Analysis: PokerStars' NJ snub has wider implications
Martyn Hannah, deputy editor of eGaming Review sister publication eGR North America, outlines some of the consequences of PokerStars' New Jersey snub
This time last year PokerStars and the Atlantic Club Casino were leading the charge across the line for egaming in New Jersey. But 12 months on the Atlantic Club Casino is trying to battle back from the brink of bankruptcy, and PokerStars has had its application for licensure in the state suspended for two years by the Division of Gaming Enforcement (DGE). It is a stunning shift in momentum that is likely to be felt throughout the egaming industry for a long time to come.
The immediate impact for players will be slim given the array of poker and casino sites now on offer, however for operators PokerStars’ absence is a genuine boost to their chances of success. It would have been a high-profile and immensely popular competitor, with a hefty marketing budget to stake its claim for market share. Yet with the online poker market already bigger than that in Nevada, it seems unlikely that egaming as an industry in the Garden State has been weakened by the DGE’s decision.
“New Jersey is a strong market regardless of the companies that are licensed to do business in the state,” says Joe Brennan, executive director at consultancy Industrial Strength. “There may be some dissatisfaction among poker players that wanted to see PokerStars come back to the market, but it’s unlikely they will decline the opportunity to play with one or more of the other operators.”
Substantial fight
The decision’s impact on PokerStars will of course be much greater. The DGE said its verdict was primarily based on PokerStars founder Isai Scheinberg’s unresolved federal indictment over alleged violation of federal gambling statutes, namely the Illegal Gambling Business Act and UIGEA, and the involvement of certain PokerStars executives with internet gaming operations in the United States following the enactment of UIGEA.
Licensure in New Jersey would have been a major step towards overcoming these hurdles, which it is likely to face in other states currently considering legalising egaming. Many have included language in their draft bills aimed at excluding operators who offered bets to US citizens pos-UIGEA. Had PokerStars been licensed by the DGE some states may have reconsidered the severity of their own laws, but as it is the Isle of Man-based firm looks set to have a real battle on its hands if it is to be given the green light in other jurisdictions.
“Most of the other states already seemed hostile to PokerStars in theory, if not in name. Most of the legislation being considered in other states contains prohibitions or ‘penalty box’ for online firms that did prior business in the US, so it was already going to be a substantial fight,” says Brennan.
The bigger picture
However industry experts suggest the regulator may have looked at the bigger picture as egaming continues to roll out across the US. New Jersey is considered by many as a benchmark for a strong, clean, regulatory model. The state knows it is currently under the spotlight and needs to do everything by the book, if it doesn’t it could risk damaging any future partnerships with states who take an even more conservative approach to post UIGEA operators, and specifically PokerStars.
“I think the division is sticking to its statement that it is going to take a very conservative approach to ensure the integrity of its system and the integrity of the people they are bringing in as licensees. The DGE has always been known to be among if not the toughest in the country, so it’s not a departure from the norm,” says Barbara DeMarco, vice-president of Porzio Governmental Affairs.
“Talking to regulators I think if New Jersey had included PokerStars it would impact on some manner decisions in the future, whether it’s in their own state or whether it’s compacting or inter-state agreements. Other states will look at New Jersey and their decision on this in a lot of different ways, not just whether they will provide a licence for PokerStars.
“I think they have taken a more global look if they took that step, and not only what it meant for New Jersey but for the overall roll out of egaming nationally. They have to be consistent and hold it to the same level of accountability as the bricks-and-mortar casinos, and I think this decision is consistent with past bricks and mortar decisions,” she adds.
Down but not out
That’s not to say PokerStars is finished in the US just yet. The poker giant obviously has work to do in order to be suitable for licensure in New Jersey or indeed any state, but the rest of the industry would be foolish to write them off just yet.
“It’s not likely that a firm like PokerStars doesn’t find a way into the US. If anything, New Jersey’s decision makes PokerStars an attractive M&A target. I can’t imagine a single gaming company that wouldn’t look at making an offer for it. That is one way PokerStars could find its way back into the US. Another would be an IPO. It’s too early to shut the door on them completely,” says Brennan.
Every cloud has a silver lining, and the suspension of PokerStars has opened up the chance for another online operator to take its place and partner with Resorts Casino. With eight operators, including Pala Interactive, Scientific Games, and Williams Interactive, deemed eligible for a transaction waiver by the DGE, there is doubtless going to be a few discussions taking place over the coming days and weeks.