The surprise move in the gambits of gaming companies seeking to position themselves for future fortunes in the online and commercial gaming market came last week from an unlikely source, the Atlantic Club Casino and Hotel (ACC) in Atlantic City New Jersey. The casino insulted Rational Group U.S. Holdings (PokerStars), dismissing its friendly bid and preliminary agreement to buy the property, suddenly, as too little too late.
PokerStars did not take the insult or the alleged injury to its plans lying down. On May 5, PokerStars responded with a lawsuit and yesterday the online poker behemoth followed up, marching into court to obtain a temporary restraining order against the casino company [Read the Court Filing]. It was granted a preliminary injunction that prevents a fast sale to any other suitor while PokerStars makes it case to complete the purchase if it can obtain an Interim Casino Authority from New Jersey regulators.
For the moment, PokerStars claims in scathing allegations of bad faith on the part of the ACC, its continued intentions to proceed toward completion of the purchase, noting the considerable investment it has already made in the property.
PokerStars’ plan to purchase the floundering casino/hotel and to sink some 40 million dollars into upgrading it, was upended in an announcement by the Atlantic Club’s Michael Frawley, chief operating officer of the company. The ACC is owned by Colony Capitol.
Last Wednesday, Frawley announced that PokerStars’ conditional purchase agreement for the property had expired. He further explained therefore the Company terminated the deal pursuant to the terms of the agreement. The termination notice had been served on PokerStars several days earlier.
Atlantic Club Pats Itself on the Back
It appeared that PokerStars was caught flat-footed by Frawley’s statement, which bluntly rejected PokerStars as a suitor. But it turns out that PokerStars was more cunning than mystified when it referred to a “purported notice” of termination received from the ACC.
Frawley exuded confidence in his words, saying, “The advent of New Jersey’s online gaming legislation has changed Atlantic City’s future for the better, and The Atlantic Club is absolutely going to be a part of that future.” Frawley gave further insight into his company’s mindset by noting, “The Atlantic Club’s 2013 revenue and net revenue trends are proof positive that customers are rediscovering us and our popularity is higher than ever.”
PokerStars responded by referencing a “confidentiality agreement” as making it “inappropriate to comment” on the matter. A probing media corps was not buying that idea as anything other than a refusal of transparency as to what occurred.
PokerStars Communications Director, Eric Hollreiser, soon changed course, effectively, pre-empting any accusation against his company of reverting to its old ways of stonewalling media—except when it suited the Company’s goals.
A day later, Hollreiser resurfaced with a more direct and notably candid public statement, saying, “It was the Rational Group’s expectation and understanding, based on the ongoing dealings between the parties, that the closing date would be extended to allow the transaction to be completed.”
The PokerStars statement matched up with the Company’s completion of the final steps of the license application required for purchase of the Atlantic Club—after learning the American Gaming Association had successfully filibustered consideration of the PokerStars license application to a date way outside the April 26 deadline. The Casino Control Commission would have until August 10 to reach a decision, and regulators had, earlier in the month, made that point clear. The further statement also offered an implicit warning to the ACC of troubled waters ahead.
Did ACC Raise Without the Goods?
The Atlantic Club has more than flexed its muscles; its owners appear to have analyzed their increased earnings and the passage of a law to legalize online gaming in New Jersey and concluded the math on the deal no longer added up. According to Poker Stars, in its legal papers today, the New Jersey Casino attempted to obtain an additional 6 million dollars from PokerStars as the bartering chip for a short extension period that would be of no use to PokerStars.
Gaming industry insiders and legislators in New Jersey who have been queried on the collapse of the deal claim that on both sides, big egos and increasingly hostile posturing has gone over the brink. According to one source associated with New Jersey’s bifurcated regulators who have oversight responsibility for casinos, a mess of unparalleled proportions is emerging, making the fracas between PokerStars and the American Gaming Association over PokerStars suitability as a licensee a mere sideshow for the moment.
In retrospect , PokerStars’ comment late last week to media, has taken on new meaning: “The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey.” He did not further explain this grace note but the legal papers say it all.
Poker Stars Has a Big Picture Plan
While the breakdown in the planned deal could not have been anticipated by the public and may not have been foreseen by PokerStars either, Rational Group has been gearing up on multiple fronts to take the U.S. market by storm.
The Company has been building a vast array of relationships in New Jersey, sending out friendly flares to casinos across the country, and murmuring sweet nothings into the ears of potential casino partners and sponsors from one coast to the other. Word from across the pond and across the U.S is clear; PokerStars has big plans to rebuild its footprint in America.
The wheels of justice will move forward in the lawsuit that now exists between PokerStars and the ACC (a hearing is scheduled for May 17).
PokerStars May Still be Valued in New Jersey
While PokerStars cools its heels a bit and re-evaluates exactly how it will reach its goals in the States, the American Gaming Association is taking a victory lap. The AGA has effectively stalled PokerStars’ bid for instantaneous dominance in the re-emerging online gaming world on these shores.
The vast majority of the U.S.-headquartered casino industry has mobilized via the AGA to express its collective complaint against admission of PokerStars into the American gaming fraternity, citing Stars alleged criminality pursuant to the prosecution of its online gambling operations by the U.S. Department of Justice.
Settlement of those claims was effectuated between the parties without agreement as to the innocence or culpability of PokerStars’ conduct established in the settlement papers.
Regardless of the currently swirling charges leveled by PokerStars against ACC, there is still no certainty that Stars will be found suitable for a license in New Jersey.
That said, PokerStars’ promise to bring jobs, civic commitment, and many millions of dollars to the Garden State cannot reasonably be dismissed out of hand by the Statehouse. And, friends of PokerStars say it is not likely that the determined Scheinberg family will recede into the background of a setting sun on the Shore anytime soon.
Additionally, PokerStars’ next move in New Jersey may be tied to other events. Reconsideration of the MGM’s bid for a permanent license is on the table. One former casino regulator who now represents a major casino property predicts, “If the MGM obtains its license, PokerStars’ arguments for a license would get only better (assuming it can arrange a purchase with one of the state’s going casinos). He objects, however, to licensing either company
Unfathomable Outcomes are Possible
In the business and politics of online poker, machinations, twists, turns, and outcomes unfathomable at one moment have been known to become stark reality the next.
In the world of unfathomable, there is always the possibility that Caesars and PokerStars will set aside their penetrating tiff of this past winter. Showboat, a Caesars property is on the block in Atlantic City. If the Atlantic Club deal ultimately falls through could PokerStars come calling on Caesars?
It wouldn’t be the first time arch-rivals in the poker world later acquire a taste for one another.