Hawaiian Hospitality Group, Inc. (HHGI)

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The Promise of Progressive:
A unique and innovative approach to progressive-style Texas Hold’em Presented by Castle Technologies
October 17, 2008
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Table of Contents
Executive Summary ............................................................................................................................... 3
The History of Online Gambling ........................................................................................................ 4
Growth Despite Legislation—The Progressive Jackpot ........................................................... 6
The Psychology of the Progressive .............................................................................................. 7
Progressive Jackpots for Texas Hold’em—The Next Frontier? ........................................ 8
Castle Technologies—Enabling the Next Wave in Online Gambling .................................. 9
Understanding the Technology ................................................................................................. 11
Looking Ahead ..................................................................................................................................... 13
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Executive Summary
Online gambling is an exciting and dynamic environment, fueled by continued growth and new technologies. Users are flocking to online gambling sites as frequently as they are buying lotto tickets. Despite the current economic hardship of the U.S. economy, unique visitors to online gambling sites continue to increase. In a recent study, published by Poker News Daily, this increase was found to be 5% between the months of June and July of 2008i. Although the industry has recently experienced such positive growth, online gambling has faced some significant hurdles. The U.S. Congress enactment of the Security and Accountability for Every Port Act of 2006 (SAFE Port Act), which included the Unlawful Internet Gambling Enforcement Act (UIGEA), has caused significant issues across the globe concerning the ability of U.S.-based players to participate in off-shore online gambling activities. Unabated, though, U.S.-based players continue to fuel their desire to gamble online. In response, legislation was introduced in early 2008 to overturn the UIGEA as a limitation of American civil liberties. As legislative regulations on the industry are becoming less stringent, the future of online gambling now has the ability to grow significantly.
Online gambling has become evermore popular as a result of games, such as No-Limit Texas Hold’em, which has captured the attention of both professional and amateur gamblers, played in the World Series of Poker (W.S.O.P) events and broadcasted on major television stations, such as the ESPN network. Sites like PartyPoker.com have sprung up offering players the opportunity to test their poker
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skills against global adversaries and, in some cases, even capitalize on the opportunity to play in a live-event by winning online tournaments. Although online poker has fueled the growth of the e-gambling industry over the past several years, other offerings, such as progressive jackpots, have also helped to draw increasingly large numbers of people to gamble online. There is a significant amount of psychology in play when it comes to gambling, and the online sector is no stranger to it. Over the next few years, the online gaming industry will see an emergence of new technologies and advancements designed to appeal to that psychology to a greater degree. One will be the application of the progressive-style approach to the popularity of poker.
The History of Online Gambling
Online gambling has both an exciting and torrid history. Many view 1994 as the genesis of the industry when Barbados and Antigua opened their doors to gambling licenses and established the first off-shore online betting locations. As these small island-nations were paving the way for the online gaming industry of today, other technology providers, most notably Microgaming and Cryptologic, were creating the technological and software foundations to enable online wagering and online casinos.
The first online casino which opened in 1996 when the World Wide Web was still in its infancy, offered 18 different games and online access to the National Indian
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Lottery. It garnered significant revenues, even in its first year, and proved the online gambling model was extremely viable and high-growth. Worldwide revenues for the gambling industry, during this time, were reported to be over $1 billion; the U.S. accounted for over 60%, which was largely due to the birth of online gambling. In 2007, the global gambling market, which includes land-based casinos, state-run lotteries and online gaming, was estimated to be $345 billion and is projected to grow to $433 billion by 2012ii. The online gambling sector continues to account for a larger portion of the market’s earning, each year. Gambling has long held the public sway in the U.S. market: banned, allowed and then banned again, it has had a tumultuous history through the 20th century and online gambling has been no stranger to this as well. Currently, under the sway of the UIGEA, many international gambling locations have banned U.S. players through a process called “geo-fencing” (the prevention of certain IP addresses from accessing the site).
Just as the industry has grown over the past decade, so too has it matured. In response to the unique problems of regulation and governance across hundreds of borders around the world, the eCommerce and Online Gaming Regulation and Assurance (eCOGRA), an international organization, was founded in 2003 to provide a safe environment for gamblers to play in. As the U.S. continued to introduce new legislation in attempt to make it illegal for its citizens to gamble online, Chris Moneymaker won the W.S.O.P on a major television sports network, viewed by millions around the world, and legitimized what would become the most popular online gambling medium: No-Limit Texas Hold’em. New sites flourished offering online poker-playing rooms and new players flocked to them in the hopes of
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duplicating Moneymaker’s fame and fortune (achieved by playing almost entirely in online poker rooms). Shortly after, on September 30, 2006, the United States Congress passed a bill to enact the SAFE Port Act, which made it illegal for banks and credit card companies to process payments from U.S. residents to online gambling companies. The UIGEA Act was also enacted at this time, which put a halt on the tremendous growth the industry had experienced. Although the legislation was challenged in 2007, by a motion that the UIGEA restricted American civil liberties and freedoms, the impact of the law was profound and a significant number of online gambling sites saw their profits dwindle and market caps shrink.
Growth Despite Legislation—The Progressive Jackpot
The progressive jackpot has long held the sway of the land-based gambler. Flashing at them from high above the slots or over the glittering body of a shiny automobile, progressive jackpots allow players to compete for a much larger sum that is made available from any single machine. A progressive jackpot continues to grow (based on a simple growth algorithm) until a single player, from within the machines linked to the jackpot, pulls the correct combination.
Over the past few years, the progressive jackpot, with which players are so familiar at their favorite casinos, has made its way onto the Internet, offering the same style of play but from the comfort of a desk chair. Fueled by the continued global growth of the online gaming industry, the progressive model has been applied to video
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poker (i.e. Progressive Cyberstud Poker and Jackpot Deuces) as well as blackjack (i.e. Blackjack Triple Sevens). The appeal of these progressive systems and the application of it to non-traditional games, such as poker and blackjack, are rooted in a deep psychology of gambling and betting that portend a continued growth for this new and innovative style of play.
The Psychology of the Progressive
The psychology behind the desire to play the progressive jackpot is no different than why people play the lotto. During the late 1960’s and early 1970’s, many U.S. states enacted legislation legalizing state-run lotteries. These systems were designed to provide states with additional capital to fund internal improvement efforts and programs (i.e. schools). In the 1990’s, we saw the birth of the powerball-style lotto in which multiple states banded together to create a much larger jackpot, contributing a portion of their in-state lotto ticket sales to what may have seemed like a progressive jackpot—if no one won the powerball, the jackpot rolled over and continued to grow.
Much research has been done regarding why people play the lotto. Some might jump to the early, and often erroneous conclusion, that people play the lotto simply for economic gain - that it is largely a poor socio-economic class doing so (in an attempt to move up in the social ladder) and that people do not realize in the infinitesimally small chances of winning. On the contrary, there has been evidence that other factors are equally, if not more important, to influence a person’s decision to play
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the lotto—social (sharing the experience with friends), anticipation, and even just fun (given the relatively low utility-cost of playing)iii. Progressive-style jackpots share much of the same psychology. Although players recognize the opportunity to win significant amounts of money, they are driven by other utilities as well—the anticipation of winning and the excitement of the opportunity. Online progressive-slot gambling takes away a critical component of the gambling experience (the socialization), however online chat rooms provide a way for users to share and communicate with other gamblers around their current activities. Think about it this way—if you are presented with two gambling opportunities, one progressive and one not, yet both costing the same, which would you play? That is the “utility” of the progressive jackpot. It is no longer just a single person against a single machine) but it is still driven by a “utility-model” of computing. Given that most people do not understand the differential odds between 1 in a million and 1 in a billion, the larger earnings potential of the progressive jackpot seems more attractive and is chosen more often.
Progressive Jackpots for Texas Hold’em—The Next Frontier?
Just as progressive jackpots have re-defined the online gambling arena, so too will progressive jackpots for poker.
This style of poker play exploits the advantages of progressive-style jackpots while increasing the overall utility of the equation. Not only are players allowed to participate in the game and win the standard pot, but because the house “rakes” a
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certain portion of the pot for the progressive jackpot, players are automatically considered for the progressive amount. Additionally, the format of the poker game is much more conducive to the non-economic reasons for playing progressive-style games—socialization is built into the game as, unlike a slot machine or a video poker machine, players are playing against other players (not just a machine or themselves) and are required to interact as part of the format. Until now, though, the progressive-style approach has yet to be applied to No-Limit Texas Hold’em, the most popular online poker game. That is a result of the unique nature of the game. Given the explosive growth of this poker format and the greater utility of playing progressive-style games, progressive No-Limit Texas Hold’em represents the next frontier in online gaming.
Castle Technologies—Enabling the Next Wave in Online Gambling
Castle Technologies has a unique approach to enable the exciting progressive-jackpot style Texas Hold’em poker.
In our proprietary method, when the game is in progress and players are at a virtual gaming table, players are betting on their cards. As participants continue to play and make bets, the pot begins to grow. In order to facilitate a progressive jackpot, it is preferable to take a small amount of money from each individual pot to fund the progressive jackpot. (“Jackpot” and “bonus pots” are used herein to describe funds containing money to be distributed to a player if they obtain a particular hand.) In
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an alternate embodiment, the jackpot may include non-money items including, but not limited to, points, comps and/or anything of perceived value to a player. When a player hits a jackpot hand, the player receives a portion of the progressive jackpot. In one embodiment, a jackpot hand includes at least one of the players "hole cards". Lists of possible hands include, but are not limited to:
 Royal Flush
 Straight Flush
 Daily Double
 Four Aces
 Four Kings
 Four Queens
 Four Jacks
 Four Tens
 Four Nines
 Four Eights
 Four Sevens
 Four Sixes
 Four Fives
 Four Fours
 Four Threes
 Four Twos
Consider that the house has identified the following hands for “progressive” wins:
 Royal Flush
 Straight Flush
 Quad aces
 Quad Kings
 Quad Queens
 Quad Jacks
 Quad Tens
 Quad Nines
 Quad Eights
 Quad sevens
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Each of these hands is accorded a percentage of the pot. So, in this scenario:
 Royal Flush = 20%
 Straight Flush = 15%
 Quad aces = 10%
 Quad Kings = 10%
 Quad Queens = 10%
 Quad Jacks = 10%
 Quad Tens = 10%
 Quad Nines = 5%
 Quad Eights = 5%
 Quad sevens = 5%
If any of these hands are presented within a single round of the poker hand, that player can win both the main pot (which is simply a combination of betting that has taken place during the hand, according to standard Texas Hold’em rules) and the progressive pot. Employing Castle Technologies’ patent-pending system applies the same utility model that governs traditional progressive-play gambling (for the same price, it is better to play the game with the higher opportunity) within the more interactive and socially-driven poker setting. And although the main pot may be smaller (for single hand wins), the added value of the progressive jackpot makes this version of Texas Hold’em far more opportunistic and ultimately attractive to players.
Understanding the Technology
As a process-focused method patent, the following illustrates the proprietary flow of Castle Technologies’ innovative technology.
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Key innovations include: The main pot and is awarded to the player, as per traditional Texas Hold’em rules, who creates the highest hand using individual and community cards. The progressive jackpot pot which continues to build so long as no player presents a “progressive-jackpot” hand during any single session
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Looking Ahead
As the online gaming industry shakes off the cobwebs from the UIGEA legislation, there is no doubt that it will see significant growth. That growth will be magnified as progressive-style games, which offer a significantly better utility model than traditional games, begin to dominate the landscape. It is Castle Technologies’ unique and innovative application of progressive-style gaming, to the wildly popular Texas Hold’em, which may hold a golden key to unlock the true potential of the online gaming market. As this game continues to soar in popularity, as it is attended by pro and amateur player alike, the allure of progressive-jackpot opportunities will draw in even more players to an already impressive global pool.
i http://www.pokernewsdaily.com/visitors-to-internet-gambling-sites-up-5-in-july-271 ii www.gbgc.com iii Oster, E. (2002) Dreaming Big: Why Do People Play the Powerball? Harvard University. Additional Resources Used in the Creation of this Documents: http://www.777.com/articles/the-history-of-online-gambling http://www.americangaming.org/Industry/factsheets/issues_detail.cfv?id=17
http://www.gamblingplanet.org/history_main.php