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THE MARKET APPEAL OF REGULATORY ENDORSEMENTS FOR CONTROVERSIAL OFFERINGS – EVIDENCE FROM THE POKER INDUSTRY Amsterdam Business School Master of Business Administration Author: Ksenia Chernikova (ID: 10442987) Academic Advisor: Professor Dr. Jean Johnson, Strategy and Marketing dept. September 2013 Imagine an activity in which hundreds of thousands of people participate every year. A high degree of skill is needed to excel at the activity, but most participants do not possess or develop the skill. Rather, most pursue it as a recreation because they find the activity pleasurable. Often, they undertake it with friends or in informal groups. A limited number of participants invest substantial resources to acquire the skill necessary for success at the activity. Some of these individuals aspire to earn professional livelihoods from their participation. The very small fraction who succeed as professionals are exceptionally skilled and earn very substantial sums from the activity. These few participants become famous for their extraordinary skill, and a large portion of their incomes come from the thousands of amateurs who pay sizable amounts to watch the highly skilled engage in the activity. Many activities fit this description. Musical performance is an example. Perhaps the best example is sports. Millions of young people play sports in casual games, at schools and universities, or in amateur leagues. Only those with the most extraordinary talents ever play as professionals. The law regulates each of these activities in various ways, but it generally does not directly prohibit people from participating in the activities. An exception is the activity of poker. Steven D. Levitt, Thomas J. Miles, and Andrew M. Rosenfield University of Chicago, Department of Economics, Law School, and Law School, respectively 2 Executive summary This paper investigates the market appeal of third-party organization regulatory endorsements as applied to offerings with a high level of ambiguity. Controversial offerings imply inherent risk for the consumer and this study considers the implied effects of regulatory endorsement on the perceptions of market participants. Previous academic literature includes discussion of implied effects of a third-party organization endorsement, differentiates between regulatory and public endorsement and supplies theories about the persuasion effects together with factors affecting public perception and attitude towards endorsed offering. However these studies typically focus on industries or offerings with low ambiguity and perceived risk. Gambling and poker specifically represents a unique opportunity for a case study. The industry has only been established a relatively short time and lacks critical mass of public acceptance partially due to insufficient public awareness of the role of regulating attempts in the industry. Poker is on the verge of a transformation as more jurisdictions allow this form of activity and participation has grown significantly in recent years. Qualitative data received through interviews with industry players supports the theory that TPO endorsement effect can be beneficial, but is dependent on a variety of factors. The TPO must be perceived as trustworthy, credible, and an expert source of evaluative information. Maintaining a reputation for quality and assurance of standards is vital in affecting public opinion change. Depending on the level of market competitiveness, TPO endorsement could be seen as a differentiator and can be leveraged with marketing activities of endorsed venue. Endorsements for controversial offerings specifically may contribute to enhanced perceptions of legitimacy as these markets continue to develop. 3 Table of contents Executive summary ..........................................................................................................................3 Table of contents ..............................................................................................................................4 Introduction ......................................................................................................................................5 TPO in general ........................................................................................................................5 TPO endorsements in general .................................................................................................5 Controversial offerings in general ..........................................................................................6 TPO endorsement of controversial offerings .........................................................................7 Research question - the role of TPO endorsement for controversial offerings ......................7 Research context - gambling and poker as controversial offering .........................................8 TPO endorsement of gambling/poker ....................................................................................9 The research question examined through the specific case of FIDPA ...................................9 Description of how the rest of the thesis proceeds ...............................................................10 Review of literature........................................................................................................................ 11 Introduction to the literature ................................................................................................. 11 Implied effects of endorsement ............................................................................................12 Public opinion change ..........................................................................................................14 Legitimacy through regulations ............................................................................................15 Case Study .....................................................................................................................................18 About FIDPA ........................................................................................................................18 FIDPA as a TPO....................................................................................................................18 Methodology ..................................................................................................................................20 Market Appeal ................................................................................................................................23 Customer’s perspective ........................................................................................................23 Business perspective .............................................................................................................24 Monopolistic view.......................................................................................................24 Non-monopolistic view ...............................................................................................25 Conclusion of case studies ....................................................................................................27 Conclusions ....................................................................................................................................30 List of references............................................................................................................................33 Appendix 1 .....................................................................................................................................36 4 CHAPTER I Introduction TPO in general International non-governmental organizations, professional associations and third-party organizations operating individually and collectively can have an impact on many aspects of people’s lives, including their social rights and opportunities. Their purpose is to represent themselves as a provider of evaluative information regarding industry standards and quality policies. TPOs can be nonprofit or for profit, governmental and non-governmental organizations. The role of TPOs among the industries may differ depending on the how advanced the industry has developed from a regulatory perspective. TPOs may operate as mediators between businesses and the public, building public awareness, providing information and educating the public about quality standards for an offering of a given type. TPO endorsements in general Third-party organization (TPO) endorsements are aimed to ensure quality within an offering of a given type. Following on from that objective, goals include standardization, creating legal and social precedence and creating and maintaining support for growth of the industry and business opportunities. Endorsements are distinguished as either regulatory or public; regulatory endorsement implies conformity to strict standards verified by industry regulators while public endorsement represents a public acceptance in general. There are several types of endorsers identified: celebrity, expert and typical customer evaluations rely on the perceived credibility of the source, whether it represents an expert view and whether the source is seen as trustworthy. TPO 5 endorsement may be seen as a source of competitive advantage among competitors since it could be seen as a differentiator in a crowded marketplace and may affect public perceptions towards the product offering. Controversial offerings in general Ethically controversial offerings cover a range

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