GPWA Times Magazine - Issue 24 - April 2013

We have a “situation” here The GPWA’s Vin Narayanan and Aaron Todd debate the merits of PokerStars’ application to purchase the Atlantic Club Casino in New Jersey. I n January, PokerStars confirmed it was at- tempting to buy the Atlantic Club Casino Hotel in New Jersey. The purchase price for the casino on the famed Atlantic City Boardwalk is reportedly less than $50 million. When PokerStars made the offer to buy the ca- sino, the deal faced two major stumbling blocks: 1. New Jersey needed to adopt legislation that would license and regulate online gaming in the state. 2. New Jersey’s notoriously tough regulators needed to approve the purchase. In February, Gov. Chris Christie eliminated the first stumbling block when he signed into law legislation that authorized Atlantic City casinos to offer online gambling to New Jersey resi- dents. The legislation allows Atlantic City casi- nos, and Atlantic City casinos only, to offer any games played on the casino floor at the brick- and-mortar facilities. But the second stumbling block still looms large. PokerStars continued to accept bets from American players after the passage of the Un- lawful Internet Gambling Enforcement Act (UIGEA) in 2006 and didn’t exit the U.S. mar- ket until it was forced to by the Department of Justice as part of the Black Friday indictments in 2011. Many legislators, regulators and gaming in- dustry insiders view PokerStars’ decision to stay in the market post UIGEA unfavorably. In fact, Nevada banned companies like PokerStars from being eligible for an online gaming license for five years. And in March, the American Gaming Associa- tion (AGA) announced its opposition to Poker- Stars’ acquisition of Atlantic Club, calling Pok- erStars a “criminal enterprise for many years.” Atlantic City casinos are not expected to “go live” with online gaming until the end of 2013 at the earliest. Regulations still need to be writ- ten, examined and adopted. Licenses still need to be issued. And systems still need to be tested for compliance. But the most important developments in the New Jersey online poker scene won’t have any- thing to do with who gets to the market first or how the regulations are written. The most important thing yet to be decided is if PokerStars will be allowed to purchase the Atlantic Club. If they are, the world’s largest online poker room will have a foothold in the U.S. If not, they’ll have to find another way in. In a heated e-mail exchange, GPWA Editor-in- chief Vin Narayanan and GPWA Senior Edi- tor Aaron Todd discuss whether PokerStars should and will be licensed in New Jersey, and provide some insights into what to expect as this story unfolds. VIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaron, Whether New Jersey should approve Poker- Stars’ purchase of the Atlantic Club and wheth- er the state will approve the purchase feel like two questions that should be hopelessly inter- twined. But they’re not. The “should” question involves considering three different philosophical issues: 1. Should the law enshrine a certain business model? 2. Aremorality and ethics relative or absolute? 3. Cheaters never prosper. The “will” question requires you to think like a regulator, whose only job is to enforce the stan- dards set out by the legislature. I know – that’s not a pretty head space to be in. But that’s how you have to think to answer the will question. And for most regulators, it’s the cheaters-nev- er-prosper issue that will be the primary hurdle before PokerStars. Let’s take the “should” question first. The reason we have a regulated gambling in- dustry in the United States is to protect the consumer AND insure criminal elements are not profiting from gambling or laundering money through gambling establishments. But this century, those regulations have taken on an additional role – protecting land-based casinos from online competition. If the gaming industry hadn’t been protected by a massive regulatory scheme, it would have been forced to compete with online casinos the way bookstores competed – and ultimately lost – against Amazon. It would have been forced to compete the way the music industry did be- fore losing out to Apple. And it would have been forced to compete the way Blockbuster did – which eventually lost to Netflix. Instead, the American gaming industry watched the Internet transform every sector of the world economy, except for their own. And if the global economy had not tanked, forc- ing gaming companies and states to desperately seek new lines of revenue, online gaming might still be on the outs in the U.S. Instead, online gaming had to scratch and claw its way into the U.S. Normally, legislators don’t like to choose win- ners and losers in business. They prefer to let the market decide. That’s one of the big reasons federal online poker legislation has stalled. It’s clearly been written to benefit the Vegas casino companies at the expense of regional casinos and Native Americans. But state legislators have shown no such qualms in picking winners and losers. The New Jersey legislation, much like the Nevada legis- lation, was designed to benefit existing stake- holders. In the case of New Jersey, that means the Atlantic City land-based casino operators. There were two driving factors behind protect- ing the Atlantic City operators – one legal and one constitutional. New Jersey’s constitution requires all gambling in the state to happen in Atlantic City. And Gov. Chris Christie had made saving the gaming in- dustry in Atlantic City a political priority. That intersection of political and legal realities created a system that allowed only land-based Atlantic City casinos to operate online gaming sites while shutting out European operators. Sure, European operators can provide the soft- ware and operational expertise, but they can’t own and operate the site. That’s what makes PokerStars’ acquisition of the Atlantic Club so interesting from a philosophical standpoint. They found a way to beat a system stacked against them. I don’t like regulations being used to protect industry from competi- tion. Regulations are meant to protect society, individuals and consumers. Instead, these regu- lations are being used to protect wealthy com- panies from competition. And I can’t stand that. 44 We have a “situation” here