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October 2006
Betting on Technology
By Ellison Clary

Cards are dealt to hands and on the table. The players bet, raise and call. A full house beats two pair. After the winner gets an automated payoff, the poker hand has taken less than a minute and the players perform it all electronically. There is no dealer and the cards are electronic.

It is a demonstration hand of Texas Hold ’Em played in the Matthews, N.C., offices of PokerTek, Inc., on the company’s signature product, the PokerPro electronic poker table.

That table is designed to increase casino revenue and security while helping to reduce card room labor costs. The company says it also improves the gaming experience by cutting out dealer and player mistakes, eliminating the need for dealer tipping and providing additional data such as chip stack and pot calculations. There’s also the option to view hands previously played.

In an 18,000-square-foot office, three-year-old PokerTek assembles the 10-seat tables, then leases them to gaming venues such as casinos, cruise ships and card clubs.

The hand of poker described is being played by Lou White and James Crawford, PokerTek’s chief executive and president, respectively, with a visiting writer. All three chuckle at how the electronic table simulates card-playing action flawlessly while it eliminates the possibility of betting out of turn or a misdeal.

“Our chief technical officer says this is the only project he’s ever worked on that can make a grown man giggle,” says a smiling Crawford.

Now traded on NASDAQ, PokerTek has come a long way since August of 2003 when the idea for its inception was sparked by an off-hand remark.

Good friends since 1989, White was on sabbatical from his job as a national account executive with computer giant Dell and Crawford was tiring of running his area “FastSigns” franchise stores. Marveling at the popularity of televised poker tournaments, they devised a plan to make card clubs – mainly a California phenomenon in this country – operate more efficiently.

White wangled a meeting for himself and Crawford with gaming legend Lyle Berman in Berman’s Las Vegas condo. They discussed the White-Crawford business plan.

“Lyle looked up,” White remembers, “and he said, ‘You know, guys, in 25 years I don’t think there will be dealers in poker games.’ The second he said that, a light bulb flashed on and we took a left-hand turn in our business.”

That turn led to the formation of PokerTek, with investments from Berman and others to fund White and Crawford’s efforts to devise an automated poker table. Berman assumed the chairmanship of the company, a move that White and Crawford call a huge vote of confidence.

After all, Berman had merged his Grand Casinos Inc. with Hilton Casinos to form the Lakes Gaming Corporation conglomerate in 1998. Then he created the World Poker Tour for The Travel Channel in 2001. That sparked the incredible rise of poker in the American leisure consciousness.

“Lyle is to gaming what Hugh McColl is to banking,” says White. By contrast, White is an occasional card player and Crawford doesn’t gamble often.

 

Outsiders Have the Advantage

“One of the advantages we have is we are outsiders,” White explains. “If you look at poker, automated play makes a lot of sense. But there was this mental block that it just wouldn’t work and players wouldn’t accept it. And James and I were too dumb to know that it wasn’t possible. That’s one of the reasons we got this thing off the ground.”

White and Crawford went to work in White’s southeast Charlotte basement. “I would come over after work and saw plywood,” Crawford remembers. “I was cutting holes for monitors and such.”

They were working on a prototype. “We probably spent six months and a half million dollars to get there,” White reckons.

Completion on that first working model happened late one Saturday afternoon, but both men remember it wasn’t a big-bang moment.

“It was more like we had a system that would show hole cards,” White says. “That’s cool. Can we show chips? Okay, that’s cool. It involved a lot of baby steps. But we sat there and we bet and we raised and we bluffed – it was poker.”

Crawford recalls their first game on the contraption they’d created. “It was not on a table,” he smiles. “It was just a monitor here, a monitor there and we had a center monitor. We had it all hooked together.”

White insists he won that first hand, but it was truly only the beginning. It showed White and Crawford and their investors that they could create an automated table. They still had to prove that their finished product would do what they claimed: speed up poker hands, eliminate dealers and the need to tip them, prevent human error, and help novices pick up the game.

“Fast forward two and a half years and another $8 million,” White says. “Now we have a product that has perfected the play of poker. Under the hood of this table, we have all the electrical and gaming-dictated electronics that must be here to operate on a casino floor.”

PokerTek has already placed in operation 14 PokerPro tables, which it leases for $6,000 a month. They estimate orders in the pipeline will take them to around 100 tables installed by the end of 2006. Though the company still isn’t breaking even, White and Crawford foresee that happening sometime in 2007 when they reckon they will have between 150 and 200 tables in various venues around the world.

 

Setting Milestones

Though young, the company has achieved some important milestones. They’ve got two PokerPro tables in the Seminole Hard Rock Hotel and Casino in Tampa, Fla. Henry Funke, the casino’s poker room manager, told Gaming News he’s seen the PokerPro tables overcome early resistance from both players and dealers.

“What we’re running them on are things that dealers don’t mind not having to deal,” Funke says. “These tables are very efficient at running low-limit, single-table tournaments, and they’re not really affecting the dealers and their take-home pay.”

After an April 2006 test on a ship sailing from Miami to the Caribbean, Carnival Cruise Lines has ordered PokerPro tables for 24 of its vessels.

Hollywood Park Casino, based in Los Angeles, is putting in six PokerPro tables, and that stands out because California boasts a high concentration of card clubs. “Of the 7,000 poker tables in the world,” White says, “1,300 are in California.”

Business is picking up internationally, too. Australia’s Aristocrat, the world’s second largest gaming firm, agreed to be PokerTek’s exclusive distributor outside the United States and Canada. Further, it bought 10 percent of PokerTek. Meanwhile, Crown Casino of Melbourne, Australia, the largest casino in the Southern Hemisphere, has ordered 20 PokerPros.

Halfway around the world, Aristocrat has helped PokerTek get regulatory approval from the British Gaming Commission for the use of PokerPro in casinos and card rooms in the United Kingdom.

Dealing with different rules in various locations has been a headache. “Regulatory hurdles involved in bringing a product and a company like ours into different jurisdictions are a major part of our business,” Crawford says shaking his head. “In the gaming industry, having a license is not a right, it’s a privilege.”

White and Crawford believe the financial case for automated poker is solid. PokerPro streamlines poker to the point that players can complete 50 percent more hands in an hour than with a human dealer.

“If you go on the assumption that a PokerPro table generates an additional $300,000 of net income per table per year for the casino, which it does, then you’re looking at a collective profit pool of $2.1 billion that’s out there for the casinos to take advantage of whenever they’re ready,” White says.

He adds another thought. “Who will get the money that’s tipped to dealers this year?” he asks rhetorically? “That’s another $600 million to $700 million. So we’ve got almost $3 billion annually of a profit pool that this technology will help capture. Those are some fairly stiff economic winds.”

 

Competition Is Welcome

Competition is rising fast. There are automated poker companies in various parts of the world and one in Pennsylvania has sued PokerTek. It claims PokerTek’s pursuit of 33 patents amounts to a conspiracy to prevent competition.

White and Crawford shrug. Their competition, they believe, is where they were when they were experimenting in White’s basement. Ultimately, they say, competition can help them bring automated poker into the mainstream.

White compares automated poker to the progressive acceptance of automated teller machines.

“Any new technology goes through three stages,” White says. “The first phase is novelty, and that’s where we are now. But technologies that catch on get to the second stage that’s called acceptance. Then they go into the third stage that’s called the standard.”

White thinks automated poker will follow the lead of slot machines, which evolved from quarters poked in and coins cascading into a hopper to  today’s tickets that players insert into electronic devices.

“We believe, based on player reactions we’ve seen, it’s a matter of time before this is no longer a novelty,” White says, “when a poker player can go into a room and see automated poker and accept it. A final phase is when it becomes the standard, when you would not have a poker room without some percentage of your tables being automated. We are working feverishly for that end game.”

Helping them are 54 employees who enjoy the company’s relaxed work atmosphere that allows them to wear casual clothes and encourages them to feel like an extended family.

“Every day at PokerTek is exciting because we have so much opportunity,” says Crawford, who grew up in Charlotte and finished at Myers Park High. He’s pleased that 13 PokerTek workers are native Charlotteans.

Both Crawford and White, a North Carolina State University alumnus who was born in Texas and raised in Chicago, are adamant that the PokerTek headquarters will remain in the Charlotte area. And they have other thoughts about the company’s future.

“We think not so much about numbers of tables,” White says, “but are we putting the tables in the right spots with the right customers. That will help us move from novelty to acceptance.”

If their PokerPro remains only a novelty, it could proliferate to between 500 and 700 tables in operation as a niche product. But if it moves from novelty to acceptance, as they are betting it will, they could have as many as 1,500 tables operating around the world by 2011.

“If you do the math on that,” White says, “it will be a very profitable business.”

Ellison Clary is a Charlotte-based freelance writer.
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