Online Poker Industry Turned on Its Head Following Sale of PokerStars
In the 16-year history of online poker, there are only a handful of events that have been significant enough that they are worthy enough of being written down in the annals of online poker history. That short-list has now grown by one after the Oldford Group (the parent company of PokerStars and the Rational Group) announced the sale of the company to the Amaya Gaming Group for the princely sum of $4.9 billion.
Without a doubt, the sale of PokerStars is on par with other history making moments such as the launch of Planet Poker on New Year’s Day 1998, UIGEA passage in 2006, April 15, 2011, (aka Black Friday), and the launch of Ultimate Poker on April 30, 2013.
It’s that big a deal.
Early speculation proves to be true
The first rumblings of this deal appeared on CalvinAyre.com in late May[i], but the site has a somewhat dubious track record with these types of prognostications, causing many industry types to dismiss the claims as idle speculation.
For instance, earlier this year CalvinAyre.com took a bit of hit in terms of reliability when the site posted an article claiming the DOJ was ready to cut a favorable deal that would allow Isai Scheinberg to settle his pending case. The article was removed the following day, leading to a few people chastising the site with a Stephen Colbert-style “wag of the finger.”
It should be noted, that following the announcement of the deal, it came to light that the deal had been in the works for some six months, so, CalvinAyre.com deserves a Stephen Colbert “tip of the cap” for being the only outlet that picked up on this trail, and for breaking the story.
After CalvinAyre.com lit the fuse following a sudden surge in Amaya Gaming stock that went from just over $7/share to over $10/share over the course of a single week, culminating with a 14 percent jump on Friday, May 23, smoke turned into fire as Amaya’s stock has continued its upward trend, and with every passing day the industry grew more and more certain that something (there was no consensus as to what was going to happen, but something was going to happen) was going to be announced soon.
On Thursday, June 12, Amaya’s stock was rising so fast (topping $14/share) that the Toronto Stock Exchange halted trades on the company, and sure enough Amaya and PokerStars released an official press release that evening confirming the sale.
The deal: What Amaya gets for $4.9 billion
The sale of PokerStars to Amaya required the issuance of the rarely seen 4,000 word press release[ii], which should be an immediate tip-off that this is a very big deal.
Technically the deal is still in progress, as PokerStars CEO Mark Scheinberg noted in an internal e-mail he sent to PokerStars employees[iii]:
“The sale is subject to regulatory approvals, which we expect to receive in the coming weeks. This means the transaction is expected to be completed no later than September 30, 2014.”
That being said, even with some t’s still needing to be crossed, for all intents and purposes, it is a done deal. Amaya Gaming CEO David Baazov expects the sale to be finalized on or around September 30, 2014, in the press release, and based on all reactions there is seemingly little chance that this deal will somehow fall apart.
According to its announcement, Amaya Gaming is set to receive the entire portfolio of the Oldford Group in exchange for its $4.9 billion payment, including but not limited to:
- Full Tilt Poker
- The company’s live poker tours including the European Poker Tour (EPT), Latin America Poker Tour (LAPT), UK Ireland Poker Tour (UKIPT), and the PokerStars Caribbean Adventure (PCA)
- PokerStars branded poker rooms at the Hippodrome in London, at the City of Dreams in Macau, and at the Casino Gran in Madrid
- PokerStars online and television content and programming
In order to facilitate the deal, Amaya Gaming (a company that had a valuation of around $175 million before the deal) had to raise quite a bit of outside capital, and in addition to a $2 billion first-term lien loan and an $800 million second-term lien loan, the company is releasing $1 billion in preferred shares and over $600 million in common shares.
Key Transaction Highlights from the Press Release
- The transaction will result in Amaya becoming the world’s largest publicly traded online gaming company. The online poker platforms PokerStars and Full Tilt Poker are collectively the world’s most popular and profitable online poker brands with more than 85 million registered players on desktop and mobile devices.
- For calendar year 2013, pro forma combined revenue, EBITDA and adjusted EBITDA1 of Amaya and Oldford Group were $1.3 billion, $474.8 million and $473.8 million, respectively. For 2014, the corporation is projecting pro forma adjusted EBITDA, assuming the transaction had been completed as of January 1, 2014, of between $600 and $640 million.
- The transaction combines complementary businesses with minimal overlap: Isle of Man-headquartered Rational Group’s B2C poker business including PokerStars, Full Tilt Poker, live poker tours and events, and online and TV poker programming; and Montreal-headquartered Amaya’s B2B interactive and physical casino and lottery gaming solutions.
- Under the terms of the transaction, Oldford Group shareholders led by Mark Scheinberg, founder and chief executive officer, will dispose of their shares to a wholly owned subsidiary of Amaya. Mr. Scheinberg and other principals of OIdford Group will resign from all positions with Oldford Group and its subsidiaries on completion of the transaction.
- Rational Group’s executive management team will be retained and online poker services provided by PokerStars and Full Tilt Poker will be unaffected by the transaction, with players continuing to enjoy uninterrupted access to their gaming experience.
- The boards of directors of both Amaya and Oldford Group unanimously approved the agreement.
- The transaction will be financed through a combination of cash on hand, new debt, a private placement of subscription receipts, a private placement of common shares and a private placement of non-voting convertible preferred shares.
- Affiliates of GSO Capital Partners LP (“GSO”), the credit division of The Blackstone Group (BX), have agreed to participate in the debt financing, to subscribe for $600 million in convertible preferred shares, and to purchase $55 million of common shares of the corporation with each common share priced at C$20 upon closing of the transaction.
- An investment manager (the “Investment Manager”), on behalf of its clients, has agreed to participate in the debt financing, to subscribe for approximately $270 million in convertible preferred shares, and to purchase approximately $55 million of subscription receipts.
- No change related to this transaction is contemplated for Amaya’s board of directors.
Reaction from PokerStars
PokerStars current CEO Mark Scheinberg, who took over the reins from his father Isai Scheinberg following the company’s settlement with the U.S. Department of Justice in July of 2012[iv], sent the previously referenced e-mail to PokerStars employees, both thanking them and offered up an optimistic appraisal for the company’s future, which reads in part:
“We can all take pride in having built the world leader in online poker, reflecting all the hard work and commitment from the organization over the last 14 years. Our success and leadership in the industry have been built on incredible talent, integrity, customer focus, a strong work ethic and pride in what we do. This success and these values have been driven by each of you and the contributions you have made.
“This acquisition represents a major vote of confidence in the quality of Rational Group and marks the next phase in the growth story of the Company. It recognizes our achievements to date, and provides great opportunities for future expansion as the company continues to evolve. We have a phenomenal platform from which we can build and grow the business even further, and I’m confident that it will continue to go from strength to strength.
“Amaya Gaming and its Chief Executive David Baazov have a strong vision for the group’s future. Working together with Rational’s executive leadership team I am confident they will execute that vision, which is very much aligned with the course we have been on. Our culture is very strong and Amaya understands that it is our people, our values and our expertise that have made us so successful.”
Scheinberg also detailed what the future holds for the company and its employees, stating, “PokerStars headquarters will remain in the Isle of Man” and “… Upon the closing of the sale, I will step down from my role as Chairman and CEO. At the same time Isai will also relinquish all of his remaining responsibilities and together we will both depart the company. Our Company Director and fellow founder, Pinhas Shapira, will also step down from his role from that date.”
These departures will have a significant impact on PokerStars chances of securing a New Jersey license as they should lead to a settlement agreement between Isai Scheinberg and the U.S. DOJ.
What it means for New Jersey
The departure of the Scheinbergs et al. should pave the way for PokerStars to procure a New Jersey license, as it was the continued involvement of Isai Scheinberg and other key individuals in the company that caused the New Jersey Division of Gaming Enforcement to vacillate over allowing PokerStars to be licensed, and eventually led to the suspension of PokerStars license application review for two years or until the executive management team was replaced.
David Rebuck, the director of the New Jersey DGE issued a statement to PokerFuse.com where he called the news encouraging, telling the outlet, “We are also encouraged by this development and the expanded opportunities it might provide for New Jersey’s Internet gaming industry.”
With Isai and the other individuals on their way out the NJ DGE misgivings should be quelled, and it would seem that PokerStars now has a clear path to a New Jersey license.
If that is indeed the case, New Jersey online poker players could be playing at a PokerStars/Resorts Casino branded online poker room by the end of the year.
Reaction from Amaya Gaming
In the joint press release confirming the sale, Amaya CEO David Baazov called the sale “a transformative acquisition for Amaya.”
Baazov went on to heap praise on their new acquisition and stating their intentions to continue to deliver as the new helmsman in charge of PokerStars:
“Mark Scheinberg pioneered the online poker industry, building a remarkable business and earning the trust of millions of poker players by delivering the industry’s best game experiences, customer service and online security. Working with the experienced executive team at Rational Group, Amaya will continue that tradition of excellence and accelerate growth into new markets and verticals.”
One of those new markets Baazov was referencing could be California, where PokerStars and its allies (The Morongo Band of Mission Indians, the Bicycle Casino, the Commerce Casino, and the Hawaiian Gardens Casino) have been fighting to have a seat at the table.
While not specifically mentioning California, Baazov did mention the deal allowing for “a speedier entry of the Rational’s brands into the U.S.,” which many feel is a direct reference to New Jersey and potentially California.
What it means for California
PokerStars’ key ally in California is the Morongo Band of Mission Indians whose Chairman Richard Martin told me he feels this is a “positive move” for their partnership, and called the willingness of PokerStars to make such a momentous decision a clear indication of what the tribe has stated all along: “PokerStars is the best in the industry.”
Echoing Chairman Martin’s statement that the sale would strengthen the relationship between PokerStars and its California allies was PokerStars Head of Corporate Communications Eric Hollreiser who told me the company believes “the agreement with Amaya only strengthens our partnership in California.”
Still, the effect of the sale in California will likely be far less impactful than in New Jersey.
In New Jersey, PokerStars’ fate is entirely in the hands of regulators, but in California the proposed legislation to legalize online poker comes with a legislative handcuff that Houdini himself would struggle to solve, a comprehensive and all encompassing “Bad Actor” clause.
California’s bad actor clause is extremely far-reaching, calling for the barring of trademarks, software, and player lists that continued to operate in the United States after December 31, 2006[v].
Yes, it will be PokerStars under a new name, and with new peopled at the helm, but this simply isn’t enough to get past the bad actor language as it is currently written.
The leading poker advocacy group in the U.S., the Poker Players Alliance, was certainly bullish on the sale, as Executive Director John Pappas called it, “… encouraging news for millions of American players who have anxiously awaited the return of PokerStars to the U.S.” in a press release[vi].
Team PokerStars Pros
In an interview at the 2014 WSOP[vii], Team PokerStars Pro Daniel Negreanu called the news “exciting” and stated that he has “a lot of faith and trust in PokerStars the company and the decisions they make.” Vanessa Selbst, another Team PokerStars Pro called the news, “surprising,” adding that she hopes it can “speed up a return to the U.S.”
Alexandre Dreyfus of Zokay Entertainment (GlobalPokerIndex.com and TheHendonMob.com) is one of the most clued-in people in the poker industry, and he called the sale “good and bad,” noting that PokerStars’ owners [the Scheinbergs] heavily reinvested in their product and the poker world at large, whereas Amaya Gaming will have to balance out these types of reinvestments with paying back the massive debt it is taking on, as well as its obligations to its investors.
Dreyfus also called Amaya and its CEO, David Baazov, “ballsy and smart,” as he feels that the Scheinbergs wanted out and that Isai would like to settle with the U.S. Department of Justice and not have to worry about where in the world he goes on vacation. As Dreyfus puts it, “it could have been any company and not Amaya,” that made this deal, but it was Amaya CEO David Baazov that sensed this and put together the investors to make it happen.