If you met David Baazov at a gaming event in recent years, chances are good you’ve been furiously digging for that business card.
No one would blame you. Following massive media attention that would have made him and his company famous anyway, you’d be hard-pressed to find someone in the gaming industry today who is not familiar with Baazov or the name Amaya.
In August 2014, Amaya officially took over the Rational Group and thus became owner of the largest iGaming company in the world, PokerStars, along with sister company Full Tilt Gaming, which isn’t small either. Baazov’s stake in the new super-company makes him close to a billionaire.
Amaya’s ascent to iGaming industry dominion is notable in great part because it looks so rapid. News of the ongoing PokerStars negotiations was broken just one month before the deal was signed—although we later learned they had been going on for much longer than that.
Amaya itself was no stranger to the iGaming world, having made industry-rippling headlines since at least 2012, when it purchased the Ongame Network after previous suitor SHFL turned out not to want it all that much. Other attention-grabbing moments in Amaya’s history included the acquisitions of CryptoLogic—one of the earliest iGaming software providers—and slot supplier Cadillac Jack.
But for all of these accomplishments, nothing the company had ever done before had been so bold as its ambition to buy a company so large and profitable as to be considered practically unattainable. Met by widespread incredulity when CalvinAyre.com first broke the story, the report turned out to be entirely legit. Once the deal was finalized and completed, it floored not just the gaming industry, but the financial world at large.
It was a spectacular deal, not only by gaming standards, but by any standard. Andrew Zarnett was part of the Deutsche Bank team that raised the debt financing for Amaya. He tells GGB the deal stood out because “a small Canadian company with a market capitalization of around $500 million ended up purchasing a company that was 10 times its size. It is very, very rare for a transaction like that to succeed.”
Baazov did not simply get lucky. As reported by Nathan Vardi of Forbes in a comprehensive account of Baazov’s background and the history of the PokerStars acquisition, Baazov had to persevere with a tenacity rarely seen outside of those movies where the dedicated teacher won’t give up on the troubled youths. In total, Zarnett tells us, Amaya had to raise capital from four different sources.
“Approximately $3 billion was debt,” says Zarnett. “Around $1 billion was convertible preferred—a financial instrument that can convert debt into equity. $650 million was plain vanilla equity. The rest was topped off with around $200 million in cash.”
Complex as the deal turned out to be, it is perhaps forgivable that the iGaming industry initially questioned whether Amaya could ever dream of pulling it off. But anyone familiar with the company’s history would have done well to take it into account before dismissing the power and resources available to Baazov.
Roots of Deal
Amaya was founded in 2005 by a very young, very street-smart, very business-savvy Baazov. Chris Moneymaker had won the World Series of Poker two years earlier, and the resulting poker boom was making many people wealthy (others not so much). One of the wealthy ones was Isai Scheinberg, founder of PokerStars. But it was tough to foresee the passage of the Unlawful Internet Gaming Enforcement Act in the U.S. in 2006, let alone Black Friday some years after that.
Incidentally, Amaya’s first product was an electronic poker table. But it did not take very long for the company to begin resembling the avid acquirer (and reseller) of assets it eventually became known as.
“Amaya was conceived as a consumer technology company that would acquire consumers in the converged online/offline world we inhabit,” says Eric Hollreiser, who handles corporate communications for both PokerStars and Amaya, “with an eye toward developing consumer products that leverage the convergence of internet technologies, software and mobile platforms with hardware and land-based platforms.”
Although it would have been clairvoyant to foresee Amaya inevitably making a bid for something as huge as PokerStars, a certain habit of “trading up” had been evident for a while.
By the time the industry got wind of Amaya’s (reciprocated) interest in PokerStars in May 2014, it was very tempting to infer the deal had a lot to do with PokerStars’ difficulties in trying to re-enter the U.S. market. A statement issued by then-CEO Mark Scheinberg a month later, when the deal was done, suggested a reinforcement of this perception. Scheinberg noted the negotiations had begun “more than six months ago,” which would have put it at around December 2013, when New Jersey’s Division of Gaming Enforcement announced it was suspending its review of PokerStars’ application for an iGaming operator’s license in the state.
But Vardi weaves a different narrative in his Forbes feature, claiming Baazov was speaking his PokerStars ambition aloud “after buying Cadillac Jack” in 2012.
“The difficulty getting into New Jersey played a role in PokerStars shareholders’ agreement to sell the company—but that was only one of several key factors,” Hollreiser says.
Past the widespread stupefaction following the completion of the deal, the gaming industry must now confront how the changed ownership of the world’s largest iGaming company will shape the future of the space.
For starters, expect anything having to do with bad-actor policy to be substantially reframed. Much of the controversy centers around PokerStars’ alleged ineligibility in the U.S. online gaming market used to center on the criminal indictments against key personnel, including founder and previous owner Isai Scheinberg—but he and others are now supposed to be completely unconnected to the company.
New Jersey certainly seemed pleased with this turnaround. David Rebuck, director of the division that had put a massive roadblock before PokerStars’ entry a few months earlier, came out in clear appreciation of the Amaya deal and openly expressed optimism about PokerStars being determined eligible to operate in New Jersey.
But PokerStars’ adversaries in other U.S. states, especially the majority of them where there is still some chance of legislating against companies like it, aren’t taking this sitting down.
Speaking to iGaming Business in September, influential tribal Chairman Mark Macarro of Pechanga said Amaya’s acquisition of PokerStars had done “nothing” to alter anti-PokerStars sentiment among the California gaming stakeholders who have long supported a bad-actor policy.
Macarro’s point is well taken—the Amaya deal hasn’t changed all hearts and minds. But it is forcing PokerStars’ foes to reassess and refine their strategies to keep it out of America. California Assemblyman Michael Gatto’s new online poker bill (AB 9) is almost entirely a replica of a previous Pechanga-backed bill, but with a few notable novelties, including a more strictly worded bad-actor clause.
PokerStars will either cruise into some states on account of its new ownership, or incur aggressively renovated resistance in others. Either way, Amaya is already diverting several corners of the iGaming world in a multitude of new directions.
Of subsequent importance is PokerStars’ now-definitive departure from a long-held commitment to poker-only iGaming. Commonly used nowadays to refer almost exclusively to pieces of legislation that legalize only online poker instead of all forms of online gaming, it’s almost been forgotten that “poker-only” used to be a key designation for PokerStars, especially when the uncomfortable subject of serving the U.S. market came up.
While the international iGaming competition was offering all sorts of real-money games online (though none in the U.S.), PokerStars and former competitors Full Tilt Poker and UltimateBet stuck faithfully to online poker. This was not only a business decision, but a legally useful one too. For years, Stars, Tilt and the like maintained that peer-to-peer online poker was a game of skill, and thus not subject to U.S. laws governing “unlawful gambling.”
Then came Black Friday, which did a lot to damage the reliability and appeal of the poker-only approach. With the massive U.S. market no longer to be looked after, and the worldwide poker market in a general state of decline, it must have dawned on PokerStars that maybe it was time to try something new. The company did not want to continue losing “wallet share”—online gamblers of various stripes were coming to Stars for their poker fix, but going somewhere else as soon as they felt like placing a sports bet or spinning a roulette wheel.
As early as 2012, PokerStars was polling users about their non-poker iGaming inclinations. Later, Full Tilt Poker was remade into Full Tilt Gaming for the purpose of accommodating casino-style games. It’s important to point out this all predates the intervention by Amaya, since many people in the gaming industry have begun assuming non-poker gaming entertainment was Amaya’s idea.
Hollreiser sets the story straight by confirming that he was “directly involved in discussions and planning for our expansion into casino games and sports betting since 2012. Amaya played no role in these discussions or in the planning until the acquisition was complete. At that time, casino games had been launched globally on Full Tilt and on PokerStars in Spain and we had announced plans to add casino in Italy. We had also announced plans to add sports betting before the Amaya deal was done.”
If it hadn’t been for PokerStars’ prior interest in casino-style games, the Amaya deal may not have happened as soon as it did. Hollreiser claims Baazov “began seriously pursuing PokerStars in 2013 after meeting with Mark Scheinberg, when PokerStars was seeking casino software partners for Full Tilt’s move into casino games.”
It may not have been Amaya’s idea to expand to so many forms of gaming, but in keeping with the mission from its original conception, Amaya is now preparing to take the concept of converged gaming entertainment and test it on a massive, unprecedented basis. Over several conference calls, Amaya management has stressed how committed it is to introducing very strong and competitive iGaming conferences to complement the PokerStars brand.
No doubt this seriously alarms competitors. However, there may also be some widely applicable usefulness from the results. For years, the industry has tried to crack the convergence code, hoping to determine just how many online poker players could be cross-marketed to online casino games, and vice versa. International iGaming operators who supply many kinds of games have drawn conclusions from their own experiences, but none could ever afford the luxury of a sample size 89 million large. Amaya now can.
Real-money gaming is only part of the equation. Social gaming and free-to-play products can be strong assets for Amaya if leveraged properly, says Adam Krejcik of Eilers Research.
“PokerStars and Full Tilt have some significant brand equity,” he says. “A big challenge for any company entering into social gaming these days is brand and name recognition. You’re much more inclined to click and download an app if you know it or have heard of it before. PokerStars leads in discoverability.”
Amaya now possesses access to a “user base of millions of players all over the world,” Krejcik points out. “That doesn’t mean all these players will suddenly go social, but the database they’ve built is enormously valuable nonetheless. Also, this is now a very large company, with access to significant cash to invest in sales and marketing. The biggest challenge for most social gaming apps today is customer acquisition. If Amaya and PokerStars want to compete in this space, they can outspend several competitors.”
Zarnett is rather upbeat about the company’s future. “The fact is, they bought an incredible company. It has an incredible database of customers, many of whom spend a significant percentage of their poker wallet on PokerStars, which in turn generates a significant amount of EBITDA. Their conversion of that into cash is extremely high—approximately 92 percent.”
Things can thus seem universally rosy over in Amayaland. And indeed, they’ve got plenty going their way. But this hasn’t kept some observers from pointing out potential challenges. One of them has been the question of whether Amaya will need to withdraw PokerStars from certain “gray” markets.
The most hotly debated example is Canada. Amaya is headquartered and publicly listed there, plus licensed and regulated by the gaming authorities in several Canadian provinces. PokerStars, on the other hand, has offered real-money online poker to Canadians for years without any regional licensing or formal approval. They’ve been undisturbed for years, but as soon as Amaya assumed ownership and thus responsibility, many have waited to see how the Canadian government, at either the federal or provincial level, might react.
If Amaya was ever in any regulatory danger, it’s been invisible to every outsider so far. Still, there are those who believe the operation of an unlicensed iGaming service in Canada is in contravention to specific sections of the Canadian criminal code that prohibit unlicensed internet gaming activity. Much like the American states, Canadian provinces can differ greatly in their predispositions toward internet gambling. Earlier last fall, the Quebec government issued a report noting how challenging it would be in practice to enforce a blanket ban on offshore iGaming operators active in Canada.
Elsewhere, Ontarian lawmaker Charles Sousa has called for a review of the offshore iGaming issue. In his conversation with Vardi, Baazov maintains Amaya discussed the acquisition of PokerStars with Canadian regulators and “got comfort” to continue to operate.
Out of all the “kings of online gambling,” David Baazov seems to be the most modest. He says he sees online gamers less as “players” and more as “consumers” with a common interest in online gaming. With this view in mind, Baazov has big plans to go Las Vegas on iGaming—he teases a future where gaming revenue makes up less than half of Amaya’s total revenue.
What can that possibly mean? Hollreiser sheds some light: “Amaya was conceived as a consumer technology company that would acquire consumers in the converged online and offline worlds we inhabit,” he says. “To date, Amaya has worked within the gaming space and now leads in this category. That will not change, and PokerStars management is laser-focused on maintaining its leadership in poker, while growing in additional online games, including casino, sports betting and social.”
Mirroring much of what Hollreiser says, Zarnett has his own ideas about what’s best for Amaya in the near future. “I believe what they should do now is stay focused on executing their plan—to remain the best in online poker, while expanding their platform into casino and sports betting.”
In spite of advice like Zarnett’s, the gaming industry barely got a chance to catch its breath before reports suggested Amaya was considering acquiring another iGaming giant—this time, the longtime international competitor to PokerStars, Bwin.Party Digital Entertainment.
Other suitors are reportedly in the mix—but it’s too soon to form a very clear idea about what, if anything, will come out of it. From now on, however, it is likely to be a whole lot harder to underestimate what Amaya and its intrepid founder and CEO David Baazov are capable of achieving.