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PokerStars Eyes Back Door In New Jersey

Online poker giant eyes Atlantic Club

PokerStars Eyes Back Door In New Jersey

As the congressional impasse over a federal bill to legalize online poker deepens, individual states are stepping up to legalize intrastate online gaming and/or poker.

Delaware and Nevada have each legalized a form of online wagering. As New Jersey is poised to become the next state in line, instantly making it the largest state to legalize online gaming, operators and suppliers are wondering how to get involved. And since the New Jersey law will only permit licensed Atlantic City casino operators to open online casinos, the world’s largest online poker room has a plan.

Last month, PokerStars applied for a gaming license in New Jersey because it has agreed to purchase the Atlantic Club casino at the far western point of the Boardwalk. The former Atlantic City Hilton, owned by Colony Capital, has been struggling over the past few years, and the decline has accelerated since the Hilton name was removed last year. Sources tell the Wall Street Journal that a price of less than $50 million has been agreed upon, but did not say whether that price includes $20 million in pension liabilities that any new owner must inherit.

Despite efforts to reposition itself as a “bargain” casino, the Atlantic Club lost $13.6 million during the first three quarters of the year. Management laid off nearly 100 workers less than a month ago, and some analysts have speculated that it could be the first casino to close due to slumping business since Trump World’s Fair went out of business in 1999.

Significant legal and regulatory matters need to be resolved before PokerStars completes the purchase. PokerStars was one of the online gaming sites that continued to accept U.S. wagers following the passage of the Unlawful Internet Gambling Enforcement Act in 2006, and was one of the companies indicted in the “Black Friday” crackdown in April 2011. The company last August agreed to pay the U.S. Department of Justice $731 million to settle the claims without admitting wrongdoing. The DOJ had charged PokerStars (along with Full Tilt, Absolute Poker and several payment processors) with bank fraud, money laundering and illegal gambling.

While the company has avoided the charges, its founder, Israeli businessman Isai Scheinberg, remains under indictment on related criminal charges. As part of the DOJ settlement, Scheinberg stepped down from a management role, but remains an adviser while his son was elevated to CEO. To receive a New Jersey license, PokerStars would have to submit detailed financial and ownership information to state regulators, who are known to be among the toughest in the world.

New Jersey was the one jurisdiction that rejected MGM Resorts as a license holder because of that company’s relationship with Pansy Ho, the daughter of Macau gambling magnate Stanley Ho. Would regulators hold Scheinberg’s son to the same standards they held Ho’s daughter? That is far from certain at this time. The elder Scheinberg clearly would be ineligible for a license as long as the indictment remains in place. He has not been arrested, since he has not entered the United States since the charges were brought.

The deal is contingent upon New Jersey passing an online gaming bill and Governor Chris Christie signing it. Christie vetoed a similar bill in early 2012, and it’s unclear if the new bill has addressed his concerns at that time, which include a prohibition on setting up “cyber cafes” across the state where gambling would be conducted online.

 

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