Goodwin Gaming
June 24, 2013

Don’t Bet Against PokerStars

By David J. Apfel

Two seemingly separate events this month on back to back days – June 10-11, 2013 – in two different courts suggest that PokerStars is once again poised to make a serious run at re-entering the U.S. gaming market.

First, on June 10, 2013, in a New Jersey state appeals court, PokerStars, acting through its parent company, Rational Group U.S. Holdings Inc., appealed a trial court judge’s ruling that would enable the Atlantic Club, an Atlantic City casino, to back out of its contractual obligation to sell all of its casino operations to PokerStars.  See Transcript of Hearing on Order to Show Cause Seeking Preliminary Injunction, Rational Group US Holdings, Inc. v. Resorts Int’l Holdings, LLC, Case No. Atl-C-43-12, at 100 (May 17, 2013) (“May 17 Tr.”).

Second, on June 11, 2013, in federal court in New York City, PokerStars’ CEO Mark Scheinberg, the son of indicted PokerStars’ founder Isai Scheinberg, filed a Consent Order in which he agreed to pay $50 million to the United States government to fully and finally resolve any claims the government has ever had against him, including any and all claims related to distributions he has received from PokerStars’ profits.

The Mark Scheinberg consent order will enable Mark to continue to lead PokerStars with a clean bill of health.  Mark has never been indicted or charged with any crime, and in his settlement with the government he admitted to no wrongdoing.  Together with PokerStars’ own 2012 corporate settlement of the “Black Friday” civil case, in which the company agreed to make $731 million in payments and agreed to preclude Isai Scheinberg, and other “Black Friday” criminal defendants, from playing any role in PokerStars’ management or on the PokerStars Board, Mark’s settlement will enable PokerStars to credibly pursue online as well as brick and mortar casino licenses in the United States. See Stipulation and Order of Settlement Regarding PokerStars, United States v. Pokerstars, No. 11 Civ. 2564 (LBS) (July 27, 2012) (“July 2012 Settlement”).

It would appear to be no accident that Mark Scheinberg’s settlement coincided with PokerStars’ appeal of New Jersey Superior Court Judge Raymond Batten’s Atlantic Club decision enabling the Atlantic Club to pursue other suitors for its distressed casino.  Judge Batten’s decision appears to have been driven, at least in part, by the fact that Isai Scheinberg and Paul Tate (another PokerStars’ executive) are “fugitives from American courts,” and by Isai having continued to involve himself in PokerStars’ business, notwithstanding the company’s July 2012 settlement of the civil “Black Friday” case in which it had agreed to effectively divorce itself from Isai for all business purposes.  See May 17 Tr. at 81; July 2012 Settlement at ¶ 13.  The appeal of Judge Batten’s decision combined with Mark’s clean bill of health shows that PokerStars, with Mark Scheinberg leading the charge, is prepared to continue its pursuit of a casino license and legitimacy in Atlantic City.

These two steps are just the latest in PokerStars’ long-standing effort to dominate the world’s online poker market.  The chutzpah it has shown in its efforts, including its decision to continue servicing U.S.-based poker players even after the passage in 2006 of the Unlawful Internet Gambling Enforcement Act (UIGEA), has been well documented.

That chutzpah earned “Black Friday” indictments for Isai Scheinberg and several other PokerStars’ executives, and brought a massive civil forfeiture action down on the company.  It has also resulted in the Nevada Legislature imposing a five-year ban on any effort by the Company to do business in Las Vegas under Nevada’s “bad actor” law.

The Nevada law prohibits companies that continued online gaming operations in the U.S. post-UIGEA from obtaining a license in Nevada for five years (starting with the UIGEA’s effective date of Feb. 21, 2013) unless those companies agree to waive any statute of limitation or other procedural defenses they might have against criminal prosecution for violations of state and/or federal online gaming prohibitions in the post-December 2006 period. See Ch. 2, § 10 of Nevada Laws 2013.

And PokerStars’ brazen post-UIGEA conduct also undoubtedly contributed to its losing out in its bid for a license to provide intrastate online poker in Delaware under that state’s new online gaming laws.  (In Delaware, Scientific Games beat out PokerStars and 12 other contenders.)

Notwithstanding the setbacks PokerStars has experienced, its business has continued to grow internationally, to the point where it now controls well over 50% of the international online poker market, and earns annual revenues estimated at $1.4B or higher.  PokerStars is intent on growing more.  It has hired tennis superstar Raphael Nadal as its corporate spokesperson, and it is paying former Congressman Dick Gephardt $600,000 per year to lobby Congress on its behalf and on behalf of the federal legalization of online poker.

Last week’s two steps fit the pattern of PokerStars’ other recent efforts.  More than ever, the company seems dedicated to reentering the U.S. market and obtaining permanent vindication.  Obviously, its efforts in the United States have not yet worked,  but the operative word is YET.  If the experience of the past 10 years have taught us anything, it is that no one should bet against PokerStars.