WPT Enterprises, Inc. Q4 2007 Earnings Call Transcript

WPT Enterprises, Inc. (WPTE)

Q4 2007 Earnings Call

March 06, 2008 4:30 pm ET

Executives

Ann Rocunes – ICR

Steven Lipscomb – President and Chief Executive Officer

Scott Friedman – Chief Financial Officer

Analysts

Clint Morrison – Feltl & Company

Jerry Dave –

Stephen Silk – Silk & Sons

Brian Kinstlinger – Sidoti & Company

Adam Krejcik – Roth Capital Partners

Presentation

Operator

Good afternoon, ladies and gentlemen and welcome to the WPT Enterprises, Inc. fourth quarter 2007 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Ann Rocunes [ph] of ICR. Please go ahead.

Ann Rocunes

Thank you, operator. Good afternoon everyone and thank you for joining us today to discuss WPT Enterprises fourth quarter and year ended December 30, 2007 financial result. With us on today’s call are Steven Lipscomb, President and Chief Executive Officer and Scott Friedman, Chief Financial Officer. I know everyone should have access to the press release which we announced today at 4:00 eastern time. If you have not received it, it is available on the investor relation portion of world proprietor’s website.

Before we can begin today, I would like to inform everyone of the Safe Harbor statements. Following the prepared remarks, management may make initial forward-looking 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 than those projected in any forward-looking statements, we will refer you to WPTE’s filings with the Securities and Exchange Commission including the most recent annual report filed on Form 10-K, quarterly report filed on Form 10-K for the second and third quarters of 2007, as well as the company’s current report filed on Form 8-K.

With that, I would like to turn the call over to Steve.

Steven Lipscomb

Thank you, Ann and thanks everyone for joining us this afternoon. On today’s call, I will be providing a brief thorough review of our 2007 accomplishments, an update on our current business as well as our plans for growth in 2008 and beyond and Scott will provide details for the fourth quarter of full year 2007 and we will open up the call to take your question.

2007 was an important year for us as the company transition of what we considered to be a traditional media entertainment company to multimedia entertainment and gaming company with three primary issues. We are on the gaming outside the US at www.worldpokertour.com, Club WPT, a recently launched subscription based service offering poker enthusiasts in the US the opportunity to play poker for fun prizes and bragging life.

In WPT China, where we launched the first national card duel in the history of Mainland, China, our transformation is ongoing and occurring for the diligent efforts of everyone here at the WPTE with the support of Lyle Berman, our Chairman and the Board of Directors reviewing the highlights from 2007 and early 2008.

On the domestic television front, we signed a multiyear deal with GSN in early 2007 that will bring the broadcast to season’s 6^th of World Poker Tour to primetime on Monday night every Monday night beginning March 24. During the fourth quarter as expected, we delivered five Season Six episodes to GSN. In support of the show, GSN has begun the advertising of this week on air, online and in print advertising as well as to PR and grass roots effort.

This is part of GSN’s contractual commitment to spend $3 million to promote every season of the WPT. They will also promote the World Poker Tour show by creating marketing programs and partnerships with Southwest Airlines, Shell Oil and Blue Diamond Almonds that will drive viewer ship and give WPT brand awareness. We are extremely pleased with the collaboration that we are receiving so far from our partners at GSN including a WPT VIP sweepstakes, pod casting on iTunes and other internet tire.

Now, turning to international television distribution and sponsorship, we continue to see solid revenues from international television license fees. Additionally, we are beginning to drive significant revenues from international televisions sponsorship as a result of our party gaming agreement. This has provided over $2 million in revenue today and continues to booster our distribution efforts generally.

We are currently on air in key international territories including the UK, Canada, Australia, Denmark, Netherlands and Sweden. Our new international sales and marketing team has also managed to break new ground in broadcast territories including Ireland, Greece and South Africa. The localize version of WPT Season Five will begin airing this month in the UK on a top TV network, ITV4.

Localized in content will help drive traffic to our online gaming sites in this territory. Referring to our online gaming business at www.worldpokertour.com as many of you know, we joined CryptoLogic Network in June of 2007. This was a significant move for us providing our players with the best in class poker product and solid liquidity along with ten of CryptoLogic’s top casino game.

The results of our online gaming business for the fourth quarter were in line with our expectations with revenues increasing sequentially over the third quarter of 2007. Our team has developed a plan of attack to focus on three critical areas: one, getting the product right; two, localization and three, execution of a compelling marketing plan to drive players to our site.

I am going to describe what we are doing in these three areas to precision the online gaming business for success. First, getting the product right. We have been enhancing our website at www.worldpokertour.com to make the experience more user-friendly and easier to navigate with the primary goal of getting customers to download the game and deposit fund. That is rebuilding compelling promotion. We just recently launched the million dollar bank role promotion where online players will have the opportunity to win their way at the land-base events and a chance to be the next WPT Poker-Made Millionaire and inter acting the online poker world to terrestrial poker and television poker is a point of differentiation that we will continue to emphasize. Finally, as a part of our renegotiated agreement with CryptoLogic, we will be offering our players to full suite of casino game which just recently won Gambling Online Magazine, Top Casino Software was for the third consecutive year. All casinos will be launched in June of this year.

Turning to localization, as I previously mentioned, we are beginning to localize WPT content and strategic markets to drive more traffics to our online gaming site including the following: first, we have begun developing the poker client in two target languages, Spanish and German which are expected to go live by the end of the second quarter this year. Zaga [ph], we are developing a localize version of WPT Season Five that will debut on ITV4 at the UK this month.

We currently broadcast localized versions of our show in France on Canal Plus and in the Philippines on ABS-CBN. We will push for similar opportunities in various markets. Third, we will seek to establish international tourist stop at regional tours in key territories with strategic partners such as Grup Peralada in Spain which will host the second WPT tournament this coming May.

On the marketing front, our plan is to focus on cost effective means that will acquire customers and to derive high margins from our online gaming business. We still believe that television is one of the key tools to differentiate our brand in the marketplace and help drive players to www.worldpokertour.com but we have the opportunities and we determine its cost effective, we will advertise in and around our show that help reinforce the World Poker Tour brand and to drive players to the website.

We are also implementing an online advertising in series of campaign in key territories. Our marketing method to drive players online is consistent with our message across all aspects of WPTE. We will target the everyday man who wants to live the poker dream of becoming the next WPT Poker-Made Millionaire. To support this campaign, we have recently announced the professional poker player and WPT champion Antonio “The Magician” Esfandiari will join us as the Face of the WPT Poker-Made Millionaire, an elite group of 84 players that is growing will won at least $1 million playing on the World Poker Tour.

Antonio will be our spokesperson for both real money gaming on www.worldpokertour.com and our subscription based poker platform for US customers ClubWPT.com. In these roles, Antonio will represent the WPT in tournament and events around the world. He will share his expertise and provide tips, tools and tricks for fans and players while delivering updates and information from tournaments by a live update, web videos and online blogs.

As far as financial goals for online business, we have a 2008 goal of achieving between $20,000 and $25,000 per day in revenue by the end of the year. Our goal is to continue to increase these revenues significantly with a target of $40,000 to $50,000 a day in revenue by the end of 2009 and $70,000 to $80,000 a day by the end of the 2010 and to have the business begin to be profitable by 2009. It is our job to grow the business over each quarter and we will update you on our progress along the way.

Now, turning your cash in to Club WPT which is our second key initiative for 2008. In January we launched ClubWPT.com, an initiative and an innovative subscription based online poker club targeted at the estimated 60 million poker players in the US. Club WPT offers a monthly subscription package for $19.95 per month. In return, members received exclusive club benefits and points which make them enable to inter illegible to enter in over 5,000 live pokers and Elimination Blackjack Tournament, second goal poker tournaments and poker ring games for a chance to win over a hundred thousand in cash and prizes each month including a $10,000 seat into a WPT televised main event. The non subscribers who do not wish to purchase the other club benefit are offered a free or alternative means of entry.

Club WPT is a very exciting opportunity for us as we now have the ability to leverage a variety of marketing vehicle here in the United States including television, affiliate relationship, licensing deals and our new company’s spokesperson Antonio Esfandiari that conserve to drive traffics to ClubWPT.com. We will stop launch the service in January 2008 with very little marketing and currently not nearly a thousand subscribers.

We expect Club WPT to become a significant revenue generator for us and our goal is to have between 16,000 to 20,000 subscribers by the end of 2008. Our goal is to continue to increase the subscriber base significantly with a target of 40,000 to 50,000 subscribers by the end of 2009 and 70,000 to 80,000 subscribers by the end of 2010 and to have this business begin to be profitable in 2009.

Again, we will like to take you on our progress along the way. Before moving into WPT China, I want to take a moment to discuss our new partnership with STATS LLC, the company that provides sports statistics to the NFL, NBA, MLB and other major sports link. This partnership is a significant milestone in WPTE’s continued efforts to grow and build a supportive program.

In 2003, the WPT television format reinvented poker for television and helps spark the global poker boom. This partnership with STATS LLC will establish standardized statistics and will allow fans to talk about poker like all sports fans talk about their sport including the luck factor, continuation bet ratios and the like. By enhancing the WPT experience for consumers, we expect this and future offerings to help drive traffic into our site and entry increased subscriptions to Club WPT and players to real money gaming and international territory.

Now moving on to our China operation. In August 2007, we signed the landmark agreement with the China Leisure Sports Administrative Center or the CLSAC to fill the first national card tour in Mainland, China. The initial focus of the project is to build one of China’s most popular cards game “Tuolaji” or Tractor Poker into a national championship sport. We will remind everyone this five-year agreement provides us for the commercial marketing and sponsorship rights in conjunction with the WPT China National Tractor Poker Tour including the rights to monetize our investment to sponsorship and advertising of the tour and through mobile and online subscription.

We expect online and mobile to generate the largest long-term financial opportunity. We recently completed 14 of the regional preliminary event for the inaugurals thither with all events build to capacity. The WPT China National Tractor Poker Tour Season One champion will be crowned at the championship to that in May or June but we expect the event to be televised on a major Chinese broadcast.

In terms of our goals for WPT China in 2008, we expect one, to launched Season Two of the WPT China National Tractor Poker Tour; two, to have a fully integrated online platform by the end of third quarter this year. The platform will offer subscription base in the free -play gaming, beauty features such as user-generated consent and the ability to create personal profiles, breach video, editorial content and statistic in leader boards of the tour, our goal to generate a revenue from the platform by the fourth quarter. Three, have a subscription based mobile game by the third quarter and begin to generate revenue soon after launch and four, to secure two to three sponsorship agreement for Season Two of the tour by the fourth quarter.

We expect WPT China to be a breakeven business by the end of 2009 and profitable in 2010. Now, I will turn the call over to Scott to go to the financial results.

Scott Friedman

Revenues for the fourth quarter of 2007 were $5.1 million compared to $5.9 million in the same period of 2006. The decreased was primarily result of the delivery of 5 episodes of Season Six of the WPT television series in the fourth quarter of 2007 compared to the delivery of 4 episodes that Steven filed of the WPT as well as 5 episodes of the Professional Poker Tour television series in the fourth quarter of 2006. The decreased in revenue in the fourth quarter of 2007 was also partially due to the economic terms with the agreement with GSN versus delivering episodes to the travel channel in the prior year period.

On the positive side, sponsorship and host keys increased approximately $1.6 million due primarily to international television sponsorship revenues that did not exist in the same period of 2006. Online gaming generated revenues of $0.2 million in the fourth quarter of 2007 compared to $0.5 million in the fourth quarter of 2006. Also, revenue was decreased to $1.6 million in the fourth quarter of 2007 from $2 million in the fourth quarter of 2006.

Decline was primarily result of the delivery of fewer episodes as previously mentioned. Overall gross margins were 68% in the fourth quarter of 2007 compared to 66% in the fourth quarter of 2006. The increase in margins in the 2007 period was primarily due to increased international television sponsorship revenue. Selling in general and administrative expenses grew to $5.8 million from $4.6 million in the fourth quarter of 2006. The increased was primarily due to launching Season One of the WPT China National Tractor Poker Tour as well as increased cost associated with the pairing for the launch of ClubWPT.com.

We reported net loss for the quarter of $1.9 million or 9 cents per share. This compares to a net loss of $1.1 million or 5 cents per share in the 2006 period. For the year ending December 30, 2007, revenues were $21.7 million compared to $29.3 million in the year ending December 31, 2006. The decreased was primarily a result of the delivery of 22 episodes comprised of 17 episodes of Season Five and 5 episodes of Season Six of the WPT television series in 2007 versus the delivery of a total of 44 episodes in 2006. This comprised of 16 episodes of Season Four and 5 episodes of Season Five of the WPT as well as 24 episodes of Season One of the PPT television series.

Although there was an increased in international television distribution agreement, international television licensing revenues decreased to $2.3 million in 2007 from $3 million in 2006 as a result of lower television licensing fees per territory. Decreased international television licensing revenues were offset by increased event hosting and sponsorship revenues of $4.8 million in 2007 compared to $2.6 million in 2006 due primarily to international in television sponsorship revenues that do not exist in the prior year.

Online gaming revenues decreased to $1.2 million in 2007 from $3.2 million in 2006 due primarily to lower levels of player activity versus the prior year as well as determination of operation on the wage of works network while we transition the online gaming operation to CryptoLogic. We reported net loss of $9.6 million for the year ending December 30, 2007 or 47 cents for fully diluted share compared to net earnings of $7.8 million or 38 cents for fully diluted share in the prior of fiscal year.

The primary reasons for the decreased in earnings year over year was the decreased in revenues in 2007, a $2.3 million charge associated with the right of online gaming software and other assets in 2007, increased selling in general and administrative expenses of $4.1 million in 2007, a $10.2 million pre-tax realize game in the 2006 period from the sale of PokerTek common stock. As detailed in today’s earnings’ release at December 30, 2007, we have no debt and total cash, cash equivalents and investments in marketable securities of approximately $31 million which included $7.8 million of auction rate securities, currently hold approximately $12.4 million of this securities.

As a result of the recent liquidity issues experienced in the global credit and capital market, liquidity for these instruments as for the reduced and in February 2008, auctions for these securities held by us failed. The auction rate securities continue to pay the designated amount of interest. However, liquidity will be limited until there is successful auction or until other markets for these investments developed.

We hold auction rate securities with underlying collateral of student loans that had AAA ratings at the time of purchase and maintain these ratings through the date of this release. We believe that the credit quality of these assets has not been impacted therefore no impairment charges had been recorded to date. We will continue to monitor the credit quality of these investments to determine if impairment charges are required. However, we do not believe that the lack of liquidity relating to our auction rate securities have an impact on our ability to fund our operations during the next twelve months.

I am now turning to guidance. The first quarter of 2008, revenues are expected to be in the range of $4.5 million to $5 million. We also expect to deliver a total of 18 episodes of Season Six of the WPT television series in 2008, seven episodes in the first quarter with the remaining eleven to be delivered during the second and third quarters. We expect lower gross margins for domestic television as a result of the terms of the agreement with GSN. We expect to recognize host fee and sponsorship revenues as WPT domestic episodes are aired during the first, second and third quarters of 2008.

We expect to launch Season Two of the WPT China National Tractor Poker Tour and begin to recognize revenue from China related activities by the fourth quarter of 2008 and we expect moderate growth in online gaming revenue in the first quarter of 2008 with a year end target of between $20,000 to $25,000 per day in revenue.

Regarding expenses, we expects overall selling, general and administrative expenses to increase as a result of a full-year of China related operations and higher sales and marketing costs as we invests in marketing our online gaming business and ClubWPT.com. General and administrative costs, a component of overall selling, general and administrative expenses, are projected to slightly decrease due to cost cutting initiatives that we have implemented during 2007 and we believe we have previously made a significant amount of the investment necessary to scale our core businesses.

At this point, I would like to turn the call back to Steve for some closing remarks.

Steven Lipscomb

We are excited about the year ahead. Our objective is well defined and we are working hard to capitalize on our three primary growth businesses and continue to expand our brand in domestic and international market.

Thank you for participating in our call today. I would now like to open the call up to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Clint Morrison – Feltl & Company. Please go ahead.

Clint Morrison – Feltl & Company

Hey, Steve. At what time you guys were giving sort of reasonably specific numbers that will show how much you are going to spend trying to promote the online, can you give us a senses kind of have you started in the bad and kind of what level do you think you are going to be as spending the drive online traffic?

Steven Lipscomb

I would say that number really has not changed too much from what was there, what we gave before, what we really finding is that the where we putting a lot of our money is retrofitting the shows, that they work best in the market and then working through affiliates and spending where it appears to scale.

So, we are beginning that spending but again, I do not think it is out of the range of where we were before.

Clint Morrison – Feltl & Company

Have you think of that?

Steven Lipscomb

I was going to say was some of these were starting to do, Clint, we are implementing the online advertising and putting it out there in a way that it is tied in with the show airings. So, you are just seeing the show out in international marketplace but we are wrapping that show with online advertising and targeting key markets.

Clint Morrison – Feltl & Company

Okay. So, you are saying that we should be looking for roughly an incremental $2 million a quarter kind of spend giving to that level at some point? Year over the next couple of quarters? I think that is what you said originally that was $2 million a quarter incremental and…

Steven Lipscomb

I think that will be on the high side. I do not think it is going to be at that level.

Clint Morrison – Feltl & Company

Okay, when do we go up? When do we pick out and any of guess is we sort of really have not started, if that is correct and if we have not started, when do we kind of how long does it take to get to our peak spending rate for promoting online?

Steven Lipscomb

Basically, we are starting now. This is the first week that those things are rolling out so, getting to the pick I think we are going, part of what we are doing is taking, paneling some of those dollars rather than just in buying ads and the like, we are doing it through hiring folks in the region that are going to do more on the ground sort of activity but that too, it may show up in a different line but I think it is still puts the numbers still in close to where we are sitting before.

Clint Morrison – Feltl & Company

Okay, so the question is to when we pick, is that within a quarter? Or is it going to the full year round?

Steven Lipscomb

I think, I mean I do not even want to call it a pick per say but then, what is it going to be is there is going to be a certain minimum level of marketing out there but based on success, if we are seeing success in the market that we put out there, we are going to continue with that and potentially increase it so try not to be hopeless as we never pick.

Clint Morrison – Feltl & Company

Yes. Okay and then can you kind of just quickly review the respond agreement with CryptoLogic. It was a little, few people are kind of confuse and I guess my question is what was the driver here because it sure look like kind of it was a win-win for you and why the CryptoLogic kind of give up what they did?

Steven Lipscomb

Well, again just to highlight the terms of the changes, one is the full casino so we will be looking to launch a full casino and CryptoLogic should have it ready by the end of June. We negotiated the minimum guarantee which in the original contract was a $2.5 million that is now down to $750,000. The second area that we exercised was we are launching two languages. The CryptoLogic is creating two language sites, one in Germany and one in Spanish.

The other is there is some favorable rates that we are getting from this. So, those are the things that we are getting. The things that Crypto is going to be getting is one, they are getting a year extension, so that is important to them but also by us implementing the full casino. It does move our minimum revenue guarantee which is currently at $500,000 and moves that up to $750,000 but more importantly is as we grow the casino business, ultimately it helps us but it also helps CryptoLogic’s business so we look at it as a win-win for both companies. It is the other part of the region also is we are just working together in conjunction to a help and ensure and increase the probability of our success so on both sides, we believe this allows us to make sure we have the time without too much financial pressure to be able but actually make the partnership work.

Clint Morrison – Feltl & Company

And is this deal was have not been respond? At what point we deal been on the hook for the $2.5 million minimum?

Steven Lipscomb

We would have been, we did not. That was only if we went ahead and had the full casino installed and likely we are not going to do that under an umbrella of a $2.5 million guarantee per year.

Clint Morrison – Feltl & Company

Okay, now I understand the guidance. Okay, thank you.

Steven Lipscomb

Bye. Thanks, Clint.

Operator

Our next question comes from the line of Jerry Dave – [inaudible] Partners. Please go ahead.

Jerry Dave –

Just first question, I may have missed this but can you clarify when you were outlining the goals the $25,000 per day in revenue? Was that related to again?

Steven Lipscomb

Well, they are on two sides. One of them is the online gaming; the other is the Club WPT. So, our goal by the end of 2008 is to have $20,000 to $25,000 in revenue coming in per day.

Jerry Dave –

Okay great and…

Steven Lipscomb

And then you get the other so and the target was $40,000 to $50,000 per day by the end of 2009 and $70,000 to $80,000 by 2010.

Jerry Dave –

Okay, I did get that. Thanks and then I guess, just looking at the Club WPT, I know it is early but any sense for the type of the average subscription link that you are thinking about?

Scott Friedman

Well, I believe, it is even new in the whole industry and it is such a new space that I do not think we have any complete networks. Do you have anything really to give in the way of suggesting because I think the guys who have been out there doing this for a while, interestingly enough they are oftentimes more sticky than in the online gaming world simply because it is an automatic recharge every month and in online gaming business, you really have to push the button to say I would like to put more money in the cash here.

Yes, I mean to answer that, there is to Steve’s first point, there are not a lot of matrix out there in this business because it is very new. In the online gaming business, we have seen anywhere from 9 months to a year, it is typically the life of an online gaming prior. So, some of those matrix have been applied to this business to risen our models and that helps.

Jerry Dave –

Okay, that is helpful and then maybe you could just touch on the competitive landscape by with this product to I guess relative and I guess to some of the other operations in the US and that could just the potential for new entrance.

Scott Friedman

I think there is always potential for new entrance. There is one group that has been doing it for a couple of years and they are not a brand, they just kind of put it out there, have not done really done much marketing and they have managed to filled it so that they have a significant number of subscribers. Other than that we have people that we know, I guess Card Player Magazine is now coming out with an offering. It is just after we did this come out with one and I would presume that particularly if we find that it is successful that we will have other people coming in to the space, we do not assume at least today that the online gaming sites that currently take you as bets are going to be engaging this business simply because they will probably make more money as long as they are allowed to continue to take that as an online gaming.

So, I think the potential competitors and we really have only one big brand of competitor which would be the World Series of Poker and when we move in the market, they tend to move into it eventually as well so I can presume that they will make some sort of play again particularly if we find success.

Jerry Dave –

Okay, that is helpful. Thanks.

Scott Friedman

Bye. Thank you.

Operator

Our next question comes from the line of Stephen Silk of Silk & Sons. Please go ahead.

Stephen Silk – Silk & Sons

Good afternoon. I want to kind of concentrate on the online gaming sector in although it is just small part right now it was really what I feel is the largest growth opportunity that you have. Just on the AQ that was filed today, if you get revenue of $500,000 it tabs out an 80% you keep the revenue and 20% for CryptoLogic?

Steven Lipscomb

That is correct. Now let me, the 80% of a net gaming revenue number.

Stephen Silk – Silk & Sons

Right, so that is now in the online gaming as far as poker goes, your online gaming revenue would be raked from ring game and tournaments, is that how you are adding that up?

Steven Lipscomb

Yes.

Stephen Silk – Silk & Sons

Okay, what was the cost of that? Would you put just a net on the revenue or you will have the total revenue and then the cost of revenue would be what you pay out to Crypto?

Steven Lipscomb

Well, openly Crypto run with systems so they hold on to the money, they remit to us the 80%.

Stephen Silk – Silk & Sons

So, what do you cost your revenue against your online gaming?

Steven Lipscomb

Cost of revenues are and to help you and to help everyone here that the way we were projecting this business, we are projecting cost of revenues and also we gross margins to be about 60% for this business. The addition is 20% there is typically what you called bonuses and free bets which would be a cost in the technically a fast reduction of revenue from accounting perspective and there is other cost such as charge backs and other financial transaction processing.

Stephen Silk – Silk & Sons

Okay. Now, as the online gaming goes as far as poker, you kind of have an idea of what your revenue stream because you will have an idea of how much your players are playing or what have you as you go into a full casino, would the matrix change because of the varities of somebody getting very, very hot and winning a lot of money or an amount of players just loosing more, it is more of a trying to analyze it like a casino take on table games?

Steven Lipscomb

Yes, that is correct. I mean that the casino business is based on what we call that hold, casino hold in this business but see we did have a casino before when we are under the WageWorks networks so we do have some experience in this business and so it is not new territory for us but the answer is it is a different business I mean what you get is like a billiard table when they are charging you by our bid there in the poker business and it is very different in casino and that is there will be swings up and down.

Stephen Silk – Silk & Sons

Yes, that was what I was thinking about. So, you will have some movement one way and the other in a way to flattening that out. What was, in your past experience, what are the margins on net as compared to poker?

Steven Lipscomb

Well, I am sorry, in the major work system, we were making as much on the casino side as we were on the poker side but to give you some highlight, the matrix will maybe helpful. From a poker player perspective, we are looking at anywhere between $10,000 to $15,000 per day, per player, in the poker world. Casino numbers, it is usually four to five times higher than the poker player.

Stephen Silk – Silk & Sons

So, sort of what it figured…

Steven Lipscomb

It is usually much more lucrative business. It is just a matter of being able to get enough for those casino players.

Stephen Silk – Silk & Sons

And then the idea, your idea currently is that to drive traffic to the online site to play poker and I mean the cost of those customers to play gaming should be less because they are already there in a sense.

Steven Lipscomb

That is right.

Stephen Silk – Silk & Sons

Okay, you did not break out; I do not think you spoken before about the investment and secure the mobile online. Do you follow how well they are doing or track how well they are doing as far as I know it is stagnant on the balance sheet with that but you had success when you had the stake in PokerTek as far as your ability to see interesting trends and where to go and it is like, this looks like also an interesting investment that you made so do you have any comments on how that looks?

Steven Lipscomb

I can tell you we saw the, where is that sort of long with that some more ventures and I saw them over the last couple of weeks and they continue to be bullish. They have just put more money in. There was another round of financing that came in with a higher evaluation that again make us not just believe in the investment but in the product and they now in the UK have seen growth in their numbers. They appear to really be the only company that is exceeding in getting this marketplace and now have deals with every major telecom in the UK so and again they seemed to be doing it the right way. They seemed to be have assembled the really terrific team and kind of have made it through some of the bumps and stay really are that people out there creating this market. I think they are very ready to see some growth but to my, what I will tell you is we continue to be bullish about it but we do not talk about it much simply because it is difficult to quantify but I think we have a chance of having a PokerTek kind of experience.

Stephen Silk – Silk & Sons

My last, let us go to the China game, the Tractor. When you have four people playing, do you have to know who your partner is? Like bridge or does it matter who is on the other side of that and the only reason I ask is because I am trying to get a gauge for is there some link to be played online where four random people can be sitting at a table across situated there, would you really have to show up as a doubles team in a sense?

Steven Lipscomb

That is really the big part of what we believe will make this tour as interesting has been off a lot of what is going to happen online and currently, there are company in the space already that are doing this online and have just immense numbers of concurrent users so that is the part of what makes us excited to being in the end of position now to be able to take the game and make it to a national championship with a sport rating from the government because that will allows to take the online and mobile since mobile is even more important in the space than the online segment to drive people into those land-based tournament.

Stephen Silk – Silk & Sons

Steve, my final question and that is why do not you add that unto Club WPT since people do not have to pay for it anyway and since you have commented how much you have enjoyed playing it after work, introduce it into the US market as a free game just to give as a taste of what it is.

Steven Lipscomb

Now, one step at a time, we really are developing the game and that this decide over there and you can imagine that at the same time, not just we but the government, our partners are very excited to have us help export the game not just into US but in other places around the world so I think that certainly is a part of our planning already today.

Stephen Silk – Silk & Sons

Thanks for the time that you have take for my questions.

Steven Lipscomb

Alright, thanks too.

Operator

Our next question comes from the line of Brian Kinstlinger – Sidoti & Company. Please go ahead.

Brian Kinstlinger – Sidoti & Company

Alright, thanks for taking my question.

Steven Lipscomb

Hi, Brian.

Brian Kinstlinger – Sidoti & Company

How are you? First question I have was how many active users do you have in the fourth quarter compared to what you had a week ago and obviously given the chance will be lower in this period, if you provide that statistics.

Steven Lipscomb

Alright, typically we are not providing that data at a high level I can tell you we are not as high as where we were last year. We have been outlining here today when the process are really starting to rebuild. On the last call, we did highlight to everyone part of what happened in the previous quarter was just experiencing issues from transitioning from the WagerWorks network to the CryptoLogic network and bringing those players over. The conversion rates did not come up as expected so we have been trying to build up that database. We are, everyday, building up that database now and we kind of literally had to start over so you would like to think that we are going to be able to migrate players, the regulatory issues we had in other, they had made it impossible for us to do that I think and that was beyond our control but made it more difficult to transition and then the issues that we had. We have been very candid and are disappointed with the staff that we had on board to re launch June of last year and have completely changes though in that group, we have bought in to catch in to our niche who is from CryptoLogic and those that system perhaps as well as anyone in the world so he is really an earnest beginning. His efforts with his team that he now has assembled beginning this month so we are encouraged to look at it and to watch altogether as we see this business grow as we hope it will.

Brian Kinstlinger – Sidoti & Company

And so, what is the incentive being offered to, especially the players that were used to be in their database and then what is the process that takes in this sign up, is it a lengthy process that is holding them back from doing that or is it they are just being comfortable right now with somewhere else and the job has to pull them away?

Steven Lipscomb

Well, I do not think we have much different experience on that front or a much of a different hurdle to get over to get over to anyone else in the CryptoLogic network. It is just a matter of identifying players, getting them there whether they are new or established players and giving them reasons to come and we do not just have one promotion, we have a number of promotions including this, the kind of things a lot of people do in the market which is to get you a certain amount of money but as much as anything, we are really starting in on new promotions like the one that we have just announced that allow you to use the World Poker Tour site, to win your way into events and if you win those events, you get a big payday and become the next WPT Poker-Made Millionaire trying again to across the entire business, take the dream of being the world Poker Tour champion, attaching a face to it which is Antonio and then all the way down in the site, a series of promotions that we are just beginning now allowing you to feel as if you can start down the path to make it to that life changing money and stardom that we offer of doing things other people can so that is really where we are headed. Right now, they are fairly simple promotions but we are going to continue to roll out thing that is in that particular focus because it is the differentiator force.

Brian Kinstlinger – Sidoti & Company

The last question I have, when you say, when you get statistics like $20,000 to $25,000 per day in a way then you gave other statistics as well. Is that what your plan to exit the year or is that the average per say the 365 days of the year, which one was that number?

Steven Lipscomb

That is the exit. That is by the time we get…

Brian Kinstlinger – Sidoti & Company

Exit the year on December.

Steven Lipscomb

Yes, that is where we are telling our board, telling ourselves, telling the street that we need to at least be there.

Brian Kinstlinger – Sidoti & Company

Great, thank you.

Steven Lipscomb

Okay, thank you.

Operator

Our next question comes from the line of Adam Krejcik with Roth Capital Partners. Please go ahead.

Adam Krejcik – Roth Capital Partners

Hi, guys. I thought at one point in time you guys said you are going to start a fairly aggressive marketing campaign beginning this year with the online poker stake? Does it scale that back or just as what is the status there?

Steven Lipscomb

Well again, we are finding that in most markets that we I mean literally have been gone to talk to media agencies and look at those particular markets going and dropping anywhere from $5 million to $10 million of pure marketing in the marketplace would probably create such a high CPA for us that would create terrific problem. So, within this guidance that is coming, we really are taking the things that we do best and finding a way to port those into the marketplace that includes some of the things Scott was talking about where we broadcast in certain places, we are going to be buying some ad around shows, we are going to be taking those shows and streaming them, doing various things in various markets that use our assets that we have already spend a lot of money making of rather than somehow just going and creating a 30-second spot and going up against the companies that will outspend us 10 to 1 in the marketplace. So, it is not we are spending money, we are going to be spending I think a lot of resource in order to drive people but they will unlikely be in the form of some big campaign to go and take over, pick a daily square in the UK simply because it has already been done by enough a lot of people and every indication is that the return they got is not one that we would be able to support.

Adam Krejcik – Roth Capital Partners

Sure, I am just in terms of your guidance, you do not expect much of an increase you said in the press release for the online gaming and then typically the summer months are fairly seasonally so are you going to get a pickup there that often gets from the casino business? Is that you are thinking?

Steven Lipscomb

I want to address your first question; you said we are not going to pickup much, we are still saying our intention is for overall sales and marketing to increase.

Adam Krejcik – Roth Capital Partners

No, I am sorry, I was talking about revenue at this point from beginning should we expect moderate growth in the first quarter?

Steven Lipscomb

first quarter, we still expects by the end of the year to be a $25,000 a day so right now, I mean you could see from the numbers we are at fairly minimal daily average I mean price somewhere out $3,000 a day so to get that up to $25,000 by the end of the year. We are talking about putting a lot of efforts and a lot of sales in marketing behind this business.

Adam Krejcik – Roth Capital Partners

And is that, $20,000 to $25,000 is that gross for the side is that your 80% the net that you guys received?

Steven Lipscomb

Gross.

Adam Krejcik – Roth Capital Partners

Gross, okay and then any idea as far as what the split is there between the casino and poker? Maybe 70% in the poker and 30% casino or any kind of guidance you can do towards that?

Steven Lipscomb

Yes, I mean for now, most of it is going to be to our poker so it is going to be price somewhere around the 75% to 25% range.

Adam Krejcik – Roth Capital Partners

That helps. Thanks a lot, guys.

Steven Lipscomb

Thanks and that is sort of what we are driving but the issue is where it ends up? We have no idea. Again, on the WagerWork system we were surprised that we have so much casino play.

Adam Krejcik – Roth Capital Partners

Thanks a lot.

Operator

Ladies and gentlemen, our final question is a follow up question from the line of Clint Morrison with Feltl & Company. Please go ahead.

Clint Morrison – Feltl & Company

Is it a matter of growth? Or you are referring to a sequential year over year?

Steven Lipscomb

Sequential.

Clint Morrison – Feltl & Company

Okay and for the quarter we just had, our couple of hundred grand of revenue when online, can you give us this split as to how much this poker versus casino?

Steven Lipscomb

It was right around the percentage I just gave.

Clint Morrison – Feltl & Company

The 75%-25%? Okay and then finally, host sponsored fees pretty healthy this quarter, a bit of a surprise at the top one to project, can you give us a little sort of help us to what to expect there looking forward?

Steven Lipscomb

Yes and most of that does relate to our international television sponsorship there will be with party gaming so I would, I mean the best way to look at it is we foresee that business staying healthy and strong and consistent with what we have seen during 2007.

Clint Morrison – Feltl & Company

Okay, so all the last three quarters is a reasonable proxy for what we should look going forward kind of?

Steven Lipscomb

Yes.

Clint Morrison – Feltl & Company

Okay, thank you.

Steven Lipscomb

Thank you.

Operator

Ladies and gentlemen, that does conclude our question and answer session. I will turn the conference back to management for closing remarks. Please go ahead.

Steven Lipscomb

I think I will just reiterate the fact that as you listen to this call, as we look at our business I think we really know exactly where the important parts of our business lie today and everyone in the company is working to make sure that we maximize our ability to succeed in all three of those and while we are in the early stages of really all three, anyone of them will be company changing events if we do fairly well in them and I like to think we have a good shot in all three. So, to hit a double in two of them will make a huge impact and to be able to hit a homerun which is certainly what we are swinging for and anyone of them will have a huge impact as well.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We would like to thank you for your participation. Have a pleasant day, you may now disconnect.

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