World Poker Tour Releases Financial Report

World Poker Tour Enterprises released their financial report for the first half of 2008, and that report shows that the company has endured a one-third decrease in revenue compared to the same time-frame last year.

Earnings for World Poker Tour Enterprises fell 33 percent for the first six months of 2008 compared to the same six-month period in 2007, and 34 percent for the second quarter of the year, which ended June 29.

WPTE had a net loss of $6.7 million in the first half of 2008, which is $1.1 million more than from the same period in 2007.
The reasons, according to the company’s financial report, are:

• Decrease of revenues by $2.2 million, primarily as a result of a decrease in domestic television license fees, which is due to lower per-episode license fees under the GSN agreement in effect during the 2008 period, as compared to the Travel Channel agreement, which was in effect during the 2007 period
• Cost of revenues increased by $200,000, primarily a result of the delivery of fifteen episodes of its sixth season in the period versus the delivery of fourteen episodes of season five in that period the year prior. Higher costs in international television sponsorship, a result of increased sponsorship revenues, also contributed to the overall increase in cost of revenues
• Selling, general, and administrative expense increased by $700,000, primarily due to the company's increased efforts in marketing its online gaming operations and ClubWPT, offset by decreased headcount expenses companywide

WPTE, which is a subsidiary of casino operator Lakes Entertainment, also placed blame on the performance of its online casino, which is powered by CryptoLogic. The casino is not completely up and running and won’t be until the fourth quarter of 2008, but WPTE owed CryptoLogic $172,000 because of shortfalls in the first half of 2008.

By contract, WPTE owes CryptoLogic a minimum of $500,000 a year (which increases to $750,000 annually when the full casino is up and running), or $125,000 per quarter. Monthly payments are determined by using a sliding scale that charts revenue.

During the first half of 2008, WPTE’s online casino generated $538,000 in net revenues while it spent $1.4 million in sales and marketing costs. WPTE’s financial report also outlines the agreement it has with CryptoLogic. The contract between WPTE and CryptoLogic works this way:

WPTE is entitled 100 percent of the first $37,500 per month, 79 percent of revenue in excess of $37,500 but less than $500,000 per month, and 80 percent of the revenue in excess of $500,000 per month.

CryptoLogic is entitled to earn minimum guaranteed revenue associated with the Initial Casino of $500,000 per year or $125,000 per quarter and upon the launch of the full casino, expected in the fourth quarter. CryptoLogic will then be entitled to a minimum revenue guarantee of $750,000 per year or $187,500 per quarter.

If at any time after the nine-month anniversary of the go-live date of the full online casino that monthly gaming revenues fall below $500,000 for three consecutive months, CryptoLogic has the right to terminate the contract on 90 days written notice.

But WPTE may prevent any such termination through payment of the shortfall of CryptoLogic's percentage of such gaming revenue within 30 days of receipt of CryptoLogic's notice of termination.

WPTE also included a list of expectations for the rest of 2008. A short-list includes:

• Third-quarter revenues are expected to be in the range of $2.2- $2.6 million.
• The company expects to deliver the remaining three episodes of season six of the WPT television series in the third quarter of 2008.
• Lower gross margins for domestic television in 2008 versus 2007 as a result of the terms of the agreement with GSN.

WPTE’s World Poker Tour TV show will move to Fox Sports Network starting next year. The company was forced to move to its third network after GSN declined to renew its broadcasting contract.

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