THE FIGHT: Three Down, 47 to Go

Bit-by-bit, our game is being legalized

If all goes according to plan, by the time this article is published, New Jersey will have launched full-blown real-money online gaming and joined Nevada and Delaware as states that offer regulated real-money online poker.

3 down 47 to goThe legalization of i-gaming in New Jersey was part of Republican Gov. Chris Christie’s five-year plan to stabilize Atlantic City and its gaming economy. State officials moved with surprising speed to go from signed legislation to paying customers in just nine months.

The process has not been without its bumps.

Licensing issues dominated the headlines in the two-month run-up to the November 26 launch. It seemed everyone in the poker world had an opinion about how the New Jersey Division of Gaming Enforcement would handle companies and executives that applied for licenses and that were involved in the U.S. unregulated online gaming market during the last 10 years.

Would Rational Group, the parent company of PokerStars and Full Tilt Poker, and bwin.party receive licenses despite massive settlements with federal authorities? What about Caesars Interactive CEO Mitch Garber, who headed a payment processer and PartyPoker in the pre-UIGEA days? Or Amaya Gaming Head of Online Gaming Paul Leggett, who was (in)famously COO at the parent company of UB and Absolute Poker during the super-user scandal?

Rational Group owners and executives Isai and Mark Scheinberg were on everyone’s minds due to the former’s outstanding criminal indictment in New York, a legacy of Black Friday.

DGE was mum while it went about its licensing work, sending staff members to Europe to visit the headquarters of several applicants and talk with their executives. All the same, word leaked early that Caesars and Amaya were both confident that Leggett had been vetted and approved by DGE. Caesars seemed to solidify that theory in late September by announcing a partnership with Amaya in which Amaya would provide game content for CaesarsCasino.com.

Surely, the thinking went, if a central figure in the super-user scandal could be licensed then nobody else — not Garber, not bwin.party CEO Norbert Teufelberger and not even the Scheinbergs — had cause for concern.

In late October, however, that thinking was upended by three separate incidents.

First, Massachusetts regulators flagged four issues that they felt made Caesars unsuitable for a land-based license to operate a Boston-area casino. One of those issues was Garber’s unregulated i-gaming past and his current involvement in Caesars as the head of the Interactive division

Then, at an industry convention in Philadelphia, DGE Director David Rebuck indicated that New Jersey would likely go live without having finished reviewing the suitability of all of the primary technology applicants — a group that includes Amaya, Rational Group and bwin.party. Instead, said Rebuck, DGE would issue “transactional waivers” to the providers while continuing work on their applications.

While transactional waivers aren’t issued in a vacuum — regulators usually have an inkling about the suitability of the applicant when the transactional waiver is granted — the risk is that DGE could later decide not to issue the license. At that point, the technology partner would have to stop operating, creating a raging headache for the respective casino partner and completely upending New Jersey’s nascent online poker market.

Last but not least, in late October Ruth Parasol DeLeon and Russ DeLeon, two founding shareholders of PartyGaming (which was merged into bwin in 2010 to create bwin.party) announced that they would sell their combined 14 percent ownership stake in the company rather than undergo a suitability review in New Jersey. Although the couple announced the divestiture was for reasons of privacy due to an ongoing divorce, when viewed in tandem with bwin.party’s request for a preliminary finding of suitability in Nevada — a process that has been “ongoing” for 18 months — it seems clear that the writing was on the wall.

Where does all of this leave New Jersey’s nascent online poker market? That’s the $25 million question of the moment. Some industry insiders believe it’s ridiculous to think that licenses won’t be issued after the transactional waivers were granted, think it’s silly to believe that Rational Group won’t be licensed, and overall are bullish on the future of the big players in New Jersey’s i-gaming market. That view is shared by several prominent New Jersey politicians, including State Sen. Raymond Lesniak, a man who championed the i-gaming legislation.

Others think it’s ridiculous that companies and executives that operated so brazenly in the United States prior to 2011 would ever be licensed by a state as strict as New Jersey — a state that fined Caesars $225,000 for its role in the $127 million(!) in losses of Japanese high roller Terrance Watanabe in Las Vegas in 2007 — a concern highlighted by regulators in Massachusetts. The jury’s still out on that one, but poker players are obviously hoping that the world’s largest poker site finds its way through the licensing process intact.

Then there’s Delaware. Delaware wasn’t even supposed to have online poker at launch. State lottery officials believe that Delaware’s tiny population of 917,000 residents can’t support online poker in the absence of interstate player-pooling agreements. When lottery officials announced that online gaming would come to the First State, they indicated that online poker would not be included.

Delaware still hasn’t announced any player-pooling agreements with Nevada or New Jersey — the only other states to have legalized online poker — but online poker launched in Delaware from Day 1. The state lottery director, Vernon Kirk, characterized Nevada, another small population state, as “anxious” to compact with Delaware, giving hope to players in both states that there will be (slightly) better game selection soon.

Delaware and Nevada poker players aren’t the only people with an eye on the future. 888 COO Itai Freiberger said that his company — which operates in all three regulated U.S. markets — is keeping close tabs on legislative developments in four states: California, Pennsylvania, Illinois and New York.

California, with 37 million residents and a thriving land-based poker industry from north to south, is the choicest plum. Although the state legislature failed once again in 2013 to pass online poker legislation, work is continuing to bridge the divide between California’s main tribal factions that has been the legislation’s biggest stumbling block. The tribes are now as close as they’ve ever been to presenting a unified front. It’s been said for years, but next year really could be the year for online poker in California.

Sometimes all it takes is one little leak to bust up the whole dam. If New Jersey isn’t that leak — and rest assured that the entire country is watching New Jersey with interest — then California very well could be. And with California likely to build on New Jersey’s efforts, let’s all hope that the DGE has figured out a way to navigate through the treacherous licensing waters without smashing up online poker’s ship on any pre-Black Friday rocks.

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December 2013