AGA VS POKERSTARS: Why The Battle Line Have Been Drawn

18th June 2013 by

Is the American Gaming Association’s intervention into PokerStars’ New Jersey casino licence application protecting the public interest or an attempt to limit foreign competition? David Schollenberger, Partner and Head of Gaming Team, Healys LLP Solicitors, London, investigates.

Background

On February 27, 2013, New Jersey Governor (Chris) Christie signed into law “An Act Authorizing Internet Gaming at Atlantic City Casinos under Certain Circumstances.” This makes New Jersey the third State after Nevada and Delaware to legalise some form of online gaming. The legislation grants companies that have a licence to operate land-based casinos in New Jersey the ability to also offer online gaming.

Rational Group, the group of companies that operates PokerStars, is based on the Isle of Man and is the world’s largest online poker company (‘PokerStars’). Prior to ceasing business operations in the US, it held the largest market share of the US market of any online poker company. A civil forfeiture action was brought against PokerStars in July 2012. These claims included operating a scheme of illegal gambling, bank fraud and money laundering between 2006 and 2011. In July 2012, PokerStars settled the case with the DoJ by ceasing its business in the US, forfeiting $731 million and taking over the accounts of Full Tilt Poker. No wrongdoing was admitted by PokerStars in the settlement, and the DoJ indicated that this settlement did not preclude PokerStars from applying for online gaming licences in the future, if and when they became available.

PokerStars has signed an agreement to purchase the financially distressed Atlantic Club Casino in Atlantic City from Colony Capital, subject to first obtaining a licence from the New Jersey Casino Control Commission (‘Commission’), to which it has applied for an interim licence to operate the casino.

The brief

On March 4, 2013, the American Gaming Association (‘AGA’) filed a brief (‘Brief’) with the Commission opposing PokerStars’ petition for the interim casino authorisation. The Brief opposes the petition on the grounds of PokerStars’ unsuitability for a licence based on its history of offering online poker services illegally in the US. The Brief claims that “the integrity of the gaming industry would by gravely compromised by any regulatory approvals of PokerStars, a business built on deceit, chicanery, and the systematic flouting of US law.” It continues that “New Jersey has long been a bulwark in ensuring that legalised gambling is conducted only by those who meet the high standard for integrity.” The Brief further, and rather dramatically, warns the Commission, “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 law breaking are welcome in the licensed gaming business.”

The 26 page Brief reiterates at length the claims that were raised in a civil forfeiture action that was brought by the US Department of Justice (DoJ) that has since been settled. The Brief also implicates PokerStars’ management (who are making the application) as unsuitable, because of their previous participation in doing business in the US, despite the fact that those currently involved in the business and making the petition were never criminally charged with wrongdoing. It also implies that the founder of PokerStars, Isai Scheinberg, who has been criminally charged by the DoJ and is still a fugitive, is still involved in the business.

The PokerStars response

PokerStars responded with an 11 page letter to the Commission urging it to disregard the Brief, claiming that the AGA does not have legal standing to become involved in this licence application. It also asserts that the Commission should make up its own mind based on the application and the Commission’s own investigation. PokerStars argues that it would be “setting a dangerous precedent that would eviscerate all requirements for participation in the context of the Commission’s consideration of licensing applications, and would empower the AGA’s thinly veiled anti-competitive campaign against the entry of a competitor into the market.” The letter further points out that “the Commission – recognised as leaders throughout the industry – are more than capable of accomplishing the task of licence consideration without the unsolicited assistance of a self-appointed group of [PokerStars’] competitors.”

Analysis and implications

PokerStars has been one of the most successful online gaming companies in the world. It has been and remains highly popular with its customer base, which has enabled its huge growth through the years. The DoJ did not shut the company

down in its settlement, but rather enabled its continued existence as long as it did not operate further in the US until such time as it was legal and licensed to do so. The DoJ even agreed for PokerStars to take over the customer accounts of Full Tilt Poker’s players. It did not criminally charge any of the PokerStars management currently applying for the licence. The DoJ only stipulated that Isai Scheinberg could no longer participate in the company. There is no conclusive evidence that the company has not complied with this requirement. PokerStars is licensed on the Isle of Man and continues to legally and successfully operate in Europe.

Is the AGA really acting solely in the public interest with its Brief? The AGA, whose membership includes some of the largest US casino operators, should be acting to encourage healthy competition and growth of the industry from both domestic and international operators, not as a vehicle to protect incumbent domestic operators.

With respect to its arguments about unclean hands arising from the past, some of the AGA’s members have entered into relationships with online gaming companies who have also had a history of carrying out online gaming business in the US. The AGA, therefore, seems to be acting inconsistently and hypocritically if it singles out PokerStars as having a history that makes them unsuitable to be a gaming licensee but does not raise these issues and concerns in the relationships and gaming applications of its own membership base.

Commission action and precedent for decision

As this magazine was going to press, the Atlantic Club Casino wrote to the Rational Group informing the PokerStars’ owner that it had missed the deadline to purchase the property. There have since been reports of the purchase order’s reinstatement via a restraining order issued by a Superior Court Judge. Until this point, the Commission has not tabled or indicated that it will consider the AGA Brief for discussion. It remains to be seen how much weight will be given to PokerStars’ prior history in the Commission’s evaluation of suitability, should the reinstatement stand.

Nevada has already written provisions into its interactive gaming law that specifically ban companies from obtaining online interactive gaming licences where those companies took wagers from US players after December 31, 2006 (when the Unlawful Internet Gaming Enforcement Act went into effect). Lawmakers and regulators in other US states and operators both in the US and abroad will be following this decision closely. It may well establish a precedent. Hopefully, it will be a sensible one that will provide open competition in the market and a wide variety of domestic and international operators providing quality and safe gaming experiences.

It is better for the consumer and the future of the industry if the Commission and regulators and lawmakers in other states do not unduly dwell on the early days of the ‘prohibition era’. That era is rapidly coming to a close, and it is time to give the consumer what it wants.