Quoted

Dec 7, 2012

WSJ Quotes Ifrah on PokerStars Acquisition Hopes of Atlantic Club Casino

“PokerStars Is in Talks to Buy Casino”

WSJ.com – Wall Street Journal

December 6, 2012

By Alexandrea Berzon

Four months after PokerStars spent $731 million to settle a Justice Department lawsuit, it is in advanced talks to buy a casino in the hope that New Jersey gambling regulators will let it run online-poker games legally.

The online-poker giant is discussing a deal to buy the struggling Atlantic Club Casino Hotel, formerly the Atlantic City Hilton, from investment firm Colony Capital, several people familiar with the matter said. One of these people said the purchase price being negotiated is less than $50 million.

The deal is still weeks away from coming together and could still fall through, that person said.

A deal could bring about a significant re-entry into the country for a onetime poker giant in the U.S. and much-needed investment for struggling Atlantic City, but it faces significant legal and regulatory hurdles.

This past August, PokerStars agreed to a $731 million settlement with the Justice Department, which had accused the company of bank fraud, money laundering and illegal gambling. The company, based in the Isle of Man, has denied wrongdoing and settled without admitting to any wrongdoing. The company’s founder, Israeli entrepreneur Isai Scheinberg, remains under indictment on related criminal charges.

Mr. Scheinberg has remained out of the country and hasn’t been arrested. Under terms of the settlement, he stepped down from management duties but is allowed to remain an adviser. His son is now the chairman of PokerStars and manages the company’s operations. The company hasn’t disclosed whether the elder Mr. Scheinberg retains equity or other details of its ownership structure, but one person familiar with the matter said the elder Mr. Scheinberg isn’t an owner.

People familiar with the deal say it hinges in part on a bill in the New Jersey legislature that would legalize online gambling in that state—but only for gamblers in New Jersey and on sites operated by Atlantic City casinos. Supporters expect both houses of the state legislature to vote on that bill before the end of the year.

New Jersey Gov. Chris Christie vetoed a similar bill in 2011. He indicated this year that he is open to signing an Internet gambling bill with proper protections but has also expressed skepticism that it is constitutional without a public vote.

PokerStars developed into the world’s biggest poker company in part by continuing to take bets in the U.S. long after most other major online-poker companies cleared out of the country due to the federal government’s stance that taking bets was illegal.

The company said it didn’t believe federal law prohibited online-poker operations. It has licenses that allows it to operate legally in other countries, such as the U.K.

It built up significant brand recognition in the U.S. by promoting famous poker players and sponsoring poker television programming on a major broadcast network. The company stopped taking bets in the U.S. after it was sued by the Justice Department in April 2011.

The settlement reached this year with the federal government states that nothing in it precludes PokerStars from re-entering the U.S. under a legal online-poker system. PokerStars also now has the ability to operate under another major poker brand—Full Tilt Poker—that it acquired as part of the settlement.

“Those provisions clearly permit PokerStars to offer real-money play under a licensed regulatory scheme provided by a state and participate in New Jersey,” Jeff Ifrah, an attorney for PokerStars, said Thursday.

The online gambling bill in the New Jersey legislature was recently amended to allow companies like PokerStars that had recently operated in the U.S. to participate in online gambling, but the company would still have to receive a license from New Jersey gambling regulators.

People involved in the discussions for PokerStars to enter New Jersey say representatives for the company have discussed their interest with state gambling regulators and believe they have gotten an initial indication that the company and its executives could be licensed. These people said they believe that Mr. Scheinberg, the indicted founder, wouldn’t have to receive a license.

A spokeswoman from the New Jersey Division of Gaming Enforcement wouldn’t comment on whether regulators have discussed the plan.

“If a deal is reached and application made by any persons expressing interest in the Atlantic City market and its related activities, a rigorous investigation of any company and all principals will be conducted,” said Lisa Spengler, a spokeswoman for the New Jersey Division of Gaming Enforcement.

A deal enabling PokerStars to offer online poker in New Jersey could disrupt current planning for the online poker market in the U.S. due to PokerStars’ status as an established brand for online poker. Several major casino companies, such as Caesars Entertainment Corp. CZR -1.23% that owns the popular World Series of Poker brand, also hope to offer online poker. The outlook for the market, however, is still unclear. So far only Nevada has created a regulated online poker environment, with bets limited to people within the state. Several other states, such as California, are also considering online poker legislation. Some key U.S. senators are also pushing to pass a bill by the end of the year in the U.S. Congress that would allow casinos to operate online poker in states that agree to it, but their efforts are seen as a long shot.

In New Jersey, proponents of a state online gambling system have long argued that the bill would create a shot of much-needed investment into a struggling market and could help save jobs by allowing another business opportunity for those who own casinos.

Atlantic City gambling revenues have declined for the last few years as other states around it have added casinos, and the recent hurricane, which made landfall in Atlantic City, made matters worse despite minimal physical damage.

The Atlantic Club lost $13.6 million on its operations during the first three quarters of the year. With few interested investors on the horizon, some industry insiders have speculated that it might close.

PokerStars in October said it had taken an equity stake in a London casino, the Hippodrome Casino.