Off Shore Gaming Association

As many know, an offer was made by Groupe Bernard Tapie to purchase Full Tilt Poker. The full amount of the deal was never disclosed but it’s rumored that Full Tilt owes players over $360 million worldwide and about half of that to players in the United States. The company only had $60 million in its bank accounts so the deal would effectively require the group and any other investors to use $300 million of its own money to get the company out of debt. It’s unlikely Full Tilt poker, even with their previous goodwill and software is worth anything near that, so Groupe Bernard Tapie will likely be looking for other options. Originally it was reported that Bernard Tapie stated he was only willing to finance up to 15% of that amount, but he has since denied it.

The AGCC apparently has approved the takeover bid of the company but has stated that they will only allow the new group to start up the operations if they settle the current situation in the United States. In better words, the group and the current board of directors of Full Tilt need to pay back U.S. players all funds owed and reach a deal with the DoJ to get them off Alderney’s back. Only then can they start back up again and cater to customers outside of the United States; but how exactly the group can do so is unclear. For one thing the DoJ will likely be unwilling to deal with anybody on the current board of directors of Full Tilt and they’ll almost certainly want their pound of flesh from those they believe conducted a ponzi scheme. The DoJ has stated that any fines they receive from the former board (Raymond Bitar, Rafael Furst, Howard Lederer and Chris Ferguson) will be used to pay back players, and based on the amount they received from Anurag Dikshitz of Party Poker in 2008 it will almost certainly exceed the $125 million owed to U.S. players. However, it’s uncertain if any of the former board really has that kind of money available anymore and more importantly the DoJ will almost certainly renege on the promise claiming it needs that money to prosecute those involved in the ponzi scheme. To add to the likelihood the DoJ won’t give back any fines they receive is the fact that they never seized as much money as was originally reported. The AGCC and Full Tilt stated that the DoJ seized $331 million over 4 years from Full Tilt Poker but they later acknowledged that the true amount was only $159 million. Therefore, the DoJ has less Full Tilt money then it originally appeared. Thus, any feint hope that the government would actually return some of the seized funds to players is gone. The DoJ will surely state the amounts seized along with the fines won’t even cover the costs of the prosecution so they’re keeping it all.

Of course the news that the DoJ only seized $159 million has to make Groupe Bernard Tapie suspect of the previous operation as well. It was always believed that the company was a cash cow and was only negative on the balance sheet because the government seized funds and shut them down on Black Friday. But if the true cash assets of the company were only $219 million (the $60 million in its bank account plus the $159 million seized) then its true worth was far below the $390 million in accounts even with the unfunded accounts added in. So Full Tilt was effectively insolvent long before Black Friday and may indeed have been a ponzi scheme considering the shareholders took their dividends in spite of the financial situation.

For that reason there is a rumor circulating that Groupe Bernard Tapie is prepared to allow the current shareholders the option of buying equity in the new startup as well as players owed in excess of 6 figures. The group’s hope is that players, instead of requesting (say) $300,000 owing to them, will agree to waive that money in exchange for an equity share that could prove to be worth much more if Tapie can indeed make the new Full Tilt Poker profitable again outside the U.S. But given what is now known about the financial situation, one has to wonder if any account holders will be anxious to take the new investors up on the offer. Mind you, if no one accepts the offer and Groupe Bernard Tapie pulls out then Full Tilt players will get nothing.

The managing director of the group, Laurent Tapie, stated “I wouldn’t have undertaken such a project if I didn’t believe in its potential,” so he likely has some other ideas up his sleeve as well if this means of raising funds doesn’t come through. If deals can be made and the DoJ gives the new investors and Alderney it’s blessing to restart the site, expect Full Tilt Poker to be operational again sometime around January.

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“Internet Gambling: Is there a fair bet?”   was the topic of a Congressional Hearing today in Washington. The House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trades hearing took two and half hours to consider changing the federal ban on internet gambling. In the end, it looks like some yes votes are present in the Subcomittee but we are still very far from anything resembling a consensus on the subject  . . . or a change in the current laws.

Near the very top of the hearing Joe Barton (R-TX) who is the author of the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011 (H.R. 2366), showed a piece of paper that was a screenshot of a recent signup at Bodog.  Later it was revealed by Alphonse D’Amato of the Poker Players Alliance that this signup was that of former PPA director John Pappas.  This display was the start of an attack on current online operators.  Rep. Gregg Harper (R-MS) pointedly asked the panel of experts if any of them received money from current offshore operators – apparently the PPA and National Council on Problem Gambling do. The experts did agree when asked if operators who are currently breaking the law by taking bets from Americans should ever be allowed to continue by becoming licensed. With the exception of a bit of dancing by the PPA’s D’Amato who brought the question saying that they (current online operators) are not all ‘violating’ current laws, all experts answered “No”.

Much of the testimony and hearing circled around two issues: underage gambling and the fairness of the games. Apparently some elected officials do not think that age verification can be done on the Internet. Knowing your customer was a topic at the GIGSE conference back as early as 2004 and all of the EU operators employ this type of technology. In addition, had these officials ever played online they would realize that they may be able to open an account and use a credit card to sign up and deposit, but without proper ID, they won’t be able to withdraw. I think that would be a pretty big deterrent for any underage gambler.

This hearing was really about Internet poker, though occasionally casino games and sportsbetting came up. The word “Bot” was thrown around so much it was annoying and puzzling at the same time. But many of the Representatives have done their homework and understand today, more than any of the other hearings I have watched, the game, how it works on the Internet and the pitfalls of online poker.

Ms. Bono Mack (R-CA) was the chairman for the hearing and she ended by making two things “clear.” “First we are going to be very thorough in examining a wide range of issues related to Internet gambling before coming to any conclusions and secondly at the end of the day we are going to do what is best for American consumers.” Though the issue of whether or not Internet gambling in any form is legalized in the U.S does appear to be gaining favor in these economically stressed times, today’s events would lead anyone to believe legalization is still over, not on, the horizon.

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So far this season sportsbooks worldwide who take action on American Football are waiting . . . and hoping . . . for a solid winning week in both NCAA and NFL football betting. The fact that there has not been one week in which the public has lost in both flavors of football is astonishing. Last year the average player couldn’t buy a break until week 10 and the NFL is heading into Week 7 with players having two huge winning weekends out of three so far in October.

It not just the fact that many favorites have been covering, but who those favorites are. The top 5 college football teams have done exceptionally well for the players and Green Bay is at 5-1, ’Against the Spread’.  New England at 4-2 ATS doesn’t help a books’ bottom line either.  In addition, NFL teams that are losers this year and perennial losers alike have done very poorly against the spread. Miami, Cleveland  and Denver are all 1-4 ATS. Totals have been no help for sportsbooks either. A quick look at the totals from this year find that over 70% of the NFL teams records are 50% or better on OVER. Buffalo is getting to be automatic having gone over the total in all 6 games this year. The Giants are 5-1 and surprisingly, the Colts are 5-1 also.

Parlays have been especially juicy this year. Every operator we spoke with has at least one or two 10-team or more parlay stories that have cost each book well into five figures. One operator told of a player who sent in $250 and got a 20% Free Play. This new player takes his $50 Free Play and puts it on a 10 teamer – and hits it! What a fantastic play by a newbie at this book! Other books have told us of an extraordinary amount of winning 4, 5 and 6 team parlays. Even the State of Delaware got their butt kicked last week when a player picked 15 consecutive correct picks of pro football game winners against the spread. His $5, 15-team parlay paid out the max of $100,000 at Delaware Park. The customer was the first winner of the 15-team parlay offered at Delaware Park through the Delaware Lottery since the parlay option started two years ago.

A manager at Badlands, one of the books that has been around since the inception of offshore gambling, told us that “bettors are winning at an unprecedented rate this football season”. He added that he “ hasn’t seen a start to the season like this in 15 years.” And this sentiment has been told again and again to us over the last several weeks. Now, more than ever, it is very important to know who you are playing with. Harltey posted in his Insider column earlier this year regarding  the effects of a poor NFL season on sportsbooks that cater to U.S. players. “It’s inevitable that some of those operations will close if the NFL season isn’t lucrative.” This is one of the main reasons that we worry about newer books with a small amount of clientele.

Several books have had reports of slow Western Union and Money Gram payouts so far this year. This is generally not an indication of a place in trouble and after checking, these problems all relate to volume. The usually rush of payouts on Monday has caused a couple of Elite-rated books to take up to Thursday to get person-to-person payouts in players’ hands. Simply put, the huge winning streak that players are on has caused a backlog of payouts at almost every outlet. However, we still hear very positive reports on this payout method from players at 5Dimes, WagerWeb and YouWager.

The operators we spoke with and those at sportsbooks that we rate highly are not worried, instead using the sentiment that “It all evens out” over the course of a long season. They also realize that a lot of that money will be back for action this week with inflated bankrolls for most of the bettors and they all expect to see increased handle in the coming weeks. And bookies are not in the business of losing, so their numbers will begin to reflect the wining that has occurred thus far and players must adjust their football betting to stay ahead.

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When the FBI shut down the .com domain names for PokerStars, Full Tilt and Cereus there was hope by many that it would be the end to the prosecutions. While those 3 were by far and away the largest U.S. facing poker sites there were others that were taking U.S. action. In particular the Merge, Everleaf and Cake networks were still welcoming U.S. accounts plus a few independents like Bodog, Betonline and World Poker Exchange were encouraging new U.S. signups.

It appears, however, that there is still a chance all U.S. facing sites are in trouble. Following the seizures, Merge announced that they would no longer be offering the rakebacks they promised and numerous sites on their network like Carbon Poker and BetUSA moved to a .ag extension in anticipation of the FBI using VeriSign to take the .com domain name. And recently a source in the poker industry that still receives payments for poker advertising informed me that he’s heard numerous rumblings that the FBI “wants the rest” and consequently he is trying to lure more European sites for advertisements in anticipation of the inevitable closure of the other sites.

There were also suggestions last month on numerous poker sites that the DoJ were preparing to seize the funds of Merge and Everleaf payment processors and in fact Merge stopped accepting funds from U.S. players for 4 months after Black Friday. On October 13th Merge started accepting U.S. funds again but according to Subject Poker asked they were asked by Merge to keep that announcement silent and they barred the states of Kentucky, Louisiana, Maryland, Missouri, New York, and Washington as well as residents of Washington D.C. This may be an indication that Merge found a new payment processor they believe is untouchable but it could also be a decision to get as much money as possible into the site before the FBI makes its move. Cake poker, the largest of the U.S. facing networks has not been named at all in any rumors of seizures but it should be remembered that one of their biggest associates, The Greek Poker, stopped accepting U.S. clients which could be a reason the FBI is not currently that interested in them.

What is also notable is that Fairplay USA, a quasi lobbying group seeded by Caesars and MGM recently acquired Tom Ridge and Louis Freeh as members. Ridge, of course, was the secretary of homeland security under George W. Bush and Louis Freeh was the director of the FBI. Many are painting their involvement as a positive step for the online poker industry since both were firmly against online gambling expansion in the past. Thus some are suggesting that their new pro gambling stance along with their clout will help them encourage others in government and the FBI to stop their vendetta against online poker sites. But one must remember that Caesars has made it clear that they want a federal online gambling law but they have also pushed for the elimination of “illegal” sites. And almost everyone in the industry agrees that Caesars was instrumental in the FBI’s moves on Black Friday. It’s quite conceivable therefore that Freeh’s involvement while appearing to be “friendly” to the online poker industry is in reality just a source to gather information to help the FBI “get the rest.”

In any case Americans just need to be aware that the FBI is likely not finished with their prosecutions and players should thus be cautious and smart when making payments to any poker site. Furthermore, they should not believe comments coming from ‘Free Play USA’. The group may indeed be good for the online poker industry, but more than likely their goal is to just give Caesars an online poker monopoly for a few years and then allow other U.S. based sites to come aboard too.

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Rumor has it that a law allowing online poker in the U.S. will be passed sometime in 2013. Those close to the issue have stated that neither party is willing to bring up the issue in Congress before the next election but both parties have dropped their objections to legalized online poker realizing it’s inevitable and a necessary revenue source.  Consequently both the Democrats and Republicans will support the bill once it’s introduced after the next election. The bill will likely be a federal amendment to the UIGEA that specifically carves out an exemption for online poker similar to fantasy sports and lotteries. The bill is expected to then pass through all levels of government with few objections.

Reasoning: There were 4 issues that were roadblocks to a law being passed but all have been solved or should be settled in the near future.  The first roadblock was competition. While Caesars and a few smaller casinos wanted the change to the federal law, they also wanted to ensure they wouldn’t go in at a disadvantage. The number of U.S. players at Full Tilt and PokerStars was worrisome and became more concerning when Wynn and Station teamed up with the 2 online giants in January of 2011 to offer the product in Nevada. That issue was quickly resolved on Black Friday when the FBI effectively shut down Full Tilt and Cereus and ensured that PokerStars cut off all American players. With the 3 largest U.S. targeted sites out of the way, American player’s choices became far more limited which is precisely what the government and the casinos wanted.

The second issue related to the Native tribes. The Tribal Alliance of Sovereign Indian Nations led by the Morongo Tribe were strongly opposed to any online bill until last year but the Natives are now becoming more open to the idea. The California Nations Indian Gaming Association (CNIGA), representing 29 casino and non-casino tribes. have now indicated they are in support of a poker bill and in fact are preparing to offer a free online poker site to test the waters. While it’s uncertain what agreements were worked out between the California government and the Indian nations there is no dispute that the language from the Natives has become more conciliatory. It’s also notable that the natives were worried that an online poker bill would make them uncompetitive with offshore sites, but the closing of Full Tilt, PokerStars and Cereus to U.S. customers as was mentioned previously has certainly alleviated those fears.

The third issue relates to state’s rights. California, Nevada, Iowa, Florida, New Jersey and any other states that are interested in online poker all have different ideas of how to offer the product. California, for example wants any site, American based or not, to be given permission to apply for a license while Nevada wants to ensure that only Nevada casinos or their partners are offered licenses. Similarly New Jersey is looking for online poker to be operated by existing Atlantic City casinos. The states also have different ideas on how to tax and regulate the product. The issue has caused a lot of tension between the feds and the states who all have threatened to make the move with or without federal approval only to back down, while the federal government is insistent that online gambling is interstate by nature and hence a federal issue. Sources have stated that the antagonism has begun to wane and the federal and state governments are now working in unison towards a common goal. The belief is that the federal government will pass the amendment to the UIGEA and have certain rules that apply to all states, but the states will actually run the gambling and provide a kickback to the feds for enforcement. Any state that doesn’t want to be a part of online poker legislation (like Utah) will be exempt from any law and filters will have to be put in place to block citizens from those states from playing.

The last issue relates to taxation and regulations behind any poker law. Joe Barton’s recently introduced Poker Act of 2011 may have a lot of support but it may not be realistic. The number of rules will be quite a turnoff to many players and some of the rules, such as those relating to bots, may be unenforceable.  Moreover to prohibit non U.S. based casinos, poker rooms or race tracks from offering the product for 2 years could easily run in to some global challenges. It was easy for the USTR to violate WTO rules by picking on Antigua but the EU is another kettle of fish altogether. It was already decided with the Antigua case, that the U.S. is in violation of WTO agreements but they got off with the inane morals argument. However, to offer a product in the U.S. and then announce that all non U.S. companies are not eligible to offer the same product violates every known free trade agreement and will never hold up in international courts. In fact Betfair is already in the U.S. with their TVG product and Bet365, 888 Gaming, William Hill and others are preparing to set up U.S. offices with the expectation of being allowed to offer their poker product as soon as the bill is introduced. No doubt those companies will team up with existing casinos if necessary but undoubtedly will have their lawyers ready to start an injunction against banning them from offering the product.

As for the taxation and fee issue, the specifics are still uncertain. Jim McDermott’s plan to charge 2% of all deposits as a licensing fee and tax and then require all customer play would be tracked and taxed will never fly. If customers are treated differently online than they are at a land based casino it’s unlikely they will play ball. Instead they’ll still flock to the offshore sites that are available to them like Cake poker or Bodog.

In any case the states and feds have almost 2 years to iron out all the details but look for online legislation to happen by then.

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