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New Jersey approval of PokerStars could boost online wagering prospects

14 Oct 2015

By Howard Stutz
Amaya Inc.'s $4.9 billion wager is about to pay off.

New Jersey gaming regulators, after an intensive licensing investigation that lasted more than year, gave approval to offer Internet gambling in the state on Sept. 30.

PokerStars is viewed as the elixir that could revive the stagnant U.S. Internet wagering market that never lived up to its predicted lofty financial potential.

Last week, the Division of Gaming Enforcement released an 89-page investigative report detailing some of the unprecedented steps Canada-based Amaya agreed to accept in order to bring PokerStars and its affiliated Full Tilt brand back to the U.S. gambling consumer in a legal and regulated fashion.

PokerStars and Full Tilt — under separate ownership — operated illicitly in the U.S. following the passage of the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). Federal prosecutors shut down access to the sites by American players in April 2011 during the Black Friday crackdown on illegal Internet wagering.

Isle of Man-based Rational Group, the then-parent of PokerStars, paid a $731 million settlement to the U.S. Department of Justice 16 months after Black Friday, without admitting to any wrongdoing. That same year, Rational Group acquired Full Tilt. Amaya acquired Rational Group in August 2014.

Since the settlement, PokerStars had been angling for a return to the U.S, after Internet gaming was legalized in Nevada, New Jersey and Delaware. Other states, including California, New York and Pennsylvania, have considered legalizing forms of online gaming, but the efforts have gone nowhere.

Nevada regulations include a "bad actor clause" which has a five-year prohibition for companies that accepted wagers from Americans after UIGEA, i.e., PokerStars.

The approval of PokerStars by New Jersey's Division of Gaming Enforcement wouldn't have happened without Amaya taking ownership of the company. The company, traded publicly on the Toronto Stock Exchange, was listed on the Nasdaq earlier this year.

New Jersey gaming regulators concluded that Amaya's "robust compliance and control environment ... led to a finding of suitability." However, one of the conditions called for Amaya to cut ties with four executives still tainted by PokerStars' history.

In a memo to employees, Amaya CEO David Baazov called the approval "a significant milestone for the group and something we should all be very proud of."

Eilers Research gaming analysts Adam Krejcik and Chris Grove wrote in a research report the New Jersey sign-off doesn't immediately guarantee Amaya will get PokerStars licensed in other states, such as California. PokerStars has a joint venture agreement with two Indian tribes and several card rooms to operate online poker activities.

But the blessing was a good beginning.

"Had it not been approved in New Jersey, we believe the odds of ever getting licensed in other states would have been incredibly low," they wrote.

It's unclear when PokerStars and Full Tilt will be up and running in New Jersey. The sites have a joint venture partnership with Resorts Atlantic City.

"We're now assessing launch timing and have not provided any details as yet," Amaya spokesman Eric Hollreiser said in an email.

Amaya won't stop in New Jersey.

Eilers Research said the launch will take place next year, but it could be more symbolic than lucrative. The New Jersey approval gives Amaya "an incredibly valuable document that will help answer its critics in the media and in state capitols."

Poker-only Nevada has just two Internet poker websites operating. A third site ceased business a year ago. New Jersey's online poker market has been in a steady decline for the last year-and-half. California's potential Internet poker regulations contain a Nevada-style "bad actor clause." Krejcik and Grove suggested the the bill is hung up on issues between Indian tribes and the state's horse racing industry.

PokerStars, considered the world's largest online gaming website, and Full Tilt have an estimated 95 million users and control some 60 percent of the legal online gaming market, primarily based in Europe. They were the undisputed industry giants in the U.S. when play was cut off by Black Friday. Many of those former American players would once again like a seat at the virtual table.

Krejcik and Grove speculated the New Jersey launch will revive talks of player-pooling across multiple states. But that could "complicate" matters.

"Competitors may be loath to open the door to such a significant edge," they wrote.

Still, Eilers Research expects Amaya's emergence to "precipitate a material reshuffling of the landscape for regulated online gambling in both the U.S. and abroad."

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