WPT Enterprises, Inc. Q4 2008 Earnings Call Transcript

WPT Enterprises, Inc. (WPTE)

Q4 2008 Earnings Call Transcript

February 17, 2009 at 4:30 pm ET

Executives

Anne Rakunas - Investor Relations, Integrated Corporate Research

Steven Lipscomb - President and Chief Executive Officer

Thomas Flahie - Chief Financial Officer

Analysts

Clint Morrison - Feltl and Company

Steven Silk - C. Silk & Sons

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you so much for standing by. Welcome to the WPT Enterprises, Inc. year end 2008 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) As a reminder, this conference is being recorded today, Tuesday, February 17th, 2009.

I would now like to turn the conference over to Ms. Anne Rakunas of ICR. Please go ahead.

Ms. Anne Rakunas

Thank you, Operator. Good afternoon everyone and thank you for joining us today to discuss WPT Enterprises year end 2008 financial results. With us on today’s call are Steve Lipscomb, President and Chief Executive Officer and Thomas Flahie, Chief Financial Officer. By now, everyone should have access to the press release which went out this afternoon at 4:00 pm Eastern Time. If you have not received it, it is available on the Investor Relations portion of the World Poker Tour website.

Before we can begin today, we would like to remind everyone of the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. For a more detailed discussion of the factors that could cause actual results to differ materially from those projected and any forward-looking statements, we refer you to Company’s filings with the Securities and Exchange Commission, including the most recent Annual Report filed on Form 10-K, the Quarterly Report on Form 10-Q for the first, second and third quarters of 2008, as well as the Company’s current reports filed on Form 8-K.

And with that I would like to turn the call over to Steve.

Steven Lipscomb

Thank you Anne and thank you everyone for joining us this afternoon. I am going to apologize in advance for my gruff voice. I am struggling with the bout of meningitis. On today’s call, I would like to highlight key events in the fourth quarter 2008, and update you on our primary initiatives for 2009, including our emerging World Poker Tour sponsorship business, our online subscription business ClubWPT.com, and WPT China. Turning to what we have traditionally called WPT Studios, the World Poker Tour itself, as well as our domestic and international television operations. World Poker Tour Television Shows had a broader global reach in 2008 than they have ever had building brand awareness and supporting our consumer facing businesses. Season 7 of the World Poker Tour began airing on January 4th, on Fox Sports Network or FSN.

The season they viewed was delayed from our announced December launch date in order to acuminate a Christmas Day ClubWPT.com television marathon. Twenty six Season 7 episodes were schedule to premiere and repeat on FSN in 2009, 12 in the first quarter, 12 in the second quarter and two in Q3. In addition, Seasons 3 through 5 continue to air with regularity on the Travel Channel and Season 6 continues to air on GSN.

Our relationship with FSN has been an important step in transforming our Company from a US Centric Television Licensing business to a global sponsorship focused sports. The 2009 sponsors of the WPT Television Series are expected to be a various companies, including our online gaming concerns and territories but they have significant business objectives.

Our international television strategy has evolved into a dynamic offering of services that serve the particular needs of our broadcast partners and our sponsors in particular markets. We are currently adapting and replicating the FSN model, had been cooperating sponsors in the shows in Europe and market outside of North America.

In the fourth quarter, we signed a significant deal with FullTiltPoker.net, a virtual poker education site to become a North American sponsor for Season 7 of the World Poker Tour Television Series. Episodes are promoting the websites have already began to air in United States. Unfortunately, I am unable to discuss our international sponsorship expectations as we have ongoing negotiations in many territories. What I can say is we expect to recognize substantial revenue in 2009 from the party gaming sponsorship deal we signed two years ago. Payments will come as we continue distributing Seasons 4, 5 and 6 of the World Poker Tour Television Shows, as well as Season 1 of the Professional Poker Tour in international markets.

Some WPT Season 7 revenue should be recognized in Q3 and Q4 2009, but many of the deals we are currently negotiating become significant in 2010. We continued to adapt interest for multiple parties to associate and affiliate with the World Poker Tour brand. Despite challenges and turbulence in the global financial markets, international online poker market remained strong. We are taking a measured approach to strike reasonable deals that benefit our partners and our shareholders.

I will get back to the US market. On our last investor call, we discussed our new comprehensive partnership with FSN and News Corp Family. This partnership includes the broadcast of Season 7 of the World Poker Tour Television Series across the US. The broadcast of 13 one hour ClubWPT.com television shows from October 2008 to February 2009, and our MySpace World Poker Tour community found at MySpace.com/ClubWPT.

We recently announced an exciting sketch of our Fox partnership with FSN, when they agreed to broadcast Season 8 of the World Poker Tour Television Series. Early renewal will facilitate timing and meaningful discussions with sponsors and help us maximize the value of our tournament stuff and television exposure for our casino partners, our sponsors and our shareholders.

FSN has been a good partner in promoting and building our online subscription poker business ClubWPT.com. The new television series promoting the website launched on Sunday, October 5th on FSN that aired ten new one-hour episodes throughout the fourth quarter and three new one-hour episodes in January and February with an average of six yearnings per week. In addition, they ran commercials promoting the show. They also broadcast Season 1 of the WPT Television Show and displayed marketing callouts to join ClubWPT.com.

The concept of the Television Series is the players must play and win a TV tournament at ClubWPT.com in order to get into the Television Show. Regular tournaments featuring the host of FSN hit show, the Best Damn Sports Show Period, will offer on the ClubWPT.com site, and regular tournaments with Antonio Esfandiari, myself and Board Member, Mimi Rogers have also been offered.

We are pleased that FSN was able to make a special contribution to our ClubWPT business by running an eleven consecutive hour marathon of ClubWPT.com shows on Christmas Day. We experienced a significant spike in trial memberships and freeplay in after trial period ended in paying subscription customers.

We accommodated a shift in the area schedule of Season 7 of the WPT Television Series to make the Christmas Day marathon possible. While we are only in the fifth month of growing television marketing to build brand awareness and drive traffic to ClubWPT.com. We have seen real growth with 14,000 subscribers to date, including 2000 trial memberships. We also have 111,000 freeplay members. We are now a little bit disappointed with the rate which television viewers converted to paying subscribers and we fell short of our goal to reach 16,000 to 20,000 subscribers by the end of 2008.

We plan to widen our marketing strategy for ClubWPT in 2009 by extending our affiliate referral network. Currently, we use the MySpace World Poker Tour Community at MySpace.com/ClubWPT, as referral source of subscribers to ClubWPT. This Poker destination has games, entertainment, poker content, video clips and a new ClubWPT.com television show. We are actively seeking new affiliates for the business. In addition, we continue to air Season 1 of the WPT Television Show on FSN with displayed marketing callouts to join ClubWPT.com. We have placed plans for producing new ClubWPT.com television shows on hold, while we explore other perhaps more efficiently as a joined players.

Now, turning to our China operation. Season 2 of the WPT China Traktor Poker Tour began on October 11th in Hainan and we have had 11 tour events so far. Like Season 1, there are 15 regional tour staffs on this tour that culminate in the grand finals to be held in Beijing on June 12 to 14 2009. We filmed the Season 1 grand finals and this programming was aired on Nanjing Entertainment Television in the [14.49] TV. In addition, we have a distribution agreement with the Hainan Television.

We expect to film Season 2 finals in June 2009 and continue to seekbroadcasters to air both seasons of programming to build awareness and drive traffic to our integrated online and mobile poker game platform at WPTChina.cn. As planned, we went live with our online and mobile poker games in December. Sponsorship and game revenues have been minor so far, our strategy to use broadcast television and viral online methods to build this business.

We have recently formed a marketing partnership with Tootoo.com, the YouTube of China. We provide tour and game content to Tootoo and they make the content for their viewers. We continue to believe with the long term viability of our WPT China business, but as our cash position and market have changed over the last nine months, we questioned our ability to have the resources to invest enough to support the growth of this business. We are therefore searching for a strategic partner to invest in our China operation. As such, the level of business activity for WPT China in 2009 is dependent on the outcome of that process.

Overall, we met three big goals for our China operation in 2008. We began Season 2 of the WPT China National Traktor Poker Tour, we have completed the development of our integrated online and mobile poker producst and we have begun earning revenues from this venture. While our sponsorship and broadcast television distribution have been harder to secure than we hoped we continue to be encouraged by the business foundation that we are laying in this very important market.

In today’s press release, we acknowledged our periodic conversations with current and potential customers about strategic ways to maximize the value of the WPT brand in the US and foreign markets. So, we have provided confidential information to certain of these parties in order to facilitate those discussions. During the process of looking for our strategic partner for the WPT China business and the discussions with potential international sponsors of the WPT Television Series, we have again provided recent confidential information to certain parties. We are not able to predict the outcomes of these discussions and no particular strategic alternative has been chosen. We make the disclosure out of caution in case any insiders decide to trade in our stock, while these discussions are ongoing.

In closing, I want to emphasize that we have taken significant steps to rightsize our Company and turn the business around. This is never easy to adapt when your primary eight figure source of revenue disappears because of market pressures that are entirely outside of your control and while our metamorphosis is by no means complete, we believe that we are taking the necessary steps to reposition WPTE for long term profitable growth. The actions we have already taken make us more agile and capable of adapting to an ever changing market, one that we have played a significant role in creating.

I would like now turn the call over to Tom to walk you through the financials for the quarter. Tom?

Thomas Flahie

Thanks Steve. First, I would like to make a comment about the change in income statement presentation we made this quarter. We simplified our presentation of revenue in the fourth quarter by combining television sponsor revenues with domestic and foreign television license revenues. Previously, we included television sponsor revenues in event hosting in sponsorship fees. All of my comments reflect this presentation for all periods.

Revenues for the fourth quarter of 2008 were $2.6 million compared to $5.1 million in the fourth quarter of last year. In the revenue guidance we gave at the beginning of the fourth quarter we projected $600,000 in revenue in the fourth quarter from airing the first four Season 7 episodes in the US. During Christmas Day, the Club Marathon that Steve commented on airing at these four episodes was moved to January. This is the change in release pattern compared to the prior year.

The fourth quarter 2007 included revenue from four Season 6 episodes in the same quarter this year do not include any revenue from any Season 7 episodes. The decrease in fourth quarter revenue was also due to a lower international television revenues and lower product license revenues. PPT Season 1 and World Poker Tour Seasons 4 to 6 were not aired by international television networks as frequently as we expected. Number of the shortfall we recovered in the first quarter of 2009, but decline in the product license revenue was due to lower royalties from hands-on mobile and lottery ticket provider NBI.

Overall gross margins were 69% of the fourth quarter of this year, up slightly from 68% of the fourth quarter 2007. Gross margins from the WPT Television Series were 65% in both periods. Selling, general and administrative expenses increased by $465,000 of the fourth quarter 2008 compared to the same period of 2007.

Personnel related-costs decreased by $468,000 and litigation expenses decreased by $418,000 in the 2008 period. Offsetting the lower payroll costs and litigation expenses were $927,000 in costs to produce the 10 episodes of the ClubWPT.com television series that Steve talked about and a $156,000 provision to sublease office space due to the declining Los Angeles lease market.

The net loss for the fourth quarter of 2008 was $3.3 million, compared to $1.8 million in the fourth quarter of 2007. Lower revenue and cost of revenue in the fourth quarter of this year resulting from the change in the release pattern of the WPT Television Series was a primary cause of the change between periods.

We provided fourth quarter 2008 guidance in our last investor conference call, adjusting the guidance we have provided for the movement in the first four air dates for Season 7 from December to January. Our fourth quarter results fell in the mid-range of the revenue and net loss guidance we have provided.

Now, turning to the full year 2008. Revenues for the full year 2008 decreased $6.2 million to $15.5 million, primarily as a result of lower domestic television license fees, lower product license revenue and lower domestic sponsorship fees. Domestic television license fee is accounted for 68% of the lower 2008 revenue with four fewer episodes of the WPT Television Series airing in 2008 to change the risk pattern we talked about. The per episode license fee decreased by $177,000 for 17 of the episodes. Product license revenue decreased $1.1 million due to lower royalties from Hands-On mobile and Take-Two Interactive. Domestic sponsorship fees decreased $1 million due to the non-renewal by Anheuser Busch, a sponsor for Season 6 of the WPT Television Series.

Overall gross margins were 53% in 2008 compared to 62% in 2007. Lower gross profit margins in 2008 were caused by lower per episode license fees were not offset by a comparable reduction in production costs. The gross margins for the WPT Television Series were 39% in 2008 and 52% in 2007.

Selling, general and administrative expenses decreased $970,000 to $21.7 million in 2008. We reduced personnel related-costs and litigation expenses by $3.6 million offsetting these cost savings were $927,000 in costs to produce the new Club WPT Television Series. Additional marketing costs for the WPT brand and online gaming website, provision to hold sublease office space and cost to exit the WPT online gaming website.

As we discussed on our last call, we preformed an impairment analysis of our secure gaming in the third quarter of 2008, because of difficulties to secure and having in obtaining financing for the business development and over the next year. Secure also recently had a significant reduction in staffing.

We recorded $1.9 million noncash impairment charge related to this investment in the third quarter of 2008. In 2007, we wrote off $2.3 million of online gaming assets as a result of seizing the development of stand alone online gaming business and joining the third party online gaming network. Excluding the Secure gaming noncash impairment charge in 2008 and the write off of online gaming assets in 2007, also noncash, our net loss for 2008 was $12.5 million compared to $7.4 million in 2007, primarily result of lower revenues from the WPT Television Series for the reasons we have previously mentioned.

At December 28, 2008 and that is our year end this year, we had no debt and total cash, cash equivalents and investments in debt securities were $17 million, which included $3.3 million of auction rate securities. In the fourth quarter of 2008, one broker repurchased $7.5 million of our ARS. We have $2.4 million line of credit with the other broker. That is the one that holds the remaining $3.3 million of our ARS. That is providing liquidity should we need it. We do not believe that the lack of liquidity relating to our remaining ARS will have an impact on our ability to fund our operations during the next 12 months.

Now, turning to 2009 guidance. For the first quarter of 2009, revenues are expected to be in the range of $4 million to $4.3 million. We expect to incur restructuring cost in the first quarter to further reduce our overhead and we did not yet know the outcome of the process of searching for our partner for our WPT China business. During these two uncertainties we are not providing a specific net loss range for the first quarter but we do expect to report a net loss for the first quarter of 2009.

And my final two points, first in August 2008 NASDAQ notified us that we were not in compliance with the $1.00 minimum stock listing price requirement. NASDAQ announced that they suspended the enforcement of this rule for all companies. In January 2009, NASDAQ further extended the suspension of this rule. NASDAQ has now granted us an extension until August 17^th to be compliant with the $1.00 closing bid requirement.

Second, Lakes Entertainment distributed $12, 488,000 shares of our common stock to their stock holders on November 21^, 2008. This action significantly increased our public float because Lakes own about 61% of our outstanding common stock.

Now I would like to open up the call to take your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions)

Your first question comes from the line of Clint Morrison – Feltl and Company

Clint Morrison – Feltl and Company

Just going down the list, you said you got an agreement with Fox to do season 8 and can you give us any sense there? Will you go ahead and start producing that prior to getting the sponsore? How far along might we have that nailed down?

Steve Lipscomb

Well, I think you can imagine that we are certainly hoping not to get in the circumstance were we got the financing and that is part of, I think, this great relationship we have established with the guys at FSN and they understand that we are the sponsorship-based model.

We would not begin competition on season 8 of the World Poker Tour until late Summer, early Fall probably early September. That give us enough lead time really to be able to adjust what we do in this sponsorship model and work to bring sponsors on to their benefit and ours. There is one big challenge which is you certainly do not want deficit finance, that is one challenge. The other one is you can simply provide more value to a sponsor when you can integrate them into the advance, when you can integrate them into the promotion, when you can integrate them into the television show all together and because of the place we have been for the last few seasons and everyone has gone on the ride with this knows that we have been at the Travel Channel and then had to moved quickly and we are fortunate to have GSN there pretty much right away as soon as we left Travel Channel to be there for season 6 and then full management change at GSN required us once again to go back out to market. You know people in the television business and you say that you actually have a Third Life for a television series and that is almost unheard of and unprecedented but in answer to your question we certainly do not plan to be in that position and are working hard right now. We are already having discussions with sponsors for season 8 well in advance of even being close to that September time frame.

Clint Morrison – Feltl and Company

Okay so assuming you find a sponsor, you will start in early September .When do we start airing season 8?

Steve Lipscomb

That will depend on two things. One is where FSN fits in. Now really the reason we did not start in the Fall this year was because of what was going on with Club WPT and so depending on what their schedule is and how we work we would certainly look to air it in the fourth quarter but I cannot be sure about that because that depends on them and us. Traditionally we have done it later meaning we start airing in the February, March timeframe but I like the idea of having them closer to event time. It is just a matter of delivery schedules and the like.

Clint Morrison – Feltl and Company

So as I look at it, season 7 goes almost everything in the first half, a couple on Q2 based on the schedule you just said. We saw a big gap in there. Where does FSN come in and it sounds like they are running this pretty hard and now suddenly they are going to be three or four months to that program?

Steve Lipscomb

Well, the good things are that the weight we have always made the shows are lovely and evergreen and I can tell you again much at a normally in the television world when they took Season 1 of the World Poker Tour which has now come back and reverted to WPTE for the rights in this market and aired them prior to Season 7 going on air. It rated better than any poker programming they had put on their air.

So it is interesting how some of those repeat shows oftentimes depending on what they are up against and the like can not do as well or better but eventually people want that new stuff. So I think that is part of what we all be figuring out. In other words they will go through pretty much July with Season 7 and then once that August, September timeframe hit likes every sport people start getting hungry for the next March Madness and so I am hoping that we will find the way for them and for us to air them earlier because then sponsors will want that too.

In other words what we are building toward really is trying to have something that pretty much all year round we can provide value for our sponsor clients and I think we just have things that nobody else can offer and are really delving in to that sense as our model now in a new way. So our discussions about how we include sponsors in advance as well as television at really a different place that will be a part of I think how we design this Season 8 model.

Clint Morrison – Feltl and Company

So you are saying that if we find the sponsor we would accelerate it and might be airing that earlier without a big gap in their programming?

Steve Lipscomb

Well, I think that would be to their benefit and ours so as we plug to do that even expand, right? This is all sponsorship based. So if you have someone who would like to be on 52 weeks a year, 100% we have the production capacity, we have everything that you would need in order to make that possible. It is just really a matter of where it fits in the FSN schedule and where the sponsors fit. The great thing is as opposed to the challenges often times that we have experienced before because where our other partners were not too sure they wanted poker or the like.

We have a relationship with that FSN that would allow us to be very dynamic and I would think to adapt to what the sponsorship needs are.

Clint Morrison – Feltl and Company

I think you said as of right now you have got 14, 000 subscribers, 12, 000 of which are paying?

Steve Lipscomb

That is correct, yes.

Clint Morrison – Feltl and Company

Do you have those figures for the year end since that was what you are targeting?

Thomas Flahie

While we are talking here I will pick it up.

Steve Lipscomb

While you are doing that let me just let me just explain what that number is too? So the fourteen and the 2000 of those fourteen that are on initial trial, everyone who signs up for the club is automatically given a two week trial so as we lose a chunk of those but not a big chunk of those so that is why we give the number because its significant enough and consistent enough to keep it there so I think I had given you enough time to finish it all up.

Thomas Flahie

We have 12, 000 customers at the end of the year which 3,000 were trial.

Clint Morrison – Feltl and Company

Okay and you suggested that Christmas Marathon was wonderful and lots of activity and so forth. Can you quantify us what it really did for you.

Steve Lipscomb

Well I think, in that timeframe and again you almost got it from the number that Tom gave you because in that timeframe you have 3000 trials that were currently going so you pretty much figure that December was a 3000 sign up month or around there so you take that. If we were in that sort of 3000 subscribers per month and growing at that level consistently than I think we would be a little more bullish about were we sit.

We understand this is all happening in the worst consumer economic time that we have all ever seen so you are now convincing people that they are going to be willing to part with $19.95 a month. I am sure that did not help us but the good thing is when you look at it, it is still growing. When you see that those 2000 subscriber that are sitting their today well that is because January still had people signing up despite the challenges in the economy. We did not hit the numbers perhaps that we wanted to but when you look at it, it seems to be a market and there is still the issue of that 110, 000 Play for Free people that are sitting out there and playing whenever you go.

It is generally an 80/20 rule I do not know why 80/20 seems to work in all markets for all things but it is the same thing in online gaming that generally you have about a 20% base that is actually playing on your cash game side of the equation and about 80% that are playing for free and as we work with My Space we are really trying to find new ways to cross pollinate them and us, that is what to do and they recently had some made some news as they restructured some things they are doing over their that look like they are getting really positive in the ways that we can cross market together the way that we could in November, December so we are hopeful that, that is going to contribute for our second quarter for Club WPT.

Clint Morrison – Feltl and Company

Can you give us some magnitude; we, over the Christmas Day Marathon, had over twice the sign ups than any other week in the fourth quarter?

Scott Friedman

Well you put it on for 8 or 10 hours I would hope you get a whole bunch of takers. It sounds like you did.

Steve Lipscomb

And again you are not going to get that all the time obviously but it is a kind of commitment and I just can’t say enough about what is the kind of support that we have had by making the News Core Family a partner with us in this business. We are all really trying to find a way even in the challenging market to make the business makes sense and to make it work and the television is a great kind of corner stone but thins like My Space that have online traditionally does a better job with signing up online.

Tom and I talk often a lot about this versus television as been something of an anomaly what happened with television exploding the online casino and poker sites but we are really looking for those ways to make that cross over happen for the second quarter of this year.

Clint Morrison – Feltl and Company

And then the last question I like to go on and Club WPT I think that I am little confused is to what happens now, you have done your 13 episodes I think you are producing a couple more now but on the other hand you said you were not going to go through with another batch until you find the sponsor. What is the expectation for producing more of those shows and getting them on T.V. to drive people to the website?

Steve Lipscomb

We have been talking to traditional sponsors about the possibility of taking the airtime because you the airtime and really a perfect demographic for an awful lot of sponsors but we all know that these are not really not fun times to be talking to Procter and Gamble about putting out money in alternative markets for shows. So I guess I have tell you that those are going to be a challenge. That is what we are looking and doing on the television side of things but if I look back at the business and if we start modeling how the build has been since we started Club WPT. There are a lot of things we have in our arsenal that we have used and managed to bring people in.

An example is the Amateur Poker League that we will be doing 33, 000 WPT branded events in bars across the country this year. Those guys continue to find ways to have the people that they touch in their environments in the stage where it is allowed to encourage those people that come and be a part of Club WPT. So the growth I think that we seen in the television stock just might be expensive to do and we are certainly talking to Fox about what ways we might be able to continue on that front even just to make it an offering so there on the site, it is another thing to offer which is money can not buy. You can be on television but we at the World Poker Tour have a lot of those.

In other words every month, many months of the year we are doing major poker events which people would die to go and be on the stage to meet my [39:47]. To be a part of that sort of experience so we are changing in the way the offerings because if you think about the big thing you do with that bowl horn is get people to go but it is because they get to do something cool that touches the World Poker Tour. We are just finding ways that perhaps in a more efficient, less expensive for us to do that.

So truly we are doing that organic marketing that comes from all of the brand extensions that we already have whether it is Cruises, The Amateur Poker League, The Hands on Mobile and the like in order to drive people to something that benefits our partners and us.

Clint Morrison – Feltl and Company

Okay but just to go back to the Club WPT T.V. you are going to produce three of these out of your pocket in Q1 and then you are not going to go forward with that until you get some sort of help for partnership or sponsorship?

Steve Lipscomb

It is a too big a cost center. I think it cost us $1.2 million to make the first batch and again I think they were great. I think they gave us awareness, they showed people we where there. We just look for the benefit of everyone in this partnership who wants to find efficient ways of doing that.

Operator

(Operator Instructions)

Your next question comes from the line of Steven Silk – C. Silk & Sons

Steven Silk – C. Silk & Sons

Could you tell me what do you think a break even would be on the paid subscribers on the Club?

Steve Lipscomb

Well, break even if you take marketing cost out of the equation given the way we are in this business it is pretty low. Meaning we are already in a break even position, if you take up the television show from the equation. So if you take that as a marketing cost off the table that is just a matter of how much you want to spend in order to drive people thereto bring that revenue source up.

Steven Silk – C. Silk & Sons

Well you do have the count the marketing expense that is how you do get people to come so….

Steve Lipscomb

I totally get you but that is why it is a total sliding scale because for a break even I used to tell you that we spent roughly $ 1.2 million to make 13 episodes of the Club WPT Show. In order to make that bag we need to be at about 20, 000 and 25, 000 subscriber level. Having already spent that all the marketing that we are doing now is pretty much marketing that is not above the line.

The cost for u so for the business is very low, just pretty much people that we have working within the organization so the prize money and the like is a part of our deal with our supplier. Really it is not, for us it is part of the equation as we look at the business and evaluate how it works, how it could work and what we are going to do with it. That is inexpensive for us to be in the business but it takes focus and the like so right now I would say I do not plan to make 13 more television shows that I am underwriting so the break even for us we are already there.

Steven Silk – C. Silk & Sons

But then you must have turn so you have to have some kind of marketing to be able to keep level in order to move ahead?

Steve Lipscomb

We do, they are sure that we have been ahead of that to date but of course we are in a world now where we do not have the television show out there as much but the repeats are continuing to go on FSN as well as the messaging that is going across the multiple networks and spots that they are running. So the answer is when that world comes around it maybe different but historically prior to one of this business into the first quarter beginning of second last year prior to the television show so as we were making the deals with FSN and the like we are still building subscribers up to that point. So prior to the television show and we certainly saw an incremental rise. We say a big increase in the number of people that where there but we were growing as opposed to declining despite the churn rate.

So we certainly hope that, that will continue to be the case and we are analyzing those things. Every week I am getting a full chart of everybody who has left, everybody who is coming in and how much the site is growing.

Steven Silk – C. Silk & Sons

So if we hop over to China for a minute, it sounds like the amount of money that you have to spend for the sponsorship and the cost of putting on the shows was a sizeable amount and the intent of being able to monetize that and it does not sound like we are getting that by your statements so you are trying to find, you sounds like you can not go forward, take losses and hope that something happen so what was you thinking about what might happen and what happen that did not occur?

Steve Lipscomb

Well, in my mind it is pretty simple. I think if we knew where we are going to be where we are today, when we started the China initiative. We would not have started the China initiative but if we have not had the challenges that we had in the online gaming space, and that put us in a different cash position today as well as we put us in a different business position then we would have hesitated to go in because the basic assumptions of that business are longer term which we knew but the opportunity was to have this Ten year exclusive license where you would build the brand in a largest market in the world as a part of an integrated strategy to go into the online gaming business and today given the fact that we have withdrawn from that business and given the fact that again we us a Company that lost rather than made money over the last year significantly changes, really just how we address that business.

If we had doubled the money that we had in the bank and we are in that sort position I think we would have a very different reaction to it because we have created the product there. We have created a tour that is very successful. We have a brand that you talk to people in China. They are shocked and amazed but it has gone in as fast as it has. The television stop not only that we create this crazy game with 25 cards per person on television created in such away that it actually does numbers when you get on China Television and now it starts to get in of course for some of the bigger television guys.

So I would say people who are actively engaged in the online gaming business would have lots of reasons to look at that as a future opportunity since we have shifted our focus in that piece of the world that the amount of money we would have to invest in order to make money in the next one or two years. It is not just a risk that we look at and are sure that we are willing to look to take. So that is why we are going out and we are saying look guys, look what we have created because it is tangible, you can touch it, you can smell it, you can feel it and there is something again significant that we know a lot of companies that have spent a lot of money going in the China and have it done a quarter of what we have manage in a short amount of time so we are looking for someone to come in and partner with us and take over the funding of that venture just because of we find ourselves where we are.

We do not like it, I mean believe me. We do not like that we did it and we find ourselves here. We do not like that we have to look at it and ask questions about it but I do not think it would be responsible to risk the funding that we have to over the next two years to get into a growth position.

Steven Silk – C. Silk & Sons

It does not seem like a lot of the initiatives that we have tried and started over the last year have been successful in any measure. It should mean this does not work because I mean the whole idea is you just keep drawing things against the wall thinking that something will turn the Company around and it is just not really a way to do it. Let me ask you this on series 7 on Fox…

Steve Lipscomb

Let me just address that because I think the 100% that is we sit in a place with 20/20 hindsight, we would make a decision that you are talking about. I think that the online gaming market, when we originally entered it was a great space for us to go into and it was a natural evolution of our business and the brand to go into that business because of our risks profile and our need to be involved with really the one Company that we could but we went to the business with WagerWorks.

When we opened that business we had our market immediately took 900 subscribers to that site and the site crashed for 11 hours and never came back up and the reality of where you sit in that kind of we did the right time, we are in the right place and in poker parlance we got dealt a huge bad deal that took us into our next side of the equation where we are going to have to try and do it on our own and it was really a tremendous amount of money and resource and effort for us to find and by the way we were not the only ones. Toy Store when they left the U.S. when have spent some $10 million that they got no traction in the international market.

The market form the time we went out with WagerWorks until we were able to be back up a year later in a cyber environment but cryptologic change so fundamentally that we probably lost that window but we nor nobody else knew that. In other words the growth and the market change again underneath it and you can blame and I can feel bad about it. There is no investor in the world that has experienced anything that I have not as a very large investor and share holder in the Company because we believe that could be the case and everyone was excited about it and truly in our marketplace where when you play by the rule, I equate it to being at a poker table where you were one of ten people playing and the other guys do not have to play by poker rules.

In essence, when we found out there is simply was not going to be some sort of rule based game and we were the publicly trade company that has to play by the rules we will never win in that game.

So I do not like it and it is unfortunate and do I think it is inequitable, yes but on the other hand there are record companies who where absolutely imploded in the music internet overwhelming experienced that have managed to comeback and find ways to make money and that is what we are doing today. So I am not happy about it. I wish we were not here but I am still here because I feel like that is when you pull yourself up by the boot strap and you do what you can to try and put the initiative out there, the Club WPT if you say it does not work well it has some traction and there is something going on there that we hope will be of use but is it a Company shaver or it is a Company changer I think you are asking the same questions that we are ask.

Operator

Management please continue with any closing comments you may have, there are no further questions at this time.

Steve Lipscomb

Okay, well thank you. I think that is it and we are doing everything that we can everyday to find the way to take what is an enviable position a Company with money in the bank that has a strong global brand that does not have a huge debt position and make it through one of the most challenging times that anyone in any market has ever known so that we can be on the other side of that with growth opportunities to make that brand as something that brings value to our shareholders. So we really appreciate your time and bearing with my voice today.

Operator

Alright and thank you. Ladies and gentlemen this concludes the WPT Enterprises Incorporate year-end 2008 Conference Call. This conference will be available for replay after 5:30 Eastern standard time today where March third at midnight EST. You may access the replay system at any time by dialing 3035903030 or 8004067325 on either number after the access code of 3969008.

We thank you very much for your participation. You may disconnect. Have a very pleasant rest of your day.

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