PokerStars Bails Out PKR Players: But Why?
PokerStars has announced some great news for former customers of failed poker site PKR, which closed down just a couple of months ago without any plan for reimbursing player balances. Stars has credited PKR players' balances in full, dollar-for-dollar, without any withdrawal restrictions, playthrough requirements, or other onerous rules. People with accounts at both PKR and PokerStars need only confirm their account credentials to access their PKR funds, which will be added to their Stars balances. Those who lack an account at Stars must create one, after which the money they had tied up at PKR will be credited to them.
Background
Customers had trouble logging into PKR at the beginning of May. A series of vague and worrisome messages appeared on the company's website, fueling much speculation in a thread on Twoplustwo.com. The firm lost its license for failure to pay the required fee, and it entered receivership on May 5.
MPN, the network on which PKR was housed, denied that it had any liability for the outstanding obligations of the troubled poker operator. MPN's stance was that it was just a software provider, not a principal or owner of PKR, and it therefore was not responsible for making players whole. Concerned individuals who had cash on the site were anticipating a wait of multiple months or years before perhaps collecting pennies on the dollar.
It's true that all player funds were kept in segregated accounts, but the customer money protection standards that PKR employed fell under the “basic” level as defined by the U.K. Gambling Commission. This means that the balances were kept separate from normal day-to-day cash flow, but they're still treated as belonging to the business and can therefore be used to satisfy claims by creditors other than the players. PokerStars' level of protection is “high,” so players' cash is placed in an account that's separate from the company and managed by an outside entity.
About the Bailout
PokerStars hasn't purchased the entire PKR organization or even its software platform as revealed in a post on the PokerStars blog. The administrators of the defunct PKR issued a press release in which they state that the player database was sold to Amaya Group (the owner of PokerStars). The PKR homepage now contains the PokerStars logo and links to resources about how to access transferred account balances.
It appears that the records turned over to Stars were quite basic and may have consisted solely of personally identifying customer information and the amounts on deposit with PKR. PokerStars claims that it has no access to account or transaction history, affiliate details, tournament tickets earned, or loyalty points saved up. Notably, money withdrawn from PKR accounts but not paid out before the closure of the site appears to be gone for good, and PokerStars is either unwilling or unable to trace vanished cashout funds.
Why Is PokerStars Reimbursing PKR's Players?
PokerStars explained its reasons for bailing out the former players at PKR:
We're not doing this to improve our bottom line and we are not acquiring or planning to revive the PKR software platform. We're doing this because we think it's the right thing to do for the poker world and to encourage others to join us in putting you, the player, first by segregating and protecting player balances from operating funds.
These are quite noble sentiments from a for-profit corporation. Before we start nominating the execs at PokerStars for sainthood, however, it's probably wise to take a step back and look at this situation from an overall business perspective. We've identified five key reasons why this move makes sound strategic sense for the world's most successful online poker room.
1. Affordability
With total outstanding PKR obligations to players estimated at about $2 million by Poker Industry PRO, Amaya won't exactly have to look for extra cash behind the sofa cushions to afford this deal. Indeed, this number represents only around 0.17% of the enterprise's 2016 revenues. It becomes even more affordable when we consider that all of the $2 million won't be withdrawn right away; a goodly chunk of it will be converted into rake as players whose bankrolls were in limbo now fire up some tables to get their poker fix.
For its investment, PokerStars will get to move 60,000 accounts onto its platform, for a cost per acquisition of about $33. This compares pretty favorably to the marketing and affiliate expenses that large online gambling firms typically pay to draw players in. Now, some PKR users already play on PokerStars, so this isn't quite the steal it might at first appear to be, but nevertheless, It will end up costing Amaya very little in the long run.
2. Non-US Player Base
The geographic distribution of the affected players is exactly what Stars is looking for. PKR didn't accept American players, and neither does PokerStars, so the risk of paying for customers who cannot contribute any more rake to the site is negligible. There have been other gambling entities that have failed in recent years, particularly in the online poker USA friendly markets, and PokerStars merely observed their downfalls with detachment, raising nary a finger to assist their customers. Lock Poker is the most prominent example: It closed up shop in 2015 owing approximately 15 million dollars. Full Flush Poker, which led the non-profit (and ultimately non-paying) Equity Poker Network, is another site that stiffed players without any intervention from Stars. Had it acted in these cases, Amaya would have been spending a fortune to satisfy many players who would have had neither the intention nor ability to play on PokerStars. The PKR circumstances are totally different.
3. Recreational Gamblers
Most poker operators have been moving toward a recreational-friendly model. Bodog and Unibet were two early leaders in this shift of focus. Simply put, unskilled and losing players are recognized as being worth more to poker sites than professionals because fish tend to see the majority of their deposits converted into rake whereas solid winners take money out of the poker ecosystem by withdrawing it.
According to almost all reports, PKR was a fishpond although an influx of Eastern European grinders toward the end of its lifespan reduced the quality of the games somewhat. Still, on the whole, the players transferred over to PokerStars are exactly the type of individuals the company seeks to court both because of their bottom-line impact on its finances as well as their effect on game quality.
4. Reputation of Online Poker
Poker has made big strides in improving its image from the days when casino cardrooms were populated by hard-drinking, chain-smoking “gentlemen” of dubious moral character. Nevertheless, the online gambling industry as a whole is viewed by many members of the public as somewhat shady and dangerous. By compensating PKR's customers for the losses they've suffered, PokerStars is enhancing the standing of all online poker firms. It's not doing this for purely altruistic reasons – as the largest internet poker room by a longshot, PokerStars is the chief beneficiary of any increase in the perceived respectability of online poker.
5. Good Will
The MPN network, having avoided the burden of repaying PKR users, now has to sit back and watch PokerStars treat MPN's players better than that network itself did. It's kind of like telling your kid that you won't give him a PlayStation for Christmas but then discovering on Christmas Day that Uncle Bob did in fact buy him the game console of his dreams. You can't really get mad at Uncle Bob, but your internal feelings will be…conflicted. It's with the same mixed emotions that we imagine MPN sent out the following tweet:
Everyone expects your company to talk up its own achievements, but when your competitors start singing your praises too, then you know you're doing something right. As word of its deeds spreads throughout the poker community, PokerStars will earn the good will of many prospective players.
It's clear that PokerStars' decision to move PKR's user base over to its own poker room while keeping balances intact is a shrewd maneuver, which should pay for itself several times over. At the same time, it's exactly the kind of foresighted plan that's unlikely to leave anyone angry or disappointed. The PKR account holders aren't complaining, and neither are Amaya's shareholders.
Contrast this to the ham-fisted, clumsy way that the company terminated its top VIP tier, SuperNova Elite, and significantly nerfed its poker rewards program. These were perceived by many onlookers as attacks on the players, which created much resentment. We hope that the resolution of the PKR matter is indicative of a renewed commitment on the part of PokerStars to player satisfaction. Only time will tell if Amaya has changed course and will be able to restore some of the old Stars luster. In the meantime, you can learn more about why it's still the most popular online poker room by reading our PokerStars review.