Does Amaya Gaming’s purchase of PokerStars and Full Tilt open the way to the U.S. market?

After spending 4.9 billion dollars, Amaya Gaming hopes this purchase finally opens the U.S. market to the PokerStars and Full Tilt brands.

The poker world was provided quite the shock recently when it was announced that Amaya Gaming will be purchasing PokerStars and Full Tilt poker for $4.9 billion. While there had been some speculation about the sale for a few months prior, most in the industry believed the sale would never be consummated due to the cost.

For those unfamiliar with the Quebec based company, Amaya entered the online gaming market in 2004 supplying software for electronic poker tables. In 2006 they hired David Baazov a 26 year-old entrepreneur as CEO and he made it quite clear at the time that his goal was to make Amaya a major player in all realms of legal government regulated online gambling through acquisitions. The company did have a few small acquisitions at first but really made a splash in 2011 and 2012 when they made several major purchases. First in early 2011 they purchased gaming software company Chartwell Technologies for $22.8 million; later that year they purchased Cryptologic for $36 million; late in the year they purchased Cadillac Jack for $167 million; and finally in 2012 they bought's surplus Ongame poker Network for $15 million. As well, Amaya inked a partnership agreement with Australian based Aristocrat gaming and not surprisingly revenues at Amaya soared by over 200%.

But as successful as those deals had been the purchase of PokerStars and Full Tilt from the Oldford Group (parent company of the Rational Group) puts Amaya in a position to be the biggest online gambling company in the world. While the cost of the deal seems exorbitant it has to be noted that PokerStars and Full Tilt had over $1.2 billion in revenues in 2013 representing 54% of the market. And according to Pokerstars averages over 18,000 players a day while Party Poker, iPoker and Microgaming combined fail to make up even ½ that amount. And prior to Black Friday the average daily players at PokerStars and Full Tilt approached 6 figures, not to mention the company has over 85 million registered customers. But Amaya clearly didn't purchase the companies for their current ROW customer base but are rather looking to legalized poker in the U.S. and believe that state sanctioned poker under the PokerStars and Full Tilt names will be a goldmine. Currently New Jersey, Delaware and Nevada offer legal intrastate online poker and other states including New York and California are preparing to offer online poker in the near future. Amaya, which trades on the Toronto Stock Exchange only has a market cap of $1.6 billion but were able to secure the purchase with financing from Deutsche Bank, Barclays, Macquarie Group Ltd and Blackstone Group LP. The deal calls for $2.9 billion in bank loans, $1.6 billion in equity and convertible securities and $400 million in deferred payments.

The reason for the sale by the Oldford Group seems quite clear and revolves solely around actions of the United States government. The Oldford group realized the only way to exceed to the degree they want to, is if they make a dent in the United States. As a result in 2012 they made a deal with the DoJ to purchase Full Tilt poker (which they really had no use for) and pay a hefty fine to the government in return for absolution from charges and the ability to operate in the U.S. without prejudice. The company assumed this $700 million agreement would be enough to satisfy the U.S. government but it obviously wasn't. Every time the company has attempted to offer the PokerStars product in the U.S. they have been thwarted.

First they signed a partnership agreement in 2010 with Wynn Resorts to offer online poker in Nevada when the state legalized the product but that deal fell through after Black Friday and Nevada put a 5 year ban on licenses to any company that offered online gambling after passage of the UIGEA. Next they signed a deal to purchase the Atlantic Club casino which would have given them access to the New Jersey online poker market when online gambling was legalized there, but the deal fell through when the casino was pressured by the American Gaming Association and several casinos not to sell to the Rational Group due to "past wrongs" – i.e. continuing to cater to the U.S. market after passage of the UIGEA. Next they formed a partnership with Resorts Casino Hotel in Atlantic City to provide online gambling in New Jersey but the deal was nixed for similar reasons. To make matters worse, the Rational Group was effectively shut out for 2 years in that state when the New Jersey Division of Gaming Enforcement (DGE) suspended the company's license citing the fact that Isai Scheinberg, the founder of PokerStars was still under indictment and they would not approve a company with an owner who is a felon. And most recently in California the company signed a partnership agreement with the Morongo tribe and 3 land based poker rooms to offer online poker in California but opposition from other tribes and the Tribal Alliance resulted in legislation being drafted that would shut out any company that catered to the U.S. market after the passage of the UIGEA. The legislation also bans any company that has management under indictment from applying for a license and thus is clearly aimed at the PokerStars and Full Tilt brands. As a result of the constant efforts t block the Oldford group from operating it appears they finally threw in the towel and decided it's best to make hay while the sunshine lasts with the nearly $5 billion deal.

The question I and others have is whether this sale will finally open the U.S. market to the PokerStars and Full Tilt brands. Obviously the quoted concern was the indictment against Isai Scheinberg but everyone knows that the real concern is the ability for U.S. based casino companies to fairly compete with PokerStars and Full Tilt. To date online poker play in New Jersey and Nevada has been slow to say the least and surveys from USGaming Services have indicated that many Americans are currently on the sidelines but plan to return if and when PokerStars and Full Tilt are able to legally offer their product stateside. So the casino companies like Borgata and Caesars are hoping that a 2 year head start will help them gain an advantage over PokerStars and Full Tilt and without that head start (particularly in California) they will likely get slaughtered.

I spoke with Industry analyst and first amendment lawyer Larry Walters and asked him if legally this sale would eliminate the "bad actor clause" since Isai Scheinberg would be out of the picture and he said that it really depended on the specifics of the deal:

"If the purchase is an asset sale and not a stock sale, and there is a change of operational structure, there would likely be no legal liability for past misdeeds of the predecessor companies' management. " At the same time Walters acknowledged that the deal is very complex and seems to be both an asset and stock sale so until the specifics are meted out he was unable to provide a concrete opinion.

Others, however, have been very adamant that the New Jersey DGE decision is final. "This changes nothing," Jerry McCallister a gaming analyst with a clear grudge against the Rational Group told me. "The decision makers in New Jersey have made it clear that the Pokerstars product is not welcome and just because a few dollars change hands doesn't dissolve them of their past wrongs. If a major restaurant poisons people and faces a huge lawsuit they can't simply dissolve themselves of the lawsuits by flipping the business. The goodwill, or in this case badwill, is in the PokerStars name and they can wait the 2 years to peddle their product. By then hopefully New Jersey residents will be happy with WSOP, Ultimate Poker or one of the established online poker products."

Other lawyers and analysts I spoke to, however, almost unanimously disagree with McCallister and believe that if New Jersey continues to ban PokerStars from the state despite Isai Scheinberg no longer being involved in the company they would have some explaining to do. "If the (DGE) has a different reason for banning PokerStars they better clear that up now because otherwise they're blowing smoke and will be called to the carpet on it," one analyst said. As well David Rebuck, New Jersey's gaming enforcement director said that the Amaya purchase was encouraging.

But as much as Amaya wants to get into the New Jersey market they know the real pot of gold is with California and it appears that the California tribes have no intention of changing the legislation that bans the PokerStars and Full Tilt brands regardless of who owns them. The Morongo tribe may be the biggest group but the other tribes have the votes to overrule them and right now the Morongo tribe is on the outside looking in. I sent emails to the Morongo Tribe and the California Tribal Alliance for comment but never received a response. Nevertheless Amaya is convinced that they can still get into California despite the 'bad actor 'clause in the bills because those bills that try to ban them will be seen as unconstitutional if and when they are challenged in court. In fact the Rational Group even consulted a Harvard Law School professor who was confident that neither of the two laws on the table would stand a constitutional challenge.

So will the sale to Amaya open the doors to PokerStars and Full Tilt in the United States? That question seems to be up in the air. One thing is certain, however. If Amaya is able to get PokerStars and Full Tilt operating with unfettered access in New Jersey, California and New York, the $4.9 billion purchase price will look like a bargain.

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