What happens next?
FEATURE POKERSTARS' FUTURE
What happens next? Gareth Bracken looks at how Amaya’s acquisition of PokerStars will impact the operator’s US market entry
After six months of private negotiations, mid-June brought the announcement that provider Amaya Gaming Group had agreed to acquire PokerStars and Full Tilt Poker parent company Rational Group for $4.9bn, a deal which will make the Canadian firm the world’s largest publically-traded online gaming company. Under the terms of the transaction shareholders of Oldford Group, the parent company of Rational Group, including company co-founder and CEO 76 gamblinginsider.com
its licence application suspended for two years, primarily due to the unresolved 2011 federal indictment against Stars founder Isai Scheinberg (father of Mark) for allegedly violating the Unlawful Internet Gambling Enforcement Act (UIGEA) and the Illegal Gambling Business Act. The “involvement of certain PokerStars executives” with postUIGEA US online gaming was also revealed to be a factor. The firm had been seeking to enter New Jersey via its partnership with Atlantic City land-based property Resorts Casino Hotel, as per New Jersey regulations. The DGE did however state that the application could be reactivated within the two years if “significantly changed circumstances” were demonstrated. It has been widely suggested that the departure of the Scheinbergs off the back of the Amaya deal could meet this criteria. Indeed the DGE’s deputy director George Rover recently confirmed that the regulators were to perform a “comprehensive review” of the acquisition, which he noted had seemingly resulted “in the removal of all previously existing ownership interests”. “If Isai Scheinberg relinquishes control over the company and the company is now controlled by Amaya and its shareholders, I think there’s a pretty good prospect of PokerStars getting a New Jersey licence,” Fitch Ratings director Alex Bumazhny told Gambling Insider. “It seemed like the only real issue with PokerStars was the fact that it was still controlled by its founder, who was indicted in the United States.” GBGC analyst Lorien Pilling says PokerStars’ situation is “helped greatly” by the fact that the regulated New Jersey online gaming market hasn’t produced the returns initially expected. Internet poker revenues were recorded as $3.2m in March 2014 but have decreased every month since, dropping Amaya CEO David Baazov will want to see their new acquisition PokerStars competing to little over $2m by June. “Any chance of in regulated US markets as swiftly as possible generating more tax revenues by allowing a new operator to get involved will be Mark Scheinberg, will dispose of their shares welcomed,” he says. to a wholly-owned subsidiary of Amaya. It appears likely then that Stars will make Amaya stated its belief that the transaction, it into New Jersey, possibly by autumn, which is expected to close in September, assuming the Amaya deal completes on would expedite the entry of PokerStars schedule. The brand’s entry will almost and Full Tilt into “regulated markets in undoubtedly have a positive impact on player which Amaya already holds a footprint, numbers, at least in the short term, due to particularly the USA”. the likely fanfare surrounding its acceptance. Back in December 2013 PokerStars “The immediate impact will be to reignite were locked out of the New Jersey online player interest in New Jersey's regulated gaming market after Rational Group had online poker market,” says Chris Grove,
POKERSTARS' FUTURE FEATURE
editor of Online Poker Report. “There will be a wave of media coverage surrounding the licensing and launch of Stars that will draw players back to the games.” He even suggests that a few players would have been waiting on the sidelines for PokerStars to go live in the Garden State. However there is only so much the operator can do to improve the fortunes of the state’s under-performing online gaming market, as Grove himself acknowledges when noting that the brand faces the same long-term challenge as every other poker site in New Jersey. “There are only so many potential customers”, he says. “PokerStars can't do much to change the number of people living in and around New Jersey, and it's that number that serves as the hard cap on the traffic potential for online poker in the state.” Much has been made of the impact that PokerStars’ New Jersey entry would have on the other operators in the state. Three other partnerships currently provide a real-money online poker service: Caesars/888, Trump Taj Mahal/Ultimate Gaming and PartyPoker/
Now that Mark and Isai Scheinberg are out of the picture, does it clear a path for PokerStars to be part of regulated i-gaming in the US?
in New Jersey. Grove expects PokerStars to take the top traffic spot immediately upon launch. “Much of that traffic will come at the expense of other operators, who don’t have much to spare.”
“If Isai Scheinberg relinquishes control over the company, I think there’s a pretty good prospect of PokerStars getting a New Jersey licence” – Alex Bumazhny, Fitch Ratings Borgata, the latter of which is the market leader. Fitch Ratings has described the Amaya acquisition as a “game-changer” in the US, and Bumazhny states that PokerStars’ large database and loyal following will “impact” the likes of Caesars and Borgata
Chris Grove
There is another school of thought which suggests PokerStars’ presence in New Jersey could have a positive effect on rival operators who will benefit from an expanded player pool. Indeed NJ Senator Ray Lesniak stated that Stars’ approval in the Garden State would be the “biggest possible boost” to its online gaming industry. Brian Mattingley, CEO of 888, summed up the position when he said: “I would much rather have a small slice of a large pie, than a big piece of a small pie.” Bumazhny is sceptical about the notion of majorly enhanced player levels however, at least under the current intra-state system. “I think until you start seeing pooling among different states the pie is still going to be pretty limited – you just don’t have that many players or that much liquidity,” he says. “If you start pooling players then yes the whole industry may become more viable.” He adds that this viability would be aided if a big state like California was to open up and partner with other states, although he accepts that this particular example is unlikely to come to fruition as California seems set to keep any regulated online poker market to itself.
California is seen as ‘the big one’, although just how sizeable the Golden State’s internet poker market would actually be is very much open to debate. Earlier this year, financial giant Morgan Stanley suggested an annual revenue of $1.1bn, the top end of the spectrum, with industry analyst GamblingData estimating $597.3m and boutique research firm Eilers Research coming up with a figure of $423.4m. The most pessimistic prediction was made by tracking site PokerScout, which projected the market at less than $220m in its first year, although this rose to $250m if interstate compacts were agreed. If online poker were to be opened up to the whole country, the number increases again to $320m. Either way, it’s definitely a market which PokerStars is targeting, as evidenced by the pact it agreed in April with a Native American tribe and three large card clubs. The deal will see Stars provide a poker platform, as well as the PokerStars brand, for a real-money site owned and licensed by the Morongo Band of Mission Indians, the Commerce Club, Hawaiian Gardens Casino and Bicycle Casino, at such time as online poker becomes legal in California. However a coalition of 13 other tribes have agreed on language for a bill that would regulate real-money internet poker in the state, which within it contains a ‘bad actor’ clause restricting the entry of those who serviced the US market after 31 December 2006, which would cover PokerStars. Meanwhile two bills to legalise California online poker have died during the most recent legislative session. The tribes' ‘bad actor’ clause would likely have prevented PokerStars from entering the California market under its previous leadership, but the removal of the firm’s hierarchy from the equation could help smooth the process, although as ever there are differing opinions on the matter. gamblinginsider.com 77
FEATURE POKERSTARS' FUTURE
“I think the other tribes know that the inclusion of PokerStars coming into the state would make Morongo very influential in terms of their market share, right from the beginning. So I think they would try to hold their ground and not let PokerStars in,” says Bumazhny. However tribal gaming expert Victor Rocha, editor of Pechanga.net, says he has detected a “slight change” in tribal opinion on the issue. “I don’t think they’re accepting it, but I think they’re starting to accept the fact that there’s really not a lot they can do to keep them out of California once the Scheinbergs are gone,” he says. “The tribes still don’t want them in there but I think they’re slowly coming to the realisation that it might be harder to keep them out.” Noting that “any state that labels the company a ‘bad actor’ will have to be very specific as to exactly why it has done so”, Pilling says he is “generally optimistic” about PokerStars’ chances of getting licensed in different states, adding that any state regulating
A PokerStars US table screenshot, taken prior to Black Friday in 2011
The Party Poker/Borgata partnership would likely see their New Jersey market leader status threatened if PokerStars became licensed
California Gaming Control Board commissioner Richard Schuetz recently described the DGE as “one of the finest regulatory agencies in the world”, adding that its view would represent a “powerful voice in how this new entity fits within the US regulatory model”. So if the Amaya acquisition eases PokerStars’ entry into New Jersey, which in turn means the brand has met all of the
‘tainted assets’ thing but I’m not sure if that will be applicable to Amaya.” Following the under-par financial results announced by states which have regulated online gaming, figures which he describes as the “elephant in the room”, Rocha doesn’t believe the tribes will feel the need to try and rush legislation through, stating that they’re “more than happy to walk away and wait until the political environment is a little favourable to them”. As ever when it comes to US online gaming regulation, this political environment is a bustling and complex one. “There’s a lot of different opinions. All the power brokers are fully engaged, all the stakeholders are fully engaged, everybody has their lawyers, everybody has their politicians – it’s a big stew of craziness,” says Rocha. That’s the state’s regulatory requirements, does it become challenge awaiting PokerStars in California, tough for California to consider the operator although it’s a battle the firm will doubtless a ‘bad actor’? “If they get licensed in New feel more confident about winning once it Jersey it’s really going to be hard to keep them has made the expected breakthrough in New out of California,” says Rocha. “It’s a different Jersey. Once the Garden State falls, things company – a different animal. I heard talk of a become extremely interesting.
“If PokerStars get licensed in New Jersey it’s really going to be hard to keep them out of California” – Victor Rocha poker for tax purposes would be foolish to exclude PokerStars, especially following the Amaya agreement. Meanwhile Grove considers Stars’ California prospects to be “better than they were before the announcement of the Amaya sale, but still shaky”.
SHOULD STARS SHINE? Victor Rocha on whether he has a moral objection to PokerStars entering the US real-money gaming market... “My issue has always been with the Scheinbergs, with the irrational idea that they deserved to be in America and they have this inherent right. I never agreed with that. I think they were playing the game once UIGEA was involved and dancing around it. Look what they did – they ended up taking the market. They had American-facing, grey market websites, based in America. With those guys gone that argument’s gone, at least in my mind. I think everybody’s slowly coming to that conclusion. I don’t have an issue with David Baazov and Amaya, my issue is strictly with the Scheinbergs.” Victor Rocha
78 gamblinginsider.com
What happens next? Gareth Bracken looks at how Amaya’s acquisition of PokerStars will impact the operator’s US market entry
After six months of private negotiations, mid-June brought the announcement that provider Amaya Gaming Group had agreed to acquire PokerStars and Full Tilt Poker parent company Rational Group for $4.9bn, a deal which will make the Canadian firm the world’s largest publically-traded online gaming company. Under the terms of the transaction shareholders of Oldford Group, the parent company of Rational Group, including company co-founder and CEO 76 gamblinginsider.com
its licence application suspended for two years, primarily due to the unresolved 2011 federal indictment against Stars founder Isai Scheinberg (father of Mark) for allegedly violating the Unlawful Internet Gambling Enforcement Act (UIGEA) and the Illegal Gambling Business Act. The “involvement of certain PokerStars executives” with postUIGEA US online gaming was also revealed to be a factor. The firm had been seeking to enter New Jersey via its partnership with Atlantic City land-based property Resorts Casino Hotel, as per New Jersey regulations. The DGE did however state that the application could be reactivated within the two years if “significantly changed circumstances” were demonstrated. It has been widely suggested that the departure of the Scheinbergs off the back of the Amaya deal could meet this criteria. Indeed the DGE’s deputy director George Rover recently confirmed that the regulators were to perform a “comprehensive review” of the acquisition, which he noted had seemingly resulted “in the removal of all previously existing ownership interests”. “If Isai Scheinberg relinquishes control over the company and the company is now controlled by Amaya and its shareholders, I think there’s a pretty good prospect of PokerStars getting a New Jersey licence,” Fitch Ratings director Alex Bumazhny told Gambling Insider. “It seemed like the only real issue with PokerStars was the fact that it was still controlled by its founder, who was indicted in the United States.” GBGC analyst Lorien Pilling says PokerStars’ situation is “helped greatly” by the fact that the regulated New Jersey online gaming market hasn’t produced the returns initially expected. Internet poker revenues were recorded as $3.2m in March 2014 but have decreased every month since, dropping Amaya CEO David Baazov will want to see their new acquisition PokerStars competing to little over $2m by June. “Any chance of in regulated US markets as swiftly as possible generating more tax revenues by allowing a new operator to get involved will be Mark Scheinberg, will dispose of their shares welcomed,” he says. to a wholly-owned subsidiary of Amaya. It appears likely then that Stars will make Amaya stated its belief that the transaction, it into New Jersey, possibly by autumn, which is expected to close in September, assuming the Amaya deal completes on would expedite the entry of PokerStars schedule. The brand’s entry will almost and Full Tilt into “regulated markets in undoubtedly have a positive impact on player which Amaya already holds a footprint, numbers, at least in the short term, due to particularly the USA”. the likely fanfare surrounding its acceptance. Back in December 2013 PokerStars “The immediate impact will be to reignite were locked out of the New Jersey online player interest in New Jersey's regulated gaming market after Rational Group had online poker market,” says Chris Grove,
POKERSTARS' FUTURE FEATURE
editor of Online Poker Report. “There will be a wave of media coverage surrounding the licensing and launch of Stars that will draw players back to the games.” He even suggests that a few players would have been waiting on the sidelines for PokerStars to go live in the Garden State. However there is only so much the operator can do to improve the fortunes of the state’s under-performing online gaming market, as Grove himself acknowledges when noting that the brand faces the same long-term challenge as every other poker site in New Jersey. “There are only so many potential customers”, he says. “PokerStars can't do much to change the number of people living in and around New Jersey, and it's that number that serves as the hard cap on the traffic potential for online poker in the state.” Much has been made of the impact that PokerStars’ New Jersey entry would have on the other operators in the state. Three other partnerships currently provide a real-money online poker service: Caesars/888, Trump Taj Mahal/Ultimate Gaming and PartyPoker/
Now that Mark and Isai Scheinberg are out of the picture, does it clear a path for PokerStars to be part of regulated i-gaming in the US?
in New Jersey. Grove expects PokerStars to take the top traffic spot immediately upon launch. “Much of that traffic will come at the expense of other operators, who don’t have much to spare.”
“If Isai Scheinberg relinquishes control over the company, I think there’s a pretty good prospect of PokerStars getting a New Jersey licence” – Alex Bumazhny, Fitch Ratings Borgata, the latter of which is the market leader. Fitch Ratings has described the Amaya acquisition as a “game-changer” in the US, and Bumazhny states that PokerStars’ large database and loyal following will “impact” the likes of Caesars and Borgata
Chris Grove
There is another school of thought which suggests PokerStars’ presence in New Jersey could have a positive effect on rival operators who will benefit from an expanded player pool. Indeed NJ Senator Ray Lesniak stated that Stars’ approval in the Garden State would be the “biggest possible boost” to its online gaming industry. Brian Mattingley, CEO of 888, summed up the position when he said: “I would much rather have a small slice of a large pie, than a big piece of a small pie.” Bumazhny is sceptical about the notion of majorly enhanced player levels however, at least under the current intra-state system. “I think until you start seeing pooling among different states the pie is still going to be pretty limited – you just don’t have that many players or that much liquidity,” he says. “If you start pooling players then yes the whole industry may become more viable.” He adds that this viability would be aided if a big state like California was to open up and partner with other states, although he accepts that this particular example is unlikely to come to fruition as California seems set to keep any regulated online poker market to itself.
California is seen as ‘the big one’, although just how sizeable the Golden State’s internet poker market would actually be is very much open to debate. Earlier this year, financial giant Morgan Stanley suggested an annual revenue of $1.1bn, the top end of the spectrum, with industry analyst GamblingData estimating $597.3m and boutique research firm Eilers Research coming up with a figure of $423.4m. The most pessimistic prediction was made by tracking site PokerScout, which projected the market at less than $220m in its first year, although this rose to $250m if interstate compacts were agreed. If online poker were to be opened up to the whole country, the number increases again to $320m. Either way, it’s definitely a market which PokerStars is targeting, as evidenced by the pact it agreed in April with a Native American tribe and three large card clubs. The deal will see Stars provide a poker platform, as well as the PokerStars brand, for a real-money site owned and licensed by the Morongo Band of Mission Indians, the Commerce Club, Hawaiian Gardens Casino and Bicycle Casino, at such time as online poker becomes legal in California. However a coalition of 13 other tribes have agreed on language for a bill that would regulate real-money internet poker in the state, which within it contains a ‘bad actor’ clause restricting the entry of those who serviced the US market after 31 December 2006, which would cover PokerStars. Meanwhile two bills to legalise California online poker have died during the most recent legislative session. The tribes' ‘bad actor’ clause would likely have prevented PokerStars from entering the California market under its previous leadership, but the removal of the firm’s hierarchy from the equation could help smooth the process, although as ever there are differing opinions on the matter. gamblinginsider.com 77
FEATURE POKERSTARS' FUTURE
“I think the other tribes know that the inclusion of PokerStars coming into the state would make Morongo very influential in terms of their market share, right from the beginning. So I think they would try to hold their ground and not let PokerStars in,” says Bumazhny. However tribal gaming expert Victor Rocha, editor of Pechanga.net, says he has detected a “slight change” in tribal opinion on the issue. “I don’t think they’re accepting it, but I think they’re starting to accept the fact that there’s really not a lot they can do to keep them out of California once the Scheinbergs are gone,” he says. “The tribes still don’t want them in there but I think they’re slowly coming to the realisation that it might be harder to keep them out.” Noting that “any state that labels the company a ‘bad actor’ will have to be very specific as to exactly why it has done so”, Pilling says he is “generally optimistic” about PokerStars’ chances of getting licensed in different states, adding that any state regulating
A PokerStars US table screenshot, taken prior to Black Friday in 2011
The Party Poker/Borgata partnership would likely see their New Jersey market leader status threatened if PokerStars became licensed
California Gaming Control Board commissioner Richard Schuetz recently described the DGE as “one of the finest regulatory agencies in the world”, adding that its view would represent a “powerful voice in how this new entity fits within the US regulatory model”. So if the Amaya acquisition eases PokerStars’ entry into New Jersey, which in turn means the brand has met all of the
‘tainted assets’ thing but I’m not sure if that will be applicable to Amaya.” Following the under-par financial results announced by states which have regulated online gaming, figures which he describes as the “elephant in the room”, Rocha doesn’t believe the tribes will feel the need to try and rush legislation through, stating that they’re “more than happy to walk away and wait until the political environment is a little favourable to them”. As ever when it comes to US online gaming regulation, this political environment is a bustling and complex one. “There’s a lot of different opinions. All the power brokers are fully engaged, all the stakeholders are fully engaged, everybody has their lawyers, everybody has their politicians – it’s a big stew of craziness,” says Rocha. That’s the state’s regulatory requirements, does it become challenge awaiting PokerStars in California, tough for California to consider the operator although it’s a battle the firm will doubtless a ‘bad actor’? “If they get licensed in New feel more confident about winning once it Jersey it’s really going to be hard to keep them has made the expected breakthrough in New out of California,” says Rocha. “It’s a different Jersey. Once the Garden State falls, things company – a different animal. I heard talk of a become extremely interesting.
“If PokerStars get licensed in New Jersey it’s really going to be hard to keep them out of California” – Victor Rocha poker for tax purposes would be foolish to exclude PokerStars, especially following the Amaya agreement. Meanwhile Grove considers Stars’ California prospects to be “better than they were before the announcement of the Amaya sale, but still shaky”.
SHOULD STARS SHINE? Victor Rocha on whether he has a moral objection to PokerStars entering the US real-money gaming market... “My issue has always been with the Scheinbergs, with the irrational idea that they deserved to be in America and they have this inherent right. I never agreed with that. I think they were playing the game once UIGEA was involved and dancing around it. Look what they did – they ended up taking the market. They had American-facing, grey market websites, based in America. With those guys gone that argument’s gone, at least in my mind. I think everybody’s slowly coming to that conclusion. I don’t have an issue with David Baazov and Amaya, my issue is strictly with the Scheinbergs.” Victor Rocha
78 gamblinginsider.com
