Pokerstars deal is getting real muddy, real fast.
Need more proof that the much-ballyhooed handshake agreement between PokerStars and the Department of Justice is poised on shaky ground? For that we need look no further than the latest updates to the much-debated New Jersey online-gambling bill. This bill currently exists in two versions, but it’s the state Assembly version (A2578) where much of the recent action takes place.
Chris Krafcik (@ckrafcik), a poker-business writer who does some work for Gambling Compliance, has been able to attend some of the New Jersey hearings and has had access to the office of NJ State Sen. Ray Lezniak (D-Elizabeth); Lezniak, in turn, has been one of the leading proponents of the push to legalize online gambling in that state. Krafcik’s also published links to original and amended copies of the Assembly version of the bill, which has undergone extensive revision of late. “14 amendments!” Tweeted Krafcik last week. (I think it was actually more.)
In its first major published revision, the Assembly version of this bill expanded from 30 to 38 main sections, offering a lot of new technical provisions and the occasional land change or two to the concept. And a sharp-eyed, long-suffering poker blogger, “CrAAkker,” (his real names is Michael, in case you were wondering) noticed that one of the amended insertions, accepted and incorporated into the bill, is actually a poison pill aimed directly at offshore operators such as PokerStars or Full Tilt. And even though this bill is a long way from becoming law, that’s bad news, no matter how it’s presented.
You really should go visit CrAAkker’s excellent post on the topic, because he’s the one who found the new language and deserves credit for publishing it.
Here’s the complete text of the new Section 37, with the important points bold-faced for your reading pleasure:
137. (New section) a. Notwithstanding any other provision of P.L. , c. (C. ) (pending before the Legislature as this bill) to the contrary, a corporation or any person seeking to provide goods or services to a casino licensee in connection with Internet gaming shall not be awarded a casino service industry enterprise license, and shall not be permitted to conduct business with a casino, in connection with Internet gaming if that corporation or person:
(1) has at any time, either directly, or through another corporation or person it owned in whole or in significant part, or controlled:
(a) knowingly and willfully offered, accepted, or made available bets, wagers, or stakes using the Internet from persons located in the United States after December 31, 2006, unless such activity is licensed by a federal or State authority to engage in such activity; or
(b) knowingly facilitated or otherwise provided services with respect to bets, wagers, or stakes using the Internet from persons located in the United States for a person described in paragraph (1) of this subsection and acted with knowledge of the fact that such bets, wagers or stakes involved persons located in the United States;
(2) purchased or acquired, directly or indirectly, in whole or in significant part, a corporation or person described in subsection b. of this section, or covered assets of such a person, and will use that corporation or person or those assets in connection with the services provided to a casino licensee with respect to Internet gaming. A casino licensee shall not be permitted to use, directly or indirectly, covered assets in connection with Internet gaming involving corporations or persons located in this State.
b. As used in this section:
(1) “significant part”means, with respect to ownership of a corporation or person, the ownership of 5% or more of that corporation or person’s assets, or any percentage of ownership which provides control over that corporation or person;
(2) “covered assets” means any asset specifically designed for use and used in connection with bets, wagers, or stakes using the Internet from persons located in the United States after December 31, 2006, unless licensed by a federal or State authority to engage in such activity, including the following:
(a) any trademark, trade name, service mark, or similar intellectual property that was used to identify any aspect of the Internet website or of the operator offering the bets, wagers, or stakes to its patrons;
(b) any database of customer information or customer list of individuals residing in the United States who placed bets, wagers, or stakes in or through an Internet website or operator not licensed by a federal or State authority to engage in such activity;
(c) any derivative of a database or customer list described under (b) above; and
(d) software and hardware related to the management, administration, development, testing, or control of the Internet website or operator.
c. A corporation or any person seeking to provide goods or services to a casino licensee in connection with Internet gaming which would be prohibited from doing so under this section may request a waiver of the prohibition only in accordance with the provisions of this subsection, as follows.
(1) The commission shall determine by a preponderance of the evidence whether the corporation or person that is the subject of review violated, whether directly or indirectly, any State or federal laws then in effect in connection with the operation of or provision of services to an Internet gaming website that made available bets or wagers to persons located in the United States after December 31, 2006, or whether the assets to be used or that are being used by such person were used in connection with Internet gaming that violated such federal or State laws after that date. The casino service industry enterprise shall bear the burden of proof in establishing clearly and convincingly that its conduct in connection with bets or wagers involving persons located in the United States was not unlawful.
(2) The determination of the commission shall be made without regard for whether the corporation or person has been prosecuted under the criminal laws of any State, the United States or other jurisdiction or has been prosecuted and terminated in a manner other than with a conviction.
(3) In making such determination, the commission shall afford the subject of the review an opportunity for a hearing at which evidence may be presented. An authorized official of the commission shall preside over the hearing and shall act as a finder of fact entitled to evaluate the credibility of the witnesses and persuasiveness of the evidence, and those findings of fact shall be subject to judicial review only for abuse of discretion.1
The upshot is that whoever designed this clause plans to hopes Stars, Tilt, and any other entities that directly supported those and other US-facing sites from 2007, onward from doing business in New Jersey. But who, exactly is responsible, and why the selection of December 31, 2006 as a cutoff date, when the UIGEA was signed into law nearly 90 days earlier?
The first thing to do is look at the bill’s potential enemies, and in New Jersey that’s basically the state’s pari-mutuel [horseracing] operations. Still, we can rule them out in this instance, as they’ve been excluded from this bill, which is very casino- and Atlantic City-centric. The horse boys want to see the current versions of this bill tossed on the trash heap.
Nope, this is a casino-driven play. But which one, or all?
There are three big casino players in Atlantic City: Caesars, which owns several properties; the Donald Trump-less Trump Entertainment; and the Borgata, which used to be a 50/50 split between Boyd Gaming and MGM but is mostly Boyd these days, after MGM was ordered to divest in 2009 due to its heavy Macau investment. There are a couple of small players, but that’s really the big three in AC.
Two of three are known to have deals in the works with former online entities. Caesars did negotiate with 888 Holdings/Cassava/Pacific and had reached a tentative agreement with them for online services prior to the Black Friday crackdown. Everything is officially on hold there, and 888 may still have to do some renegotiating with the feds, but the tentative business relationship still exists. Both MGM and Boyd over at the Borgata had reached separate deals to buy into a bwin.party operation, and even with MGM out of the Atlantic City picture, the Boyd/bwin.party arrangement still holds. If Trump Entertainment is working on a deal — and they likely are — it’s still well hidden.
Therefore, 888 and Party, both already also on the Nevada list of service applicants — and, in Party’s case, already in a deal in California as well — have a pipeline into this New Jersey legislative process.
Here’s the finer question: Why the choice of 12/31/06 as a cutoff date in the poison pill, when 10/31/06, two months earlier, would have been more legally accurate? President George W. Bush signed the UIGEA into law on October 13, 2006, and both Party and 888, both of which had serviced the US market, departed the States in October.
The secret may well be bwin.party’s co-CEO, James Ryan, who didn’t even arrive at Party until the middle of 2008. Prior to that, throughout 2006, Ryan served in a similar role at Excapsa, the parent company of UltimateBet. Ryan was brought on to help position Excapsa and UB for an IPO on the London Stock Exchange’s Alternative Investment Market (AIM), though he certainly did more than just that in his time at UB.
Then the UIGEA happened, and Excapsa was forced to abandon its AIM listing, though it wasn’t quite as quick as Party or 888 to exit the US. Instead, since their market was so heavily American, they sought a way to keep UB’s US players playing and generating rake. UB had been on the selling block in one form or another since 2004 or thereabouts, but the UIGEA forced the company’s execs to go into high gear to find a solution.
That’s how the deal with Absolute Poker finally came about. No one knew then that both sides harbored batches of crooks and thieves.
Excapsa wanted to keep its hands clean, but its owners did not want to abandon the US, because UB players were almost entirely American. Exact figures aren’t available, but UB may have had the highest percentage of American players of any major online poker site. It was within this set of market conditions that the psuedo-sale to AP took place, a weirdly structured deal that officially gave control to the AP side but attempted to keep the American-player money spigot flowing for everyone involved.
The plan also called for Excapsa to officially enter liquidation proceedings in Canada, another sham of a process that included getting rid of the first liquidator (who protested Excapsa’s plans for distributing something like $30 million that was being held in a British trust), and replacing that liquidator with Sheldon Krakower, who just happened to be one of James Ryan’s business partners in some other investments. Soon, distributing Excapsa’s liquid assets soon became less of an issue.
But all that took time. Excapsa, with Ryan at the helm, didn’t get Canadian court approval to enter liquidation until December 22, 2006. And that date is the last time you will find Ryan mentioned in any public documents associated with Excapsa.
When exactly did Ryan leave Excapsa? That’s kind of a dirty, secret story, though it’s safe to say it didn’t happen until early 2007. With Exacpa de-listed from AIM and the company officially sold, Ryan’s purpose didn’t add up to the size of his paycheck. Records of Ryan’s exact departure have long since been buried, a part of the weird process by which Ryan finally made his jump over to Party in 2008, in which he dodged the last bit of what was reputed to be a two-year non-compete.
For James Ryan, though, there’d be no hope of making a “clean hands” claim any time prior to that December 22, 2006 liquidation date for Excapsa; Ryan was named one of the court inspectors for the process, a role he later resigned. Because of that, a 10/31/06 cutoff date would, in all likelihood, cause James Ryan some trouble. Imagine a scenario where bwin.party could be approved, but only if its co-CEO stepped aside. Some lobbyists may be trying very hard to make sure that doesn’t happen.
It’s of course true that Party would also like to cripple PokerStars’ attempts to reenter the US, and Stars doesn’t seem to have a friend in New Jersey. That’s how the cutoff date was introduced in the first place, though it’s the tweaking that’s the curiosity. Add all that stuff together, assume that Boyd, with Party’s prompting, is helping to shape the New Jersey legislation, and all of sudden the poison pill’s cutoff date makes sense.
Now, shift over to the PokerStars perspective, and go back to CrAAkker’s post. He is on the spot with questioning whether a state-by-state process even makes sense for PokerStars to pursue, if states like Kentucky threaten domain seizures and casinos in other states use lobbyists to insert artificial barriers in Stars’ path. Without even considering the obvious “dead” states like Utah, Hawaii, Washington or Alabama, think of something like Virginia, with no major casinos and an established horseracing industry that just might take an idea from Kentucky’s lead. Or perhaps a Wisconsin or Minnesota, states in which tribal casinos call the shots. Every US state has the capability to throw something major into Stars’ path.
And all that is why the astute reader needs to be just a little bit bearish when reading rumor-filled stories about the impending DOJ/Stars deal, such as the one at iGaming Post that I linked to the last time out. It’d be great if it happens, but don’t prepare those deposit e-checks or spend that frozen Full Tilt money just yet. The signals remain mixed, and there’s a very real chance that the deal might yet fall apart.
