PokerStars doesn’t give up easily. In 2006, when Congress passed the Unlawful Internet Gambling Enforcement Act, making online gambling illegal, the site stayed put, offering its games to Americans on the premise that poker is a game of skill (which is true — in the long run; in the short run, of course, poker outcomes are often determined by simple luck). In 2011, when the Department of Justice shut down online poker for real, PokerStars paid a fine of $731 million, but admitted to no wrongdoing — and kept on the alert for their next opportunity to get back onto U.S. computer screens. Now, with the legalization of online gambling within the borders of New Jersey just a Chris Christie signature away from reality and Atlantic City casinos posed to be the entities that run the sites, PokerStars’ parent company has applied to purchase an Atlantic City gambling den.
Its targeted casino, the Atlantic Club, ranks among the biggest dumps in A.C. (and, in light of the city’s general decrepitude, that’s saying something). Last year the Atlantic Club was 10th out of 12 casinos in terms of revenue, with a gross operating loss of $13.6 million during its first nine months. Until December 2011, it was known as the Atlantic City Hilton, but Hilton yanked the licensing agreement. A Hilton spokesperson told the Press of Atlantic City that the chain needs to “protect its name and identity.” No wonder, then, that the joint’s owner, hedge fund Colony Capital, had been shopping it around with a bargain-basement asking price that is said to be below $50 million. There doesn’t seem to be much reason for PokerStars, which doesn’t operate any other casinos (though it does have a minority stake in London’s Hippodrome Casino), to want the Atlantic Club besides as an inroads for setting up online gambling in New Jersey. (The law would make all online versions of Atlantic City games — not just poker — legal within state borders.)
The $50 million asking price would be a mere pittance for Stars, which ranks as the world’s most popular online poker site, with a total value that’s been estimated at $2 billion. (It says it’s dealt 85 billion hands since its inception in 2001, which is somewhere around 13,000 for each minute it’s been online.) The site’s founder, Isai Scheinberg, left a senior programming job at IBM to launch the company, which took off in a big way after Chris Moneymaker, an accountant from Nashville, came from out of nowhere to win the 2003 World Series of Poker. Moneymaker got to the World Series via a seat that he won on PokerStars with an investment of just $40; overnight, Moneymaker became a role model for young players, with Stars their favored site. Considering what it could earn as an online casino in New Jersey — according to U.K.-based data service H2 Gambling, total online gambling revenue should amount to around $140 million in year one alone, and PokerStars’ brand recognition would seem to make it a strong candidate to get a very big chunk of that change — the $50 million price for the Atlantic Club is a good deal.
It’s conceivable but unlikely that New Jersey authorities might reject the purchase of a casino by a group that’s been in legal trouble, says I. Nelson Rose, a professor at Whittier Law School in Southern California and a gambling-law expert. “Thirty years ago I would have said that nobody involved with illegal gambling could get a casino license,” Rose said. “But that has changed. Now everybody seems to think that if enough time has passed and you change your executives, then it’s OK.” (PokerStars’ Scheinberg has stepped down from active management and handed the reins to his son.)
Nonetheless, the deal in Jersey is not a lock. Though the state legislature has approved legalization, this will not be the first time that such a bill has been on Governor Christie’s desk. Two years ago, he was presented with a similar proposal and turned it down because the bill specified that some online gambling revenues would be diverted to the horse-racing industry, which Christie opposed; he also said he was concerned that people might gather together to gamble online at internet cafés. “He’s making up an issue that doesn’t exist,” said Raymond Lesniak, a Democratic senator who boosted the bill at the time.
Christie has said he has concerns about the current bill, as well: that it will encourage people with gambling addictions to lose even more money, and that Atlantic City businesses might be hurt if potential casino customers don’t have to leave home for their gambling fixes. But he’s also said that helping the A.C. casino industry is a priority, and the casinos favor legalization. On his “Ask the Governor” radio show on Jan. 22, he said he has not yet made a decision on the bill, but he’ll have to decide by Feb. 7, the last day on which he could veto it.
Rose, for one, thinks that PokerStars will eventually win over both Christie and the New Jersey Casino Control Commission. “The odds for PokerStars are very good,” he says, pointing out that the site, despite running what the U.S. government said was a massive, illegal operation, managed to make amends without admitting wrongdoing via an agreement that left open the possibility that they could do business in America. “Stars has been smart and lucky, and history is on its side.”
- And how well do you know what happened in the news this week? Take our quiz.