February 14, 2012
As a privately held company, the walls of secrecy surrounding senior management and the operations of Poker Stars were rarely challenged before the United States Department of Justice cracked down on online poker last year.
In the Government’s April 15, 2011 indictment, the US Attorney for the Southern District of New York finally honed in on the former “Big Three” online poker companies—Poker Stars, Full Tilt Poker, and Absolute Poker/Ultimate Bet—in a bid to end online poker in the United States and put key executives of these companies in jail.
The Government trumpeted its penetrating years-long strip search and invasion of the most private parts of their operations. Poker Stars was the largest and most popular online poker site when the Government tore into the industry and remains the only one of the three online poker companies attacked currently operational.
Basic Results of Research
It should come as no surprise to Poker Stars that broad segments of the poker world are fascinated by the company beyond the carefully spun historical perspective found in the 10th Anniversary brochure of the 2012 Poker Stars Caribbean Adventure. Not uncharacteristically, Poker Stars customers have developed an insatiable appetite for details about the inner workings and the operations of a company that has made a few of their corporate officials fabulously rich.
Reports from current and former employees, consultants, business partners, Team Pro players, and media brought many verified vignettes that highlight the secretiveness of the company. The various accounts share a common theme; they all indicate a core value of camouflage that permeates so many of the company’s significant initiatives. For the uninitiated, here are a few eye-openers into the enigmatic world of Poker Stars operations and management.
Isai Scheinberg controls the presentation of Poker Stars’ image
While Poker Stars is officially overseen by several senior executives, Isai Scheinberg, the company’s founder is the boss of bosses, ever present at the top of the food chain. Generally affable and low key among colleagues, he is also known to have a stubborn streak on points that matter to him, be they large or small.
As the chief architect of their image, Mr. Scheinberg promotes the company’s mantra as a “players are first” type of organization. He also promotes the concept of business partnerships where meeting the spirit of a contract is as important as the letter of the agreement. One company consultant kids, “Isai Scheinberg’s last name might as well be Poker Stars!”
When it comes to communication between Poker Stars and the media, Scheinberg has always been reserved, but since Black Friday, PokerStars’ position toward media is clear: the best press coverage is none. This past spring the company brought in public relations specialist Eric Hollreiser; he serves as communications director. He brings extensive public relations experience to Poker Stars, including stints at Guitar Hero, Microsoft, and Disney during the past decade.
A personal comment about the appointment of Hollreiser as Communications Director: Following publication of an article in Poker Player Newspaper not to the company’s liking, Hollreiser emailed me in a manner that plainly suggested internal pressure from the very top. Demands for deletion of copy were summarily dismissed. Lawyers who reviewed the email cringed at its imprudence. Although I have not heard further from Hollreiser, there has been limited communication between Scheinberg and me since then.
Mr. Hollreiser’s experience was decidedly less stressful with a high profile reporter in the mainstream press who calls him professional and helpful. He gets mixed reviews, however from upper level employees of Poker Stars; a barrage of calls to this reporter came in from Poker Stars personnel shortly after they were directed not to talk to Poker Player Newspaper.
These days PokerStars legal affairs are complex. The in-house legal department is led by Paul Telford as General Counsel. He was previously at Party Gaming. One lawyer who has known him since his earlier career at a big English law firm says, “Paul brought high value as an independent thinker.” He observes, “In recent years, Paul seems more focused on his boss’ directional signals.” One Poker Stars executive comments that Telford keeps a steady gaze on the activities of competitors and beats the drums for Scheinberg, making him the ultimate loyalist but a less fierce consigliere. As an example of this latter issue, an outside lawyer who has done work for Poker Stars says, “The five legal opinions obtained by Poker Stars supporting the company’s continued US-facing operations might have benefitted from a tougher, more independent in-house final review than they apparently got.”
Poker Stars’ mounting legal problems—failure to get the North American Poker Tour firmly off the ground, repetitively seized funds from its payment processors, public warnings from the FBI and leaks of a grand jury convening in New York to consider online gambling matters—never resulted in any lawyer convincing Scheinberg to take a step back until the DOJ pounced. To the end, the public message was all’s well for online poker in the US even if no concrete progress was made in passing favorable legislation in the Congress.
PPA is beneficiary of PokerStars Funds via the IGC
PokerStars’ fascination with politics and the political maelstrom in Washington and elsewhere has never waned. The company has persistently put forward various political initiatives and fund raising activities that some of the lobbyists surrounding Poker Stars understood to reflect strictly corporate, not player, objectives. Few poker players are sophisticated politicos, even among those active in the Poker Players Alliance. Indeed, very few of the million plus members are believed to have any clue as to how they became enrolled.
The PPA was set up by the founders of Party Gaming to avoid legislation adverse to their online poker business around the end of 2005. Over time, Poker Stars and Full Tilt Poker became equal partners in contributions made to the PPA through the Interactive Gaming Council. The IGC earmarked their contributions for that purpose and transferred them over to the PPA accordingly, explains a well-informed member of the IGC. The funds that were sidetracked did not go unnoticed for long. In no other part of PokerStars activities have their intended secrets been more compromised.
Members of Congress and their staffs were never in the dark about how PPA’s membership grew, or who called the shots—but the poker world has been mostly left in the dark. Much was made of the election of Alphonse D’Amato as the Chairman of the PPA, but wiser folks later confirmed Senator D’Amato cut his deal with Sheinberg.
The PPA was long on secrecy and short on transparency for years. The online sites that controlled the organization used to conduct free roll tournaments that provided players with free memberships, ostensibly to create the appearance of a wildly swelling grass roots movement. Those efforts have more recently paid off, as poker players are far more interested in the PPA today than they were before Black Friday.
More Mixed Messages
The skill vs. chance argument swirled around in the hallways of the US Congress and went nowhere. Now, in Europe however, there could be a disaster in the making for live tournament players and PokerStars casino partners. While former American customers still rave about Poker Stars’ fast refunds to their player accounts after Black Friday, French players are beginning to bristle over new income taxes on poker tournament winnings.
The Company has been cozying up to French regulators, arguing for poker as a game of skill rather than one of chance. In doing so, winning windfalls may be taken out of a tax free category and instead considered as ordinary income as is the case for other professionals.
Will Poker Stars seek to reduce the Company’s taxes in return for great advice provided to European regulators on how to extract more from online poker, at player expense?
Poker Stars casino partners may also be in for a rude awakening, if this skill argument persists. The ideal scenario for Poker Stars would be to prevail on the “poker as a game of skill” argument, thus taking poker out of the legal class as a gambling activity. That would disengage these casinos as necessary partners so that Poker Stars could put on tournaments in hotel ballrooms of their choosing instead of in licensed gambling halls or elsewhere under a casino partner’s license, where the casino makes money on the buy-ins. Imagine the entire European Union following in the footsteps of Poker Star’s French regulatory connection.
Mandate for Media
The three pronged takeaway from recent research: Poker Stars’ mastery of the art and science of camouflage is at the heart of its unfathomable success; the use of such tactics may be at the heart of the DOJ’s charges and continuing investigation of online poker.
For the time being, media is more dependent than ever on cultivating reliable insider sources—and digging deeper each time a nugget is unearthed. If the media persists and perseveres, walls of secrecy inevitably come tumbling down.