Prior to Black Friday (April 15, 2011), PokerStars and Full Tilt were far and away the largest internet poker companies in the world. The 2 companies made up more than 80% of the U.S. facing online poker market and were estimated to be worth somewhere between $20 billion and $30 billion. As a result of their success, along with the need to "clean the slate" to prepare for legalized online poker stateside, the DoJ decided to confiscate both the FullTilt.com and PokerStars.com websites and issue arrest warrants against the founders and payment directors of each company. The DoJ likely figured the process would result in a deal a similar to what it arranged with Party Poker several years earlier when Anurag Dikshitz, a founder of Party Poker agreed to pay the U.S. government hundreds of millions of dollars in exchange for some immunity later on if and when poker was legalized stateside (Party Gaming had already cut off U.S. customers by that point). The DoJ quickly learned that this situation would not be that simple, however, when after conducting a thorough examination of both companies they discovered that Full Tilt was actually insolvent and were processing made up deposits to make their balance sheets appear better than they truly were. The government called Full Tilt a ponzi scheme and were congratulating themselves for exposing the company. While they were probably hoping for a pat on the back from American online poker players they instead were greeted by anger and resentment from players who were all of a sudden out over $100 million with no way of recuperating those funds. To make matters worse, the growing anger occurred just prior to an election year when it was clear the Democrats would need every vote they could get, including from poker players. The backlash against the Obama government was led by the Poker Player's Alliance (PPA). Lobbyist and former Senator Alfonse d'Amato wrote the following on the PPA website:

"This is an attack on Internet poker and American poker players like me. Through these strong-arm tactics, prosecutors think they can ban Internet poker. Instead, they are making millions of Americans victims in an attempt to make online poker illegal without the support of legislators or the public."

The international community also became quite angered at the U.S. government including members of the WTO who argued that the U.S. continued to skirt its obligations it agreed to under the GATS agreement and organizations like the Remote Gaming Association in the UK who issued warnings to the U.S. to stop targeting foreign companies particularly since those seizures were going to affect European poker players as well.

PokerStars agreed to cut off U.S. customers and reopened giving all American customers their funds back. Unfortunately Full Tilt had no way of repaying anyone back their funds and the Obama political machine realized they could be in for a loss of votes if they couldn't find a way to get Full Tilt customers their money back. The government was also worried that they could be facing lawsuits from other countries for unfair trade practices. Consequently the DoJ arranged an agreement with PokerStars (after a failed acquisition attempt by Groupe Bernard Tapie) whereby PokerStars would pay overseas customers $184 million to clear the amounts they were owed by Full Tilt and in addition would give the DoJ $547 million which the DoJ would use to pay back American Full Tilt customers while keeping the other $400 million plus as a fine for past wrongs. In making this payment the Rational Group (who now owned PokerStars and Full Tilt) made no admission of wrongdoing and both sides agreed that PokerStars and Full Tilt were in good standing with governments worldwide. In better words the Rational Group effectively gave the U.S. government $736 million in exchange for agreeing not to take actions against PokerStars or Full Tilt any further particularly in regards to fraud and money laundering. Eric Hollreiser, a media spokesperson for the Rational Group stated this to me in relation to that decision:

"We chose to settle with no admission of wrongdoing because we wanted to be able to focus on the future and growth, rather than focus on costly, drawn-out litigation. The Settlement of course also explicitly says we are not restricted from applying for future US license."

With that deal in its pocket the Rational Group decided to pursue a license in New Jersey to offer online poker once it became evident that Chris Christie would sign a revised online gambling bill which would legalize intrastate wagering on casinos and poker. As part of that bill, Christie required online licensees to have a land based Atlantic City operation so the Rational Group came to an agreement to buy the Atlantic Club Casino for $15 million with a set April deadline. Many companies and organizations including the American Gaming Association chided the deal suggesting that the New Jersey Gambling Commission should stop the sale given PokerStars checkered past. In fact one casino spokesman I spoke to argued that giving PokerStars a license was unfair since companies like Caesars and Trump, agreed to operate during very lean times and just allowing PokerStars to come in off the street and likely scoop up most poker players was outrageous. The operator also doubted that the Rational Group would do anything to help revitalize the Atlantic Club casino since their focus was strictly for online poker and the Atlantic Club purchase was just a necessary evil to fulfill that desire. "A public toilet in Atlantic City would suit them just as well as the Atlantic Club," the casino spokesman argued.

Hollreiser, however, was clear this wasn't the case informing me the following:

"The future of gaming will require a mix of online and offline expertise and that will strengthen both businesses. That's one of the reasons we are committed to a long-term presence and investment in Atlantic City and New Jersey. That investment includes detailed plans to refurbish the Atlantic Club and invest more than $40 million in the property. We are committed to preserving the existing 1800 jobs and the $132 million in direct economic benefit the casino provides to the region. We are also planning to locate a customer support center, regional headquarters office and state-of-the art data center in the state, which will add 300 – 500 new jobs.

Poker is a proven draw for traffic into casinos and online poker successfully drives players to live tournaments in casinos. We've demonstrated this for many years, as far back as when Chris Moneymaker qualified on PokerStars to earn his seat in the WSOP in 2003, eventually winning the Main Event and helping spark the modern online poker boom. We continue to send players to major poker tournaments in casinos around the world, attracting thousands of people to major tournaments. Online poker players are precisely the young, male demographic that has traditionally been challenging for casinos to attract."

The Rational Group paid the Atlantic Club over $11 million until the end of April allowing it to continue operations and there was a feeling the deadline would be extended but late last month the Atlantic Club stated that the deadline date to buy the casino had expired and it would cut off the deal with the Rational Group although it said it was not going to give back the money they were paid. Michael Frawley, the Atlantic Club's CEO stated that the purchase agreement was terminated in accordance with the terms and conditions of the agreement but Hollreiser saw it differently:

"It was the Rational Group's expectation and understanding, based on the ongoing dealings between the parties, that the closing date would be extended to allow the transaction to be completed. The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey."

As a result of this decision the Rational Group has sued the Atlantic Club and asking for an injunction to prevent them from selling to any other company since PokerStars has already paid the $11 million and the Atlantic Club wants an additional $4 million as a cancellation fee.

"Should Rational comply with this demand, Rational would have paid the entire purchase price and received exactly nothing in return," the court papers revealed.

As for the additional time that Hollreiser was alluding to, the Atlantic Club wanted an additional $6 million to extend the deadline for 10 days but the Atlantic Club also wanted the rights to look at other bids in the meantime. And given the way things transpired it's likely the Atlantic Club was just looking at a way of getting out of the deal while being able to keep all monies paid to them.

So the question that is running through everyone's mind is whether the Atlantic Club cancelled the agreement to appease the AGA and other naysayers? The answer seems to be yes and if that was indeed the case then the PPA are quite unhappy about it. John Pappas, the President of the PPA was adamant that PokerStars should be given a chance:

"New Jersey has long been the gold-standard for licensing and regulation of bricks and mortar gaming. Their gaming regulators are top-notch and questions of suitability are best left to them, not external political or competitive pressures.

No one, not PokerStars, or any AGA company should be entitled to a license. But the concept that a company would be summarily excluded from even applying for a license is ludicrous, unfair, and possibly unconstitutional. Let regulators do their jobs without outside influence."

So it is clear that there is a standoff in New Jersey and it's effectively the old guard who want the gaming industry to be controlled by traditional casinos and the progressive sorts who believe that PokerStars represents a new opportunity that will help encourage nontraditional bettors to actually wager online. The question is who is right? In my opinion, the answer is clearly PokerStars. When all is said and done, the U.S. federal government agreed to a deal with the Rational Group that declared it to be in good standing in exchange for an exorbitant payout. The fact that some casino operators don't like it is irrelevant. If someone is given a pardon by the President it would be unfathomable for the police and the government to continue persecuting them for their past wrongs. The nature of a pardon is just that – the slate is wiped clean and the person (or in this case company) is allowed to go about its business without looking over their shoulder. Rational didn't even admit to any wrongdoing and the Federal government agreed by not requesting that admission as it did with Dikshitz, the NETeller founders and similar past cases. But most importantly, PokerStars will help maximize revenue to the coffers because PokerStars has the experience and a superior product. U.S. Gaming Survey (usgamingsurvey.com) ran a survey of New Jersey residents asking whether they preferred land based operators or offshore companies to run online gambling when it's legalized and almost unanimously the answer that came back was that respondent didn't care as long as the product was the best and provided the best experience. PokerStars has proven themselves as a beloved online poker product and should be given every chance. Doing anything else would be short changing the state coffers and New Jersey bettors.

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

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