At the end of the day, it's a game. It's business. It has nothing to do with "right" or "wrong," and everything to do with the interests of the parties involved. And this is true regardless of which side you're on.
Back in January, with an eye on the potential online gaming market in New Jersey, Isle of Man-based Rational Group -- parent company of PokerStars, the dominant online poker room operator -- launched a bid to acquire the struggling Atlantic Club Casino Hotel on the Atlantic City Boardwalk from Colony Capital. The transaction -- thought to be in the $50 million range -- is reportedly contingent on Rational Group's receiving a grant of Interim Casino Authorization from the New Jersey Division of Gaming Enforcement, or DGE, which is essentially preliminary approval to acquire the Atlantic Club before receiving final approval from the New Jersey Casino Control Commission.
On Feb. 26, New Jersey Gov. Chris Christie signed legislation legalizing full-scale online casino gaming in New Jersey, with the requirement that any company seeking to operate online in the state must own a brick-and-mortar casino in the state. And perhaps most notably, the version of the bill signed into law did not include a "bad actor" clause present in previous versions of the bill (as well as the new online poker legislation enacted in Nevada), which would otherwise have precluded PokerStars -- which continued to operate in the United States following the passage of the Unlawful Internet Gambling Enforcement Act of 2006 -- from applying for an online gaming license in New Jersey.
But on Monday, the American Gaming Association, or AGA -- the lobbying group representing virtually every casino operator in America, including Caesars Entertainment (NASDAQ: CZR ) , MGM Resorts International (NYSE: MGM ) , Las Vegas Sands, and Boyd Gaming -- filed a brief with both the New Jersey Casino Control Commission and DGE seeking to block PokerStars from obtaining a license to operate a brick-and-mortar casino in New Jersey and thus effectively block PokerStars from operating in the newly legalized New Jersey online gaming space.
Without getting into too much detail, the brief essentially argues that PokerStars "operated as a criminal enterprise" and that the integrity of the U.S. gaming industry would be "gravely compromised by any regulatory approvals of PokerStars."
The move marked the first time the AGA has ever intervened in a state casino licensing proceeding, and it has caused an uproar in the online poker community, which appears to strongly support PokerStars in the matter. Meanwhile, New Jersey state Sen. Jim Whelan has alleged that Caesars Entertainment is using the AGA as its "vehicle" to shut PokerStars out of the market.
But while there seems to be much debate over the nuances of the AGA's arguments, the details are mostly irrelevant.
It's really not any more complicated than this:
- Caesars is a member of the AGA -- as are MGM, LVS, Boyd Gaming, and virtually every casino operator and gaming equipment manufacturer in America except for Wynn Resorts (NASDAQ: WYNN ) -- while PokerStars is not.
- PokerStars picked the Atlantic Club Casino Hotel because the purchase price is only $50 million or so, New Jersey was on the verge of legalizing online gaming, and the state might be the only one in the Union desperate enough to let them in.
That the poker community seems to back PokerStars in the matter says a lot about both Caesars and PokerStars. On one hand, it says that while Caesars' brands -- most notably the Caesars, Harrah's, Horseshoe, and World Series of Poker brands -- are high on name recognition, Caesars itself has a very weak reputation as a gambler's brand; the simple fact is that if Caesars had such a strong reputation among gamblers, gamblers wouldn't be clamoring so hard for PokerStars.
PokerStars, on the other hand, seems to have a well-deserved reputation as a player's brand.
Making matters more interesting, an article appeared in Forbes on Monday citing "sources familiar with PokerStars" in saying that Caesars Entertainment had offered both the Rio hotel and casino in Las Vegas and the World Series of Poker to PokerStars.
While I don't doubt that Caesars offered the Rio to PokerStars, I am highly skeptical that Caesars offered the WSOP, if only because Caesars' entire online poker operation is predicated on the strength of the WSOP brand. Meanwhile, the words "World Series of Poker" or "WSOP" do not actually appear in the quote used in the story, leaving author interpretation as a more likely source of the inclusion of the WSOP in the alleged offer:
"Caesars Entertainment approached PokerStars and offered to sell us certain assets, such as the Rio Casino in Las Vegas. Caesars suggested that this acquisition would give us a better relationship with Caesars and would help PokerStars gain a license in Nevada," said Eric Hollreiser, a PokerStars spokesperson, in a statement. "PokerStars declined the offer because we had no plans to acquire another casino in the near term."
Regardless, there are other problems for PokerStars other than Caesars Entertainment and the AGA.
Brick-and-mortar: Genting vs. Poker Stars
Let's assume for a moment that the AGA is wrong, and that PokerStars is entitled to consideration for licensure. The first problem for PokerStars is that the license in question is a license to operate a brick-and-mortar casino, and not an online casino. And this is a problem not just because winning a brick-and-mortar license doesn't necessarily guarantee that PokerStars will win a license to operate online, but also because for the process to be anything but a joke, PokerStars must win a brick-and-mortar license on its own merit.
And if you are the New Jersey Casino Control Commission or Division of Gaming Enforcement, you need to think about what PokerStars is offering.
On Monday, Boyd Gaming announced the sale of its Echelon Place project and its 87-acres of Las Vegas Strip real estate to Malaysia-based Genting for $350 million. But not only did Genting pony up $350 million, the company also announced plans to spend between $2 billion and $7 billion on a large scale, Asian-themed casino resort that will stretch the usable Las Vegas Strip once again past the Wynn/Encore to the north, and could ultimately launch the next wave of development in Las Vegas.
PokerStars, on the other hand, has intimated no such grand visions for Atlantic City, saying only that "The acquisition of the Atlantic Club Casino Hotel will secure up to 2,000 jobs and maintain the economic benefits the casino brings to New Jersey."
So PokerStars has neither a track record nor a demonstrable expertise in operating a full-scale brick-and-mortar hotel casino (the company does have some experience with brick-and-mortar poker rooms). It is also yet to demonstrate intent to do anything in Atlantic City other than keep the Atlantic Club afloat for the sole purpose of operating online. And unless PokerStars comes forth with a grand plan for the redevelopment of the Atlantic Club, I suspect the company's argument for a brick-and-mortar license will be quite weak.
The other 49 states
As a casual onlooker, the other question you need to ask is how many of the other 49 states would allow PokerStars in.
While the terms of the offer Caesars may have made to PokerStars are unknown, there is an obvious reason PokerStars would reject it: PokerStars has no chance of operating in Nevada in the short term, if ever -- the language of the state's new gaming laws is written explicitly to lock out PokerStars. Meanwhile, nobody (aside from maybe New Jersey politicians) seems to really have any incentive to let PokerStars in.
I think the probability is that any legislation with regard to online gaming in every state other than New Jersey will probably be designed to protect the incumbents.
The game is a game is a game
It's tempting to get caught up in the nuances of the arguments, but in this case I think it's a waste of energy. As I said in the opening: It's a game. It's not a question of morality, or right and wrong. It's not even a question of hypocrisy.
The fact is that people will make the arguments they need to make when it suits them.
As Ian J. Imrich pointed out in a tweet, the AGA didn't bat an eye when Wynn Resorts moved to partner with PokerStars or when Station Casinos moved to partner with Full Tilt before Black Friday in April 2011, but it now sees fit to intervene when PokerStars is clear on the other side. On the other hand, in 2010, the New Jersey DGE effectively forced MGM to sell its 50% stake in the Borgata in Atlantic City because the DGE found MGM's partner in Macau, Pansy Ho -- the daughter of Macau casino magnate Stanley Ho -- to be an "unsuitable partner," even though the DGE admitted that there was no evidence indicating that Pansy Ho has been engaged in or accused of any illegal activity (MGM has yet to sell its half). Yet now, the DGE seems willing to consider PokerStars as a casino operator in the state despite the company's past transgressions -- and it also appears amenable to allowing MGM to regain its license.
The one thing that seems clear is that if PokerStars is going to make a play to enter the U.S. online gaming market, it needs to win this battle in New Jersey, because it's doubtful that any other state is desperate enough to let PokerStars in. I do suppose that if PokerStars has enough influence to get the "bad actor" clause removed from the legislation, it's also possible that New Jersey is weak enough to let this happen.
But if New Jersey does, in fact, find that PokerStars is fit to own a casino in New Jersey, the state probably needs to demand far more than stable ownership and the status quo from PokerStars. Otherwise, it will be an open debate going forward as to whether New Jersey is a leader in the online gaming revolution, or merely the biggest pushover state in the Union.
For more gaming-industry coverage by Jeff Hwang, check out:
- Sorry, Mr. Online Poker, Nobody Cares About You
- G2E: On Value Investing and Macau Casino Stocks
- On Pinnacle, MGM, and the Bidding War for Ameristar