The poker face - Saturday 12th of March 2005
Donald Trump, Steve Wynn, Sol Kerzner, eat your hearts out. This is what a gambling tycoon of the internet age looks like. Vikrant Bhargava is a 32-year-old electrical engineer from Rajasthan who confesses he has never played a hand of poker in a real casino.
Poker, though, may be about to make him a fortune: Bhargava's 15% stake in PartyGaming, the company behind the world's most popular poker website, is worth roughly ??450m, according to some City calculations.
Whatever Bhargava is worth, Anurag Dikshit, his old chum from the Indian Institute of Technology in Delhi, is worth more. Dikshit was a founder of PartyGaming in 1998 and owns about 40% of it. That equates to roughly ??1.25bn on the same unofficial City valuations. Dikshit (pronounced Dixit) is a mere 33.
He is also, for the time being, shy of the media, which is why it falls to Bhargava, as marketing director, to conduct PartyGaming's first proper press interview. This tentative shuffle towards the public glare is prompted by the fact that PartyGaming, owner of the extraordinarily successful Party Poker website, is in the middle of a strategic review that may lead to a flotation in London.
Investment bankers have been appointed and the outside world is getting a glimpse of the scale of profits being made by internet gambling companies. PartyGaming, according to the insiders, made profits of about $350m (??183m) last year and is on course to reach $500m to $600m this year. That might make the business worth $6bn, or a little over ??3bn, enough to qualify for the FTSE 100 index. Four years ago it hadn't even launched Party Poker.
There is one big caveat to this tale of good fortune. The legality of internet gambling in the US is a point on which the operators and the US department of justice cannot agree. So before Bhargava, Dikshit and their colleagues can turn any part of their theoretical fortunes into cash, the investment community has to be convinced that the business is not vulnerable to being closed down overnight in the US, its biggest market.
The signs are good. Sportingbet, a quoted British company, paid ??169m last year for one of PartyGaming's rivals, Paradise Poker, and has seen its share price surge 150% since then, as investors wake up to the global online poker revolution.
Bhargava says more than 70,000 people play on Party Poker simultaneously at peak hours; two years ago, the figure was fewer than 2,000. Party Poker makes its money by taking a small slice from each pot - the rake, in the jargon. A dollar here and dollar there add up, particularly when your website runs round the clock.
Unlike Amazon and the other US internet pioneers, PartyGaming was not an original idea. "In early 2000 everybody was talking about Paradise Poker and we saw them and thought 'they're making money, so can we,' " says Bhargava.
The strategy was to launch with a bang - a tournament with a first prize of $1m. At the time, such sums could only be won in the very biggest tournaments in bricks-and-mortar casinos, such as the annual World Series of Poker in Las Vegas, where the entry fee for the main event is $10,000.
PartyGaming's idea was to play a series of online mini-tournaments with small buy-ins, then whittle down the qualifiers to 100 and put them on a cruise ship in the Caribbean to fight it out for the big money. It was an idea in the best traditions of Vegas itself - make it bigger and brasher than anything else.
"We put 100 people with their partners on a cruise ship to play in a live final," says Bhargava. "We said live, as opposed to online, even though we were an online site, because that was the only way people could really believe that a new company had paid out $1m in first prize. It was good PR and showed the credibility of our company."
It was expensive PR too. Party Gaming lost about $500,000 on the event but the first PartyPokerMillion was the making of the company. "Credibility of online poker rooms in those days was not the highest," admits Bhargava. "So for players to see that a company had put up money when it was obvious that they were losing money on that particular event was a big thing."
Party Poker has not looked back since. Its next break was the explosion of poker on television in the US, a phenomenon that almost has to be witnessed at first hand to be appreciated. Sports bars will regularly show television coverage of poker tournaments, with under-the-table cameras revealing players' cards, allowing the viewer to know when the innocent-looking guy in seat seven is running a monster bluff.
Hollywood celebrities have jumped on the bandwagon, with the likes of Ben Affleck and Nicole Kidman playing in a tournament that generated a television audience of 13 million. Party Poker's coup was to sign Mike Sexton as its public face. Think of Sexton as a Gary Lineker of televised US poker. Clearly he could not plug the site on TV but Party hammers home its association elsewhere.
"The World Poker Tour going live on TV in April 2003 brought poker from people's kitchen tables into their living rooms," says Bhargava. "People were discussing it at work and so on, and wanting to play the game having seen the TV programme, and we got the word out that if you do participate in an event like this you can do so online. We saw our market share go from up 20% to 50% in a fairly short period."
Bhargava also applied internet marketing techniques, such as offering incentives to outsiders who recruited new players to the site. These affiliates could be existing players, other websites or even online poker bloggers, of which there are hundreds. "We have learned what works online," he says. "These techniques could have been used for selling books online or whatever. We put it to use in poker."
So what of the key issue of the legal status? No poker website dares to base itself in the US, where the Wire Act, forbidding gambling across state lines, is potentially a frightening piece of legislation. Party Poker bases itself in Gibraltar, which is also the home of the online operations of the British bookmakers Ladbrokes and Victor Chandler. It also has a 1,000-strong call centre in Hyderabad in India.
Bhargava's view is that the Wire Act applies to sporting events, not poker, which is deeply embedded in the culture of US colleges and the military. Setting foot in the US holds no fears. "I go to the US very frequently," he says. "I am an Indian passport holder and have a 10-year multiple-entry visa to the US."
One of the aims of the UK gambling bill, currently facing a race to be passed before the election, is to bring online operators on shore, where they can be more closely regulated. Bhargava is rigidly non-committal about the merits of the bill: he sees the advantage of being recognised as a proper industry in a G7 country but is making no promises. He does, though, make one important admission. "We pay very little tax in Gibraltar but would tax prevent us coming on shore? No. Taxes are not driving the issue. Regulation is something that would play a far more important role."
A further worry in the investment community is that online gambling sites might be unwitting participants in money laundering. After all, billions of dollars are being waged in cyberspace. Bhargava argues that rigorous checks are made but that the basic impracticality of laundering money this way should also reassure outsiders and regulators; so, too, that PartyGaming uses respectable international institutions for its banking.
"People keep talking about it, therefore we look at it," he says. "But ask yourself whether it is really possible to launder money this way. Look at what the average value is for deposits. It is very small. What's the maximum? It's not too large. If you send a wire for $50,000 or ??50,000, we would not accept it because you do not need $50,000 to play poker.
"People need a $50, $100, $150 deposit to play; $500 can last a player a long time. So would it really be an efficient way of laundering money? Probably not. There must be easier ways than making lots of micro-transactions."
He says "maybe a few hundred," players have been banned by Party Poker, mostly for attempted collusion, something that is relatively easy for the software to spot. A bigger danger has been attempted extortion by hackers trying to crash the website. Such attacks have usually been preceded by demands to send money to obscure bank accounts in Russia.
"In early 2004 many sites in online gaming space went down and we went down multiple times," he says. "Since then we have been attacked a few times but we now have systems in place to fend it off."
PartyGaming, as it inches closer to the mainstream investment community, faces another issue of credibility - the fact that Ruth Parasol, another founder and owner of 20% of the shares, made her first fortune in internet pornography. Her husband, Russ DeLeon, also has a stake of the same size, so they are important figures. Parasol, a California lawyer, left the porn business a decade ago but Bhargava also knows the subject cannot be avoided.
"I have known Ruth since early 2000; she has definitively severed her ties with these sorts of people," he says. "That is all history. It's her previous life. If we had characters of that sort associated with the company, I would not be here and 99.9% of the people in our organisation would not be here. I have grown up in an environment where honesty and integrity are extremely important to what we do."
That view, one suspects, will be accepted by investors, especially as PartyGaming is now hiring executives with public-company experience. For example, Richard Segal, the respected former boss of Odeon cinemas, has been installed as chief executive. David Abdoo, Carlton's former company secretary, is also on board.
Those appointments suggest PartyGaming is not simply looking to sell itself to the highest bidder but has ambitions to keep growing. A flotation would give it a currency to buy rivals, and Cassava Enterprises, owner of the 888.com online casino, has been touted as a possibility; Cassava even operates from the same building in Gibraltar.
Even without a deal, the possibilities for PartyGaming, if it can retain its 50% market share in poker, are enormous. China, the land of the world's most enthusiastic gamblers, is an enormous medium-term target. This extraordinary growth story may yet have a long way to go.
Jaipur, India, 14 December 1972
Indian Institute of Technology, Delhi; Indian Institute of Management, Calcutta
Credit officer, Bank of America; business analyst, BG India; marketing director, PartyGaming
Wife and two children
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