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The Stars Group Continues Slow Transition Away From Poker-Dominant Operations

In recent days The Stars Group, parent company of global online-poker market leader PokerStars, has released its financial reports for the third-quarter of 2017. While there are plenty of interesting details inside, perhaps the most important information is the continued slow shift of TSG to becoming a multi-service online gambling operator, as opposed to its earlier existence as a poker-only brand.

The latest numbers show that over the past 12 months, The Stars Group has shifted another 5% or so away from online poker and into other offerings, primarily sports betting (BetStars) and casino games. TSG’s quarterly poker revenue was actually up 13% year over year, to $227 million, but because The Stars Group did much better in all other categories, that 13% poker-revenue gain was actually a drag on the numbers.

Far more rosy, as far as the top-line items went, were the year-over-year jumps in online sports and casino games. Together those two categories were up 48% from 2016’s Q3, from $64.2 to $95.2. That gain outstripped the poker advances and means that the poker share of The Stars Group’s overall business slipped five percentage points, from roughly 72% to 67%.

The trend shows no sign of slowing down, and TSG execs acknowledged that online-casino and sports-betting offerings represent the company’s growth area. TSG also acknowledged leveraging its highly-dominant recognition in the online-poker sphere to advance its efforts in other market segments. That may not represent a “cutting back” of TSG’s overall marketing spend in terms of poker, but it likely means more movement toward the other gambling segments as opportunities arise, even in preference to possible poker spends. (This updates and rephrases the original version — hh. You’re welcome, Josem!)

Amaya Completes Rebranding to Stars Group Inc.There was one interesting note to the poker numbers, however: Stars managed to squeeze more revenue out of the online poker segment despite having no actual growth, year over year, in player numbers. Player participation would have declined some if it hadn’t been for the reentry of the PokerStars brand into Portugal, though it’s also fair to note the Stars brand (along with most others) were forced out of Australia during the same period.

TSG execs credited such things as the new Stars Rewards loyalty program with driving an increase in revenue generation from large numbers of players. That backs up its contention that the program’s focus on recreational players is better for the company’s line than its earlier loyalty program, which catered more to high-volume grinders. That shift in importance has been much maligned within the online-grinder community over the past couple of years.

TSG Eyes More Corporate Acquisitions

The Stars Group’s predecessor by name, Amaya Gaming, was perhaps more successful as a merger-and-acquisition entity than as a profitable online operator. Perhaps that’s why the company’s execs are still eyeing that method as a way to grow the company. In an interview with Reuters, TSG CEO Rafi Ashkenazi acknowledged that the company is seeking to build a $2.5 billion war chest to fund such opportune acquisitions.

Ashkenazi didn’t name any corporate targets, but told Reuters he’s interested in “buying either one big company or three to five small-to-medium companies.”

Trying to Put Old Business to Rest

Ashkenazi and TSG will need to find some partners, since the company’s war chest is growing but not large enough to take on a major deal in solo terms. The Stars Group has $255 million of cash among its assets, and as the Reuters piece notes, the company has retired about $515 million in old debt over the last year.

A portion of that includes the final settling of the massive 2014 deal that sent PokerStars and related assets to Amaya. That $4.7 billion reverse takeover of Oldford Group (formerly Rational Group), moved ownership away from PokerStars’ founders, Isai and Mark Scheinberg, and several other individuals in the closely-held Rational Group entity. At this point, according to the Q3 reports, the Scheinbergs have been paid off in full.

That Old Kentucky Groan

One matter remains a nagging weight on the TSG books, and that’s the massive judgment that the US state of Kentucky granted itself due to the old PokerStars having allowed Kentuckians to play before 2011. That judgment is officially worth nearly $900 million on its face, despite it being legally ridiculous. TSG still mus deal with it, even though the likeliest outcome is that some point in the future, it’ll be appealed into the US’s federal court system and then settled for way, way less.

TSG, though, still maintains an escrow account with an eye toward the eventual resolution of that case. Back when Amaya acquired PokerStars, a part of the deal was the arranging of a $100 million line of credit to be used against whatever happened in the Kentucky case. Here’s the latest update on that still-pending situation:

As at each of September 30, 2017 and December 31, 2016, there were no amounts outstanding under the Credit Facility. However, in connection with the previously reported December 23, 2015 Commonwealth of Kentucky trial court order for damages against certain of its subsidiaries, the Corporation filed a notice of appeal to the Kentucky Court of Appeals and posted a $100 million supersedeas bond to stay enforcement of the order for damages during the pendency of the appeals process. In connection with the posting of the bond, the Corporation delivered cash collateral in the amount of $40 million and letters of credit in the aggregate amount of $30 million (collectively, the “Kentucky Bond Collateral”), thereby reducing the availability under the Credit Facility to $70 million.

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