When it became evident that New Jersey was going to legalize online gambling in the state with the caveat that a licensee must obtain a physical location in Atlantic City, the Rational Group which is the parent company to PokerStars and Full Tilt decided to look for a casino that was up for sale in Atlantic City in order to meet the state's requirement.  The Rational Group found that The Atlantic City Club Hotel and Casino, which is owned by Resorts Holding International, was available for purchase so they put in a bid to acquire the underperforming casino for a fair price. The Hotel was once a showpiece of the Atlantic City Boardwalk when it was called Bally's Grand and Atlantic City Hilton but the dying gambling economy in Atlantic City along with more recent development of prestigious hotels, saw the casino bleeding money with a projected loss of $18 million in 2012 alone. Consequently, Hilton ended its licensing agreement as soon as it could and the Hilton name was removed from the structure. Like its sister hotel, the LVH in Las Vegas, Hilton hotels has been unable to maintain many of these properties and consequently they are being run by investment firms until they can be overtaken by another entity.

The Atlantic City Hotel with its 800 rooms isn't very large or exciting but the truth is that PokerStars' main interest in the property is just to have a physical location to place its poker servers so that they meet the constitutional requirements of the state of New Jersey. The hotel, on the other hand, saw the purchase as a new life. In announcing the pending purchase, the CEO of Atlantic City Casino stated:

"The acquisition of the Atlantic Club Casino Hotel will secure up to 2,000 jobs and maintain the economic benefits the casino brings to New Jersey,"

Other casinos in the city haven't been as receptive to the acquisition, although it appears that most Atlantic City residents welcomed any purchase that would save the jobs, since other casinos weren't hiring. One group, however, that has issued a detailed statement disapproving of allowing PokerStars to obtain a license is The American Gaming Association (AGA). The AGA came out with a statement urging New Jersey to block PokerStars buyout plan. In a 24 page letter to the New Jersey Casino Commission, the AGA stated that PokerStars should not be allowed the opportunity to purchase a hotel in New Jersey because of past wrongs. The document contended:

"Any action allowing PokerStars to be licensed would send a damaging message to the world of gaming and to the world beyond gaming that companies that engage in chronic lawbreaking are welcome in the licensed gaming business." The AGA cites the fact that PokerStars operated in violation of the UIGEA after the passing of the law in 2006 and would have continued to cater to American citizens if not for Black Friday. While not saying so definitively, the AGA would clearly prefer that all sites that are not American based and ever catered to the United States be stopped from ever receiving a license and undoubtedly they would support a motion by some politicians in California that would require a 2 year period after passage of a law legalizing online gambling before they can obtain a U.S. license. This would naturally stop PokerStars, 888, Party Poker and others from operating for a period which would allow the likes of Caesars to get traction in the U.S. before facing any competition. The fact that many of the large casino companies already have deals in place with offshore poker companies in Nevada is irrelevant since those deals were strategic and most were pulled off the table after Black Friday.

Of course the AGA's comments have to be considered with reservations since AGA's membership includes all of the American casinos like Caesars, MGM, Ballys, Las Vegas Sands etc. as well as the financial companies like Goldman Sachs which hold title to many of the properties in question. While that doesn't make the AGA's comments irrelevant, the bias must still be considered. Along with the AGA, the California Tribal Business Alliance (CTBA), and assumingly other tribal groups, have joined the AGA in calling for PokerStars to be stopped from getting a license. Naturally the CTBA's concern stems from when California decides to offer online poker which is imminent.

Robert Smith, the Chairman of the CTBA made the following statements upon hearing that PokerStars may qualify for an online gaming license if they purchase the hotel. "While the local market in New Jersey may be driving these sorts of decisions, in California we cannot allow for reciprocity with states that have lower standards and softer controls opening the doors to questionable corporations, which now appears to be the case...  In New Jersey, gaming at all levels should be held to the same, very high standards set for tribal gaming agencies in California. It is in these regulations that are in place to address the nature and the business of the gaming industry, that we maintain the trust in the game and the confidence of consumers and regional governments to promote a safe, fair and mutually beneficial gaming industry."

The comments had me scratching my head. How exactly is giving PokerStars or any other offshore company access to the U.S. market "lowering the standards." Whether a jurisdiction has compromised in terms of standards depends on the regulations that are drawn up. If the regulations allowed for underage betting, ignored compulsive gambling or gave licenses to known mobsters then the comments would have validity. But under Christie's plan the restrictions on licenses for New Jersey would actually make it one of the most stringent in the nation, including the requirement that bettors deposit directly at land based casinos and that a large portion of the profits be delegated to problem gambling programs. Christie even demanded a larger percentage of tax be taken out of the revenue in an effort to ensure that only the most profitable organizations would be able to operate effectively.

No doubt the AGA and CTBA are upset that PokerStars seems to have gotten a pardon despite its actions prior to the UIGEA, but that decision was made by the federal DoJ and PokerStars was in violation of a federal law. So like any person who is given a pardon, the past wrongs are exonerated and should not be held against them in future endeavors. And let's not forget that PokerStars paid through the teeth for a ruling that probably wasn't even illegal. The DoJ would like Americans to believe that all offshore gambling companies are operating illegally if they have U.S. clients but that issue is still up in the air. The WTO disagrees with the U.S. government's contention that offshore companies are operating illegally and the jurisdictions that license these companies like Antigua, Alderney, Costa Rica and Kahnawake would disagree too. Yet the Rational Group saved the current government's hide (as well as taxpayers) by agreeing to buy the defunct Full Tilt Poker product, paying back all Americans owed money and giving the government over $400 million to make the issue go away. If the government wasn't satisfied with that offer they could have declined it but instead they brokered it. So if the AGA or CTBA have a problem with the settlement and consequent pardon they should take it up with the DoJ, not the state of New Jersey.

Most importantly though, the real question that has to be answered is whether giving PokerStars a license is in the best interest of New Jersey residents and taxpayers. And the answer is a resounding "yes". Regardless of concerns about their past, PokerStars without question is a success story. The product was always at the top of poker sites played in the worldwide and analysts estimated that PokerStars would have had a market value of close to $4 billion if not for the UIGEA and Black Friday. In fact even with the UIGEA the company was clearing over a billion dollars a year in its operations and even today without U.S. clients PokerStars flourishes. The same can't be said for most of the other casino companies. Consequently, New Jersey and the U.S. gaming industry in general need a company like PokerStars to help point it in the right direction.

I called PokerStars for a comment but they have been pretty mum to all media sources regarding the New Jersey purchase short of saying they are working with regulators but Jim Quigley, the President of U.S. Gaming Survey (usgamingsurvey.com) was more than willing to share his opinions on the potential purchase.

"Poker Stars is one company that everyone in the business of Internet gambling should try to emulate. They have the largest market share, the most capitalization and by far the best poker product. The addition of a company like PokerStars will put New Jersey at the forefront of online gaming. US Gaming Survey studies of current online poker players have indicated that Americans want the right to play poker and do not care who runs the game, as long as they get the best product available to them. To allow PokerStars into the market will ensure that New Jersians have the best product, sparking fierce competition amongst New Jersey casinos to knock Stars off of their worldwide pedestal as the top poker room online. This is great news for players in and around New Jersey."

Whether the politicians and gambling associations want to admit it or not, gambling in the United States and Atlantic City in particular is at a crossroads. Land based casinos will always have their place on the American landscape but the bulk of future revenues will involve betting on the Internet. Americans have already noticed this and continue to play offshore despite the UIGEA and Black Friday. And like it or not, there is nothing politicians can do about it. To his credit, Governor Christie has finally acknowledged that fact and has signed a gambling bill into law that will put New Jersey back at the forefront of U.S. gambling destinations. But to really make an impact the state needs to involve the best online entities available and without question PokerStars is at the top of online poker companies. Suggestions by the AGA that New Jersey is selling itself out by allowing PokerStars to enter the market are foolish. PokerStars was given a pardon by the federal government last year and New Jersey must simply accept that and move forward. Anything less will be selling the state and its citizens short and in this economy that just isn't acceptable.

 Contact Hartley via email at hartley[at]osga[dot]com.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!