What the PokerStars Amaya Deal Means for US Online Poker

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Home / International / PokerStars / PokerStars Bought by A maya For $4.9bn: A nsw ers, Implications and Speculation

PokerStars Bought by Amaya For $4.9bn: Answers,Implications and Speculation By Chris Grove on June 13, 2014 07:50 PDT @OP report

Contents [show ]In news that has upended the global balance of power in the online gambling

industry, Amaya Gaming has reached a deal to purchase the Rational

Group , parent company of PokerStars and Full Tilt Poker.

Read the email from PokerStars CEO Mark Scheinberg announcing the sale to employees here .

Details of the purchase valued at $4.9bn were made available by a statement issued by Amaya on June 12th. Additional details are available via a presentation Amaya gave the followingmorning, which you can review here (free signup required).

In this article, Im going to answer some of the que stions surrounding the deal and outlinesome possible implications stemming from Amayas proposed acquisition of Rational.

Inside the dealHow long has the deal been in the works?David Baazov , CEO of Amaya, said that he approached Rational almost a year ago aboutforming a combined company.

In an email to PokerStars employees , Mark Scheinberg said there had been more than six monthsof negotiations between the parties.

Thats an interesting timeline, as it basically places the start of negotiation within days of thepublic announcement by the DGE that the agency was suspending PokerStars license application .

The implication is clear: Suspension in New Jersey was the proverbial straw that broke the camels

back, tilting the internal scales at PokerStars in favor of a sale.

When will the deal close?Both parties have indicated that the deal is expected to close by the end of September 2014.

Baazov said the deal will require some regulatory approvals, primarily some select European

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jurisdictions, but indicated that he doesnt expect any issues.

What does Amaya get in the deal? Amaya acquires the Rational Group and everything that entails, including:

PokerStars.

Full Tilt Poker.

A number of live tournament poker events, including the European Poker Tour,

PokerStars Caribbean Adventure, Latin American Poker Tour and the Asia Pacific

Poker Tour, along with branded poker rooms.

A wide array of media, content and programming.

What about PYR Software?PYR Software, the Isai Scheinberg-founded company understood to be the tech development armof Rational, was not mentioned in the official release or presentation by Amaya. WickedChops isreporting that PYR is, in fact, part of the sale.

Not announc ed anywhere yet, but PokerStars/Isais PYR Software is part of thesale, according to sources. PYR is basically the development and support systemfor PokerStars. Read more about it here and here .

How is Amaya paying for the deal?The deal is an all-cash purchase. Per a slide from Amayas presentation, the financing breakdowngoes like this:

$1.642 billion of equity in the form of $1bn in convertible preferred shares and

$642mm of common equity.

$2.9bn of committed debt, including $2.1bn in senior secured credit facilities and

$800mm in a second lien term loan.

Remainder is cash and cash equivalents.

More details about the financing structure are available in the press release .

The cost of the financing was not released, and Baazov declined to offer any details on the costduring the call announcing the deal.

Bloomberg claims that Mark Scheinberg owns 75% of Rational .

Who faces the biggest threat from this deal?If the purchase smooths the entry of the PokerStars and Full Tilt brands into the regulated U.S.market and that is a big if competing operators and competing B2B suppliers have the most tofear from the newly-expanded Amaya.

The stock of bwin.party has dropped some 10% since the news broke. 888 saw a similar dipfollowing the announcement.

The return of the exiled poker giant, wrote FitchRatings in a research note , would inhibit theonline poker ambitions of big US based operators such as Caesars Entertainment, Boyd Gaming

and Station Casinos.

Thats true. But its also true that licensed casinos will be the gatekeepers to online gambling inmost states. And therein lies an opportunity for at least one land-based casino operator.

Could this lead to a PokerStars / Caesars partnership?The deal results in two bridges between PokerStars / Full Tilt Poker and Caesars that werentthere before:

Amaya is a platform and content supplier to Caesars New Jersey online casino.

Thats a close relationship that goes beyond Amaya simply licensing a few slot

titles to Caesars.

Of the groups facilitating financing for the deal, Macquarie Capital , Deutsche

Bank and The Blackstone Group are also financial partners of Caesars.

A few other points to consider:

Caesars has indicated in the past that their poker platform relationship with 888 has

a shelf life . And its not clear that the company is pleased with how the platform has
http://www.sec.gov/Archives/edgar/data/1575879/000119312514078869/d680906d8k.htmhttp://investor.caesars.com/secfiling.cfm?filingID=1193125-14-192596&CIK=858339http://www.amayagaming.com/2013/09/agreement-with-caesarscasino-com-in-new-jersey/https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=834843https://www.google.com/finance?q=LON%3A888&ei=wWmgU5D3HIiHqgGggIHQBghttps://www.google.com/finance?q=LON:BPTYhttp://www.bloomberg.com/news/2014-06-13/pokerstars-scheinberg-becomes-billionaire-on-sale-to-amaya-1-.htmlhttp://www.amayagaming.com/2014/06/amaya-agrees-to-acquire-rational-group-owner-of-pokerstars-and-full-tilt-poker-for-4-9-billion/http://www.pyrsoftware.com/http://www.forbes.com/2010/02/10/internet-gambling-pokerstars-business-beltway-pokerstars.htmlhttp://www.pyrsoftware.com/http://wickedchopspoker.com/amaya-pokerstars-acquisition-whats-next/


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performed to date.

Its also an open question how long Caesars and 888 can continue cooperating

as B2B partners while competing as B2C operators.

A major software upgrade would likely prope l WSOP.com to the top of the New

Jersey market and strengthen WSOPs hold on Nevada perhaps weakening

Ultimate to the point of near-failure.

If the deal closes, Amaya will own 3 online poker plat forms: Ongame, Full Tilt Poker

and PokerStars. That will provide them with the flexibility to work with multiple

partners simultaneously .

The dispute between PokerStars and Caesars was in many ways a deeply personal

one . Removing some of the personalities involved could rapidly improve the

relationship.

Caesars has been allegedly willing to deal with PokerStars in the past if the

terms were favorable.

Caesars needs regulated online gambling to do well, and quickly.

PokerStars has an established partnership arrangement with Atlantic City casino Resorts thatmight complicate any PokerStars-related dealings between Caesars and Amaya. Thats where theflexibility of having both the PokerStars and Full Tilt Poker platforms could come into play.

A partnership between Caesars and PokerStars / FTP isnt a fait accompli. But its certainly far more possible now than it was before Amayas planned purchase of PokerStars was announced.

Will this deal allow the PokerStars brand / software to enterNew Jersey?Id say yes assuming the divestiture of Mark and Isai Scheinberg is as total and clean as theannouncement suggests it will be.

DGE director David Rebuck provided the following statement to John Brennan at NorthJersey.com :

The Division is aware that current New Jersey authorized Internet gaming provider, Am aya Gaming Group, is acquiring the assets of PokerStars.Regulatory integrity is always paramount to the Division and we will review all aspects of this acquisition to ensure compliance with our high regulatory standards. We are also encouraged by this development and the expanded opportunities it might provide for New Jerseys Internet gaming industry.

When the DGE announced the decision to suspend PokerStars NJ application in December, theyalso laid out the roadmap for Stars return. Key excerpt:

The Divisions determination is based primarily on the unresolved federal indictment against Isai Scheinberg for the alleged violation of federal gamblingstatutes, namely, the Illegal Gambling Business Act and the Unlawful Internet Gambling Enforcement Act (UIGEA), and the involvement of c ertain PokerStarsexecutives with Internet gaming operations in the United State following theenactment of UIGEA.

As this deal sees all previous owners of PokerStars including Isai Scheinberg exit the companyin the transition, it would appear to satisfy the DGEs call for divestiture by Scheinberg and certainPokerStars executives.

David Rebuck , head of the DGE, has previously referred to the decision to suspend PokerStarslicense application as a tough one and that the PokerStars product was better than anythingweve tested elsewhere in comments to GamblingCompliance.com .

That all sounds good, as far as it goes. But PokerStars competition will no doubt apply whatever pressure they reasonably can to delay the rooms entry. And, as former Nevada Gaming Controlchief Mark Lipparelli told Gigse.com, the fine details of the deal structure will matter to most USregulators.

Amaya is a licensed content and platform provider in New Jerseys iGaming market. Baazov saidthat PokerStars would be able to be operating in NJ within a short time following DGE approval.

Will PokerStars and Resorts maintain their New Jersey deal post-sale?No word yet from Resorts , although its difficult to imagine them walking away now after sticking byPokerStars through the tough times .

As for Amaya, they seem intent on continuing with the deal. A slide from their presentation
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outlining the sale notes that the [e]xisting Rational Group partnership with Resorts Casino Hotelwould allow launch of online poker operations in New Jersey within weeks if and when regulatoryapproval obtained.

What impact would PokerStars have on the NJ market?The New Jersey online poker market is currently down roughly 50% from the markets peak inJanuary. The entry of PokerStars would ignite significant interest in the short-term and push themarket back to, and perhaps even beyond, that peak.

The site would immediately be a contender for the top traffic spot.

But PokerStars cannot change the facts on the ground in New Jersey. They cannot expand thepopulation of the state. And their immediate impact on issues such as payment processing willlikely be minimal.

Ultimately, PokerStars will reinvigorate the New Jersey market in the short term and expand themarket in the long term. But a large chunk of their traffic, likely the majority, will be siphoned off from other rooms. This reality could result in the closure or merger of existing rooms, and willcertainly discourage additional rooms from entering the market.

Would NJ players be able to play against international players on PokerStars?Not as things currently stand.

The player pool for PokerStars NJ or Full Tilt Poker NJ would be limited to individuals located withinthe state. There would be no interaction with players on the international PokerStars / Full TiltPoker platforms.

Theres certainly some potential in the long run for that sort of player pooling, but its difficult tosee the pieces coming together until a few years (at a minimum) pass. State-based player sharingwill be the first step toward international player pools, and even those agreements are still in thehypothetical stage at this point.

What about California?Trickier business there.

Amaya believes that the purchase will expedite the entry of PokerStars and Full Tilt Poker intoregulated markets in which Amaya already holds a footprint, particularly the U.S.A.

Sounds good. But proposed legislation in California excludes not only operators, but also

intellectual property such as brands and software connected to online bets taken from the USmarket after December 31st, 2006.

So-called bad actor clauses with such broad scope would, at first glance, continue to blockPokerStars including the software platform from participation in the market despite todaysdeal.

But theres reason for optimism as well:

If the deal does swing the relationship between Caesars and PokerStars / Amaya

from adversarial to cooperative, the bad actor clause could quickly become a paper

tiger or vanish altogether.

Amaya has existing relationships with several California tribes. For example, its

Cadillac Jack subsidiary provides Wide Area Progressive products to the California

Nations Gaming Association , which includes San Manuel and Rincon, among

dozens of other tribal nations.

John Mehaffey has offered up one potential workaround should bad actor

provisions make it into the final bill: Amaya could develop a new online poker platform

that builds on the institutional knowledge the company has just acquired.

And if New Jersey does approve PokerStars, that could make it tougher for bad actor proponentsto justify their position, a fact not lost on California Gaming Control Commissioner RichardSchuetz , who told Gigse.com that:

Dave Rebuck and his team at the New Jersey Division of Gaming Enforcement (DGE) will be one of the first to evaluate this contemplated new entity. This isone of the finest regulatory agencies in the world, with sophisticated investigatory assets and a strong comm itment to m aintaining a positive imagefor the industry.

One would have to think that their view would be a powerful voice in how this new entity fits within the US regulatory model.

Above emphasis mine.
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We wont have to wait long to find out. The window for California online poker in this session closesat the end of August.

Will PokerStars and its partners continue to fight bad actor clauses?Its unclear what impact, if any, the purchase will have on PokerStars proposed partnership withthe Morongo Tribe and California cardrooms the Bike , Commerce and Hawaiian Gardens andthe coalitions anti-bad actor clause advocacy.

The coalition may well remain intact as a commercial enterprise. But it seems inevitable thatPokerStars focus will be consumed by planning and executing the sa le and that new owner Amayawill be more interested in building bridges rather than burning them.

That suggests well see a softening of the public rhetoric over this issue from the corner of PokerStars and its California partners.

And other states like Pennsylvania, Illinois and New York?The same analysis from California applies equally here.

If Caesars decides that PokerStars is no longer an enemy post-sale, then well see a relaxing of bad actor approaches as bills move forward in those (and other) states.

A settlement between Isai Scheinberg and the DoJ would also help remove bad actor clauses fromthe legislative lexicon going forward.

Does this deal accelerate US online poker regulation? Again, we return to the issue of what relationship Caesars will have with the new owners of PokerStars. If all parties are speaking with one voice, the process becomes an easier one.

But ultimately disagreements between PokerStars and Caesars are not the only, nor the primary,roadblock to online gambling regulation in the United States. A host of other issues and opponentspopulate that line ahead of the issues between the two, and those issues and opponents willremain regardless of this deal.

So, short answer: Yes, but just a little.

How much was PokerStars making?From the press release:

In calendar years 2012 and 2013, Oldford Group recorded revenues of $976million and $1.1 billion, respectively, and adjusted EBITDA of $342 million and $420 million, respectively. Its cash flow from operations in 2012 and 2013 was$267 m illion and $317 million, respectively.

A slide from Baazovs presentation offers some additional information:

The release offers no further level of detail.

The lions share of the that most certainly came from PokerStars, although contributions of Full Tilt
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Poker to the revenue were likely material. Estimating the income from tours is trickier.

What changes for PokerStars and Full Tilt Poker players?Not much, at least not in the short-term with one major caveat (more on that below).

Much of the current teams at Stars / FTP are expected to be maintained. Per the statement:

Rational Groups executive management team will be retained and online poker services provided by PokerStars and Full Tilt Poker will be unaffected by theTransaction, with players continuing to enjoy uninterrupted access to their

gaming experience.

A letter sent by PokerStars to Isle of Man authorities reinforced the point:

As you know, PokerStars is a consum er facing business which m eans there islittle or no overlap between the two companies that would lead to joblosses. The stated intention of Amaya is business as usual and to leave thingsunchanged as much as possible. I can therefore confirm there are no planned redundancies. On the contrary, the clear intention of the acquisition is to takePokerStars on to even greater heights with plans for launches of new productsand expansion into new territories, particularly in the US should more statesintroduce applicable legislation. Such plans will likely lead to growth and jobopportunities for the talent that exists in the local market in addition to

providing likely increased revenues through direc t and indirec t taxation.

Read the letter here .

One major caveatThere are some questions about Amayas continued presence in the Canadian market and other so-called grey jurisdictions that lack a clear regulatory scheme for online gambling.

Some regulated operators have exited the Canadian market in recent months (and others haveleft only to quickly return ). Read more about the Canadian legal context for online poker atPokerFuse .

As a publicly traded company, Amaya would probably face more pressure to exit such marketsthan the privately-held PokerStars.

But its business as usual for PokerStars and FTP in Canada, for now at least. A PokerStars rep

on TwoPlusTwo confirmed that the sites would remain open to the Canadian market, saying Westill plan to serve all current markets, including Canada, and to work to grow the game of poker globally.

Will Isai Scheinberg settle with the DoJ now?Rumors that Isai Scheinberg is discussing a settlement with the DoJ have been swirling for months.This deal could represent a step in that direction, providing ready cash for a settlement and(arguably) a greater motivation for Isai Scheinberg to close the chapter completely.

A deal would almost certainly come with an eight or nine-figure fine attached. All parties involvedare no doubt keen to reach a resolution, as none benefit at this point from the saga nowboasting a running time over over three years dragging on.

What does Isai Scheinberg look like?Questions about Isais appearance have become something of a running joke in the industry, asphotos of the PokerStars founder have been few and far between over the years.

But we now have an image of Mark and father Isai circa 2013:

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Chris Grove - Chris is the co-founder and an editor of OnlinePokerReport.com. He'swritten for dozens of gambling publications and has been involved with variousaspects of the online poker industry since 2004.

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What the PokerStars Amaya Deal Means for US Online Poker