PokerStars Wins Court Ruling Keeping Casino Purchase Alive
It's been a long month and even longer pursuit for the online poker giant PokerStars to get back into the US gaming market once again. First they decided to purchase a land-based casino in New Jersey for an estimated $50 million. This would enable them to get a gaming license in the state of New Jersey and own a big brick and mortar casino. Initially, things were looking good for PokerStars until the deal went sour when they ran out of time to get approval to buy it; and then they had to regroup the legal team and try to keep the purchase option alive.
Then on May 6th, they won a temporary court order that barred the owner of the casino Colony Capital from ending their sale agreement with Stars and could not legally approach other potential buyers. The parent company for PokerStars is the Rational Group Ltd., and they were in a good position to stay in the ring and fight to keep the battle on in buying the casino with no competition in sight or offers: "This step has been taken to protect Rational Group's rights and interests under the purchase agreement and reflects the Group's desire to complete the acquisition of the Atlantic Club," Eric Hollreiser, a spokesman for the company, said in an e-mailed statement. It was back in February of this year when Chris Christie signed the online gaming bill in law and started the process of regulating the market for companies that want to set up shop legally. One of the major requirements for an online gaming operator to enter this US market is to have a physical presence there in order to apply for the license.
The Atlantic Club Casino had been losing a lot of money over the last few years and was ready to hand over the keys to a legitimate buyer. But it was the American Gaming Association that opposed the deal and fought hard to make sure it didn't happen. Regardless, the casino was having difficulty selling the property due to $30 million in unfunded pension liabilities and declining gaming in Atlantic City over the last seven years. Not only that, but the Rational Group agreed to continue paying operating expenses up to $750,000 a week or until the deal closed. Overall, the Rational Group has put up $11 million into the deal so far even though Colony terminated the deal on April 26th and are seeking the remaining $4 million of the purchase price to be used for a termination fee. But in early May, the court ruled that the Atlantic Club Casino could not pursue other buyers and must stick to the deal with Stars until an agreement has been met.
As everyone in the industry knows, things can change quickly in the online gaming business and doing business in the US is no exception. Just in the last few days of May, the courts have now ruled that Colony Capital can scrap the deal with the Rational Group even after they paid $11 million to keep it going until the deal closed. So it looks like Stars is out of pocket on this deal. They were unable to get approval buy April 26th to allow them to own a land-based casino, so that gave the Capital Group leverage to terminate the deal and look for other buyers. Now the courts are saying it's ok to keep the money and move on to find more. The restraining order is no more and the Atlantic based casino is free to do what they want. "We saved their butts," Wayne Positan, a lawyer for The Rational Group, told the judge. "And we got the short end of the stick." He said it was like the casino said: "Let's take that money and the heck with those guys. Ha, ha, ha."
PokerStars is learning quickly that it won't be a cake walk to get into the legal US market and that they will have to make sure they are getting into bed with the right people before making any deals. Not only that but as part of the preliminary agreement is that the money is non-refundable. The Atlantic Club Casino sees it a different way and feels it has the right to keep the money, "They (Rational) took the risk they could get it done," Atlantic Club lawyer Tariq Mundiya told the judge. "They couldn't get it done, and now they want to rewrite the contract. Once that date came and went, Your Honor, all bets were off."
So, it looks like PokerStars will have to write off the $11 million and begin pursuing the purchase of another land-based casino in order to get their foot in the door and get an online gaming license in New Jersey. They've obviously learned a big lesson; that it's not going to be easy to play by the rules in the US as they make more attempts to reenter the market and become a legal and regulated online poker company.