As the popular nursery rhyme goes I'm not a "tinker, tailor, soldier, sailor, rich man, poor man, beggar man, thief, doctor, lawyer, Indian chief." But I have been a small business man for the last two decades and I am using that experience to try to make sense of all the numbers that I've been reading about Full Tilt Poker these last several months.
I'm listing 20 financial figures that have been publicized regarding FTP's financial situation. Accompanying each one is a short description and a source if the information didn't come from the DOJ investigation. My speculation on some key questions generated by these eye popping numbers follows.
$1 Billion - The civil judgement being sought by the DOJ towards Full Tilt (for reference $300-350 million is the range of 2006 Party/Dikshit settlements)
$390 Million - The player fund liability as of March/April ($150 of which is to US players)
$300 Million - The currently offered player fund liability
$443 Million - Amount distributed to 23 FTP owners since 2007 (Subject:Poker asserts roughly $500 million has been "distributed" since the start of FTP)
Chris Ferguson (19.2%), Howard Lederer (8.6%), Ray Bitar (7.8%), and Furst (2.6%) - FTP Board Member ownership percentages
$41 million for Bitar, $42 million for Lederer, $25 million for Ferguson (supposed owed $62 million in dividend payments), and $12 million for Furst - Payments and distributions the four received since 2007 (The DOJ is seeking essentially the same figures in their money judgement)
$278 million - The 62.8% of owner "distributions" not accounted for as of yet (19 significant unnamed owners identified)
$40,078,646 - Amount special FTP "owner1" has received in dividends (including additional millions in loans of which at least $4.4 million has not been repaid - Subject:Poker speculates that this Phil Ivey)
$130 Million - Money FTP credited player accounts, but not as of yet collected from banks/processors ($60 million was the figured revealed in court several months ago)
$60 Million - Cash on hand at FTP at the end of March$6 Million - Cash on hand at FTP in June (source: Howard Lederer)
$10 Million - Average amount "distributed" per month to FTP owners over the last few years (Included April payments, since then unknown)
$1 Million+ - Amount Tom Dwan has pledged to redistribute to players (by Hanukkah 2012 if players don't receive their funds back, representing all compensation Dwan has received since his sponsorship deal)
$16.2 Million - FTP desired retrenchments of 250 employees to meet necessary budget cuts in the wake of Black Friday indictments.
$2 Million - Amount Phil Ivey received per month from Full Tilt as a player and shareholder (source - Phil Hellmuth shared at a 2010 charity event).
$500 Million revenue, $100 Million profits - Yearly figure estimated by Forbes magazine for Feb. 2011 article.
$1 Billion - Estimate of overall business done at Full Tilt (source - financial site)$1.63 Billion - A range of $1-$2 Billion was given for a pre-Black Friday valuation for FTP (source - PokerKing)
$4 Billion - Valuation of FTP given in court action (source - Clonie Gowen lawyers)
$4.8 Billion - Global online poker market (source H2 Gambling Capital)
What financial figures draw the most scrutiny?
1) The first is a figure of omission. Why hasn't the DOJ or FTP ever revealed how much was seized. The DOJ has released specific details of the bank, owners and account numbers but never the amounts seized. Knowing those figures would help to explain a number of uncertainties regarding FTP's situation.
2) Although there are select individuals who shared on forums that they were receiving funds into their playing account that weren't being pulled from their checking/card accounts as of November 2010, there is no indication of the mass scale of uncollected funds that would lead me to believe that the $130 million is accurate. Only several months ago in court, regarding one of the indicted bank officials, a figure of $60 million in uncollected funds was documented.
In my opinion, there would have been much more "chatter" within the poker community if $130 million was systematically credited to players. I can speak from personal experience that one deposit for $600 was credited in February without funds taken from my account, but it was one of 8-10 deposits of similar amount over the surrounding 6 months that funded my promotional freerolls for pokercurious.com which were all properly debited from my account. There was also the mention of $48 million seized from the payment processor owed to FTP in 2010. If accurate, they make for roughly in $180 million in rightful player funds that should have been collected by FTP. These are huge sums representing hundreds of thousands of players' funds, especially considering it affected only the U.S. half of FTP's business.
3) What accounts for the difference of $390 million player liability at the end of March and it being $300 million at the end of June when FTP's gaming license was suspended and they were shut down globally. U.S. players were unable to withdraw from Black Friday forward. Is the inference that $90 million was successfully withdrawn by non-U.S. based players? Were U.S. players succeeding in trading/selling/transferring funds to non-U.S. players who successfully withdrew?
4) From the end of March to the end of June, how did FTP burn through a net $54 million in cash on hand? They claimed that their non-U.S. business was stabilizing and generating funds for operations.
Was Full Tilt Poker justified in distributing $10 million a month to owners over the last roughly four years?
The Full Tilt owners have been recently portrayed as exceedingly greedy; choosing to willfully skim player funds and defraud their FTP customers/players. In order to get a better sense of whether $10 million a month was a reasonable sum to distribute to owners monthly, we need to get a better grasp of how much Full Tilt was making in revenue and profit.
The best reference point comes from reports out of PokerStars based on their 2010 results. There are a number of if's, but these numbers represent the best public information available. If the U.S. poker market was pegged at $1.4 billion in revenue for 2010 and PokerStars and Full Tilt Poker controlled around 70% of the U.S. poker market, it would make their collective revenues at $980 million. If PokerStars was roughly twice the size of Full Tilt Poker, that would attribute $327 million in revenue to FTP from the U.S. market alone. If half of Full Tilt Poker's revenue came from the U.S. market, then they could have made $650-$700 in gross revenue. That would align with reports of PokerStars' global revenue being $1.4 billion of annual global revenue with some $500 million of that as profit. While Forbes estimated a 20% profit rate for FTP, PokerStars numbers suggest that it is as high as 35%. That differential might possibly be reporting gross versus net profit, or different operational climates which is harder to determine from our limited information but it gives a reasonable range to dig deeper.
At the minimum 20% profit off operations, Full Tilt would have generated $130 million profit a year. If we take the the higher PokerStars profit percentage along the higher end of the range of FTP gross revenue, Full Tilt would have generated $245 million profit. In the first scenario, FTP was distributing their entire profit without reinvesting any of it into operations or growth to distribute to owners at $10 million a month average. In the second more optimistic scenario, Full Tilt was balancing both healthy ownership distributions with reinvesting in the business roughly half and half.
The debate over what is reasonable ownership distribution won't be settled here. That debate rages at every Fortune 500 company as well. Even if we accept that the rich owner distributions were "reasonable" during times when cash flow was so flush, there are additional key questions to ask on this subject.
- When did the profit balance shift to negative operating territory as a result of DOJ-influenced processor restrictions thus calling into question continuation of such a rich ownership distribution?
- Should FTP owners and managers have been building a "rainy day" fund and contingency plan with so many challenges to their business plan for their U.S. business operations?
- With tremendous financial resources for several years and knowingly operating in a legally murky environment, where was their plan for a "Black Friday"-type shutdown or dealing with the sticky territory of commingling player and operational funds?
Is the U.S. Department of Justice (DOJ) a hero or a villain?
Both. Frustrated in their ability to shut down an offshore industry that they deemed illegal, the DOJ squeezed the online payment processors and thus the poker sites until the poker sites, desperate to continue their profitable ways, made illegal decisions that allowed the DOJ to rightfully pounce to shut them down. If the DOJ had not applied the pressure, it is much less likely FTP would have made various player and bank fraud maneuvers to keep their businesses going.
While the DOJ rightfully investigated and charged FTP and its owners for breaking numerous financial laws, they are also quite complicit in creating the sense of urgency that facilitated the need to skirt the law more openly in the first place. It's interesting that the DOJ has sought civil penalties that pragmatically seek to recover every dollar illegally gained since the UIGEA was implemented. The DOJ has fought hard to win the court of public opinion as much as the court of law by sensationalizing details that give the impression that FTP was a Ponzi scheme and that greedy owners were skimming player funds. The reality is that unlike most other notable financial violations that are investigated and prosecuted, the DOJ doesn't usually instigate the conditions for the violation. This was much more than just a sting operation. Years of pressure on payment processors and then setting up fake payment processors to gain further information. The DOJ share a partial responsibility in creating the climate for the eventual illicit action. The DOJ didn't feel confident proving that online poker was illegal in a court of law, so they frustrated and pressured the online poker sites via processors until the poker sites unwisely took more desperate bank and player fraud options to continue their business.
Only if the DOJ were to facilitate the rightful complete return of player funds from the process of collecting their civil fines could they ultimately position themselves as the hero who cleaned up a dirty industry. Anything short of that and the DOJ will share in the villainy.
Where did Full Tilt go wrong?
This is a topic that is too complicated and involved to answer fully here with the limited information we have. But clearly:
FTP didn't have to classify credit card transactions as golf balls and flowers.
FTP didn't have to bribe bank officials.
FTP didn't have to commit bank fraud and secretly purchase a bank.
FTP didn't have to keep crediting player accounts when they were unable to receive the funds from player bank accounts.
FTP didn't have to keep compensating their owners so richly in the face of a deteriorating business climate.
FTP didn't have to loan millions to their Team Full Tilt pros with no firm mechanism for repayment.
FTP didn't have to commingle player and operational funds
FTP didn't have optimal accounting, customer service or public relations systems in place.
FTP didn't communicate well or honestly with their customers and partners.
FTP didn't have to maintain their loyalty to a troubled and indicted CEO (Ray Bitar) who is ultimately responsible for many of the poor decisions listed above and the general state of systems at FTP.
A combination of greed, ego, and incompetence is a lethal mix for any business; especially one faced with an unpredictable and adverse climate that the DOJ created. FTP seemed to lack the proper moral compass, adaption to changing business environments and eye towards future negative event preparation that was key to their ultimate survival. PokerStars proved that while not immune from some poor decisions, they could navigate a path through the resulting chaos prioritizing their customers and players.
What might an investor pay for Full Tilt now and will players receive their money back?
The complicated web of legal, financial, and public relations issues surrounding Full Tilt Poker has already scared away a handful of potential investors. The leading present candidate, a reputed French consortium of investors, must be looking to tackle all the major outstanding issues so they can emerge with the two key money making assets of value; the software and customer database.
Conjecture on what they might pay out to ultimately acquire Full Tilt Poker:
- $400-500 million in civil fines for a settlement. I would think some of the fines would be contributed by present owners and Full Tilt Poker who profited handsomely the last few years. It would be a larger payout than the Party/Dikshit penalties of 5 years ago, but half of the unrealistic $1 billion being sought presently.
- $300 million in player funds to be returned.
- $200-$300 million in re-start-up operational funds and investment in new branding and customer recovery.
- X$ for purchase of the software and customer database. While the software and customer database is the ultimate reason for any investment and hope for future return on their investment, I imagine that at this point this will be rolled into the deal for covering all the other outstanding issues.
Previous FTP valuation estimates of nearly $4 billion may have not been far fetched given an economic and legal environment that didn't include a total global shutdown and massive DOJ fines to be faced. In the current environment, a prospective investor who re-brands with the assumption that a large percentage of the player base follows might be willing to pay up to $1 billion in total to gain a revenue stream that could eventually return to making $100-$250 million in profit a year especially if the lucrative future US market would be available after some negotiated period of time.
Unfortunately the story of Full Tilt Poker is still very much incomplete. It seems every few days, more information is released that helps flesh out some more details of this saga. It switches from desolation to hope and back again regularly. Only once the players see the complete return of their funds will they allow themselves to move on from the attachment they had to this once proud brand who professed to be a site created by pros with players in mind.
Full Tilt Poker innovated some wonderful advancements to the online game and was home to many of the world's best players playing the biggest online cash games anywhere. The poker world is still at a loss from the lack of play from the most famous and successful FTP players like Phil Ivey, Gus Hansen, Patrik Antonius, Tom Dwan and Dan Cates (note - Cates isn't affiliated with FTP but he isn't playing for associated reasons like his reputed $6 million bankroll being stuck on FTP). Many thousands of poker players called FTP home and were quite loyal.
Now, the general public perception of the sad Full Tilt Poker saga is perhaps most poignantly summed up by 71-year-old six-time WSOP bracelet winner T.J. Cloutier...
"They didn't need to cheat, they didn't need to do anything," he said. "It's an absolute cash cow if it's run right. They get a percentage out of every single pot that's played and every dollar put on the site.
Why would they ever try to get more than they should get out of it? To me, it's greed. You know that television program, 'American Greed'? They ought to have this thing on there. I heard point blank that none of the players on Full Tilt are going to get their money. The feeling now is if there's any money left, the government is going to get it."
Having done my research, I better understand how complicated it is to evaluate Full Tilt Poker from the outside with limited information. I welcome your thoughts on my Full Tilt Poker conjecture. Let's hope the number keep coming in and that they ultimately roll in the player's favor.