Entertainment was born. The newly-merged company would still have some operational kinks to work out; most notably, both Ryan and Bodner would remain on as co-CEOs of the firm.

Also, the two databases would not be merged at first. Players could create accounts at both sites for the foreseeable future. We cover more of the history of this new firm on this page:

History of Bwin.Party
Look Who’s Back
The company, and specifically Ryan, turned its attention back to the United States. After the bottom fell out of the remainder of the U.S. grey market in 2011 with the events of Black Friday, individual states were now in a position to make online gambling legal.

Nevada and New Jersey were, not shockingly, the first to pass legislation, and started to accept applications for licensing.

With PokerStars, Full Tilt Poker, and Ultimate Bet all in the doghouse for staying in the market post-UIGEA, and with their $105 million settlement reached a couple of years earlier, PartyGaming was prepared to make their return to the American shores.

The company forged a partnership with land-based Atlantic City casino Borgata for their foray back into online gambling in the United States; they acquired a license, and soon after, partypoker.nj was launched. The results have been disappointing.

This isn’t entirely shocking, as the pool of players has been ring-fenced to the boundaries of the state. However, symbolically this was a major step forward for the industry. The once larger-than-life PartyPoker was back, and ready to move forward into any state that would welcome them