PokerStars left the US market on April 15th, 2011 – a date commonly referred to as Black Friday in the poker industry – after its .com domain was seized by the Department of Justice, as well as the .com domains of Full Tilt Poker and Absolute Poker/Ultimate Bet.
Since Full Tilt Poker was out of money – in fact, it was missing about $128 million of player deposits – PokerStars settled without admitting any wrongdoing for $731 and they received Full Tilt’s assets as a part of the deal (so The Rational Group, owner of PokerStars, now owns Full Tilt Poker as well).
Why Was the PokerStars Domain Seized?
On that day, 11 individuals – Isai Scheinberg and Paul Tate from PokerStars included – were charged with violating the Unlawful Internet Gambling Enforcement Act (UIGEA) and the Illegal Gambling Business Act (IGBA). Allegedly, PokerStars was one of the companies that “tricked” banks into processing online poker payments, for example, by portraying the payments as online retail purchases.
On April 20th, PokerStars received its .com domain back after agreeing to prohibit US players from participating in real-money online poker games and to allow US players to cashout their money. By the end of April, US players could cashout their money from PokerStars. US Attorney’s Office still has ultimate control of the domain and PokerStars now operates on a .eu domain (pokerstars.com redirects to pokerstars.eu).
On July 31st, the US government, Full Tilt Poker and PokerStars settled the case. Full Tilt Poker would transfer all of its assets to the government, which would then be transferred over to PokerStars, while PokerStars agreed to forfeit $547 million to US government over the next three years. All civil complaints against PokerStars (and Full Tilt, which essentially is PokerStars after the deal) would be dismissed with prejudice. In addition, PokerStars promised to make available $184 million for Full Tilt US customers to withdraw from the site.
Interestingly, PokerStars admitted no wrongdoing in the settlement. It’s still debatable if they actually broke the UIGEA — after all, it prohibits processing “unlawful online gambling payments” and there’s no federal law that makes online poker “unlawful.” (Some states have made online poker illegal within their boundaries, though but that surely doesn’t apply to all of United States of America online poker.)
Criminal charges against individuals remained the same and Isai Scheinberg was ordered to step away from a management position at PokerStars within 45 days. Even though a big part of the reason why PokerStars wanted to settle the case was to get back into the US market should it ever become legalized and regulated, the fact that there are still charges against Scheinberg have halted the chances for PokerStars to get licensed in New Jersey.
The Aftermath of PokerStars USA Exit
A week after PokerStars US customers were restricted, PokerStars saw a 25% decrease in traffic while Full Tilt Poker saw a 40% drop. Other non-US sites saw a boost in traffic: Party Poker‘s traffic, for instance, increased 9%.
All the PokerStars advertisements were taken away from the US – understandbly so – and lots of poker TV shows got canceled since PokerStars was involved in them and no longer saw the value in it. PokerStars even lost the ESPN sponsorship and was about to cancel the otherwise popular High Stakes Poker show on GSN.
ESPN took a lot of poker programming out of its schedule and World Series of Poker became just about the only ESPN poker show available. In general, there was much less poker advertising in the USA and should online poker legalized in enough states to make TV advertisements and such worthwhile, we may just have another poker boom in our hands.
PokerStars remains as the #1 online poker room in the world by a wide margin even without USA players: it has about 10 times as much player traffic as the online poker room with the second highest traffic. They have tournaments with astonishing prize pools (I recommend reading some tournament tips before trying them yourself).
Attempts to Re-Enter the US Market
PokerStars wants to return to the US market badly – which is understandable considering the size of the US online poker market – but they’ve had a lot of resistance so far. (In fact, the primary reason they settled with the DOJ for $731 million was to ensure a return in case online poker is legalized in the US.)
When legal online poker in New Jersey seemed to become a reality, PokerStars wanted to be ready to start conquering the US market again. However, only licensed Atlantic City casinos are allowed to operate online poker games in the state and the servers have to be located within the brick & mortar casino. Since PokerStars lacked ownership in any Atlantic City casino, the plan was to buy itself into becoming a licensed Atlantic City casino.
PokerStars, Atlantic Club Casino and AGA:
So in December 2012, it was reported that PokerStars was negotiating the purchase of Atlantic Club Casino, a struggling Atlantic City often re-branded to get a “new start” (previously known by names such as Golden Nugget, ACH and a few others). While PokerStars undoubtedly was interested in the deal because of the chance to operate online poker games in the state, they also wanted to open a modern live casino.
It looked like PokerStars was well on its way to New Jersey until the AGA (American Gaming Association) filed a brief to the New Jersey Casino Control Commission and a petition to the Division of Gaming Enforcement (DGE), stating that PokerStars is not suitable to operate online poker in New Jersey and that PokerStars’ application should be denied. The brief even mentioned that the individuals in the PokerStars application are not suitable even though those individuals were never charged with anything.
According to Eric Hollreiser, Head of Corporate Communications for the Rational Group (the company that owns PokerStars), they were approached earlier by Caesar’s Entertainment (the company that owns the WSOP brand). PokerStars were offered the Rio Casino in Las Vegas and the WSOP brand to promote online but they declined.
Turns out, Caesars Entertainment plays a big part behind AGA’s actions (source). For interesting information about AGA and its motives, read this fantastic article.
In the end, Atlantic Club Casino backed out of the deal after both parties going back and forth — in fact, Atlantic Club filed for bankrupty protection shortly afterwards.
PokerStars and New Jersey License:
PokerStars, meanwhile, received more bad news as DGE suspended PokerStars from operating online poker in New Jersey for two years, although they “may consider a request for relief to reactivate the application if significantly changed circumstances are demonstrated at which time the Division’s investigation of Pokerstars and its affiliated entities and associated individuals will be resumed to assess suitability.”
Therefore they may actually get to participate in New Jersey online poker within that two years, but exactly what needs to change?
“The Division’s determination is based primarily on the unresolved federal indictment against Isai Scheinberg for the alleged violation of federal gambling statutes, namely, the Illegal Gambling Business Act and the Unlawful Internet Gambling Enforcement Act (UIGEA), and the involvement of certain PokerStars executives with Internet gaming operations in the United State following the enactment of UIGEA.”
Scheinberg – PokerStars founder who has since been forced to step down from a management role per the PokerStars settlement with the DOJ – is still personally charged for bank fraud and money laundering. (The settlement only cleared PokerStars’ charges as a company and had no effect on individual charges.)
PokerStars and Resorts Club Casino:
In July 2013, it was announced that PokerStars had partnered with Resorts Club Casino in Atlantic City. While they’ve still been unable to get a license to operate in New Jersey, the partnership means one less hurdle to go for PokerStars. They’re also planning to open a $10 million live poker room and are also looking at purchasing a casino property in Atlantic City. The timing of all of these developments depends on when PokerStars gets the license.
In a sense, they were in a better position to receive a license with Atlantic Club Casino because it was about to fold so PokerStars would have essentially saved hundreds of jobs and likely created hundreds more. Now, with Resorts Club Casino, they’re looking to become an online poker operator just like everyone else (although opening a new poker room is bound to create some jobs, obviously).
I’ll add to this story as soon as I hear about new developments.
PokerStars and Nevada:
You might wonder, as I did, why is PokerStars not trying to get into Nevada? Apparently, companies that operated in the US after December 2006 (year of the UIGEA) are required to wait five years before they’re allowed to operate online poker games in Nevada. Fortunately for PokerStars, Nevada is a relatively small state when compared to the likes of California, Pennsylvania (which may legalize online poker soon) and even New Jersey.