PokerStars’ decision, this week, to sell itself to Amaya Gaming, a nondescript Canadian company, for $4.9 billion, shows that the firm accepted the reality that it was widely viewed by U.S. regulators as damaged goods, and that it faced an extreme uphill battle to re-enter the US market.
PokerStars’ hopes of entering California, the latest U.S. state to consider online poker, collapsed last week when 13 of the state’s 14 major Indian tribes came out supporting a bill that contains “bad actor” language, which would prevent PokerStars from even applying for a licence. The Morongo tribe, which formed a coalition with PokerStars this spring, was the only gaming tribe in opposition.
Since the tribes maintain exclusive control over gaming in California, PokerStars was in need of a miracle just to be considered. The conspicuous timing of its merger with Amaya shows that PokerStars viewed defeat in California as inevitable under the current circumstances.
Access to California is crucial for both competitive and regulatory reasons. By itself, the state is the world’s eighth largest economy and has the market-moving size to be a requisite starting point for any firm seeking to establish a footprint in the U.S. Also, since state regulators often copy one another, being shunned in one jurisdiction means more questions to answer in another.
A failure in California, widely considered to be the crown jewel of the U.S. online market, would make getting a license anywhere else in the U.S. nearly impossible for PokerStars – especially after being shut out of New Jersey, Nevada and Delaware last year in light of similar concerns about its dodgy legal history in the U.S.
But PokerStars certainly has good reason to cry foul and complain of unfair treatment in California: The “bad actor” clause can be seen as nothing more than a protectionist measure directly targeting them. PokerStars blasted the language as anti-competitive and said it would do whatever it could to oppose the measure, but at the end of the day, thirteen against one was not a winnable fight. The company concluded it would stand a better chance of obtaining a licence by reinventing itself under the umbrella of an obscure, yet clean, Canadian firm.
Depending on what side you take, the tribes’ unwelcoming posture was due to either a genuine concern over PokerStars’ legal baggage or to pure protectionism. Both are legitimate arguments. With Sheldon Adelson’s coalition pushing back against online gaming legislation by invoking horror stories of widespread addiction, accessibility to children, and the proliferation of bottom-feeding bad actors, maintaining a squeaky clean image upfront is an absolute necessity.
PokerStars does have its share of skeletons in the closet. It was expelled from the U.S. after the 2011 “Black Friday” crackdown by the Justice Department. In 2012 it settled allegations of bank fraud, money laundering, and violations of gambling regulations by paying $731 million, but without admitting wrongdoing.
To this day, PokerStars maintains that it did nothing wrong by continuing to offer online poker services after the passage of the 2006 Unlawful Internet Gambling Enforcement Act, though other offshore poker operators pulled out of the U.S. The company itself has never been convicted of a crime, though two of its top executives remain under indictment by the FBI.
On the other end, gaming is sadly one of the few means of economic livelihood for California tribes, and they protect it fiercely. They are worried that the little that they have will be taken from them if more powerful actors get access to their market.
There is also plenty of historical precedent for Native Americans’ agreements with foreigners not turning out in their favor, so the tribes’ protectionist sentiment is not completely irrational. One can make the argument that the reason PokerStars has its competitive advantage in the first place is because it operated illegally in the US for five years, consolidating market share in the absence of other law-abiding operators.
Since the bad actor clause, as written, applied only to PokerStars, the new Amaya Gaming conglomerate figures to stand as much of a chance as anyone to be considered for a license in California and in other U.S. states where the PokerStars brand is equivalent to a scarlet letter. So the merger was truly a move by PokerStars of the calibre “ace up the sleeves”. It now places the ball squarely in the tribes’ court. If they are truly determined to keep PokerStars out of California, they will have to find a new way to do so.
