Analysing the PokerStars Full Tilt deal
Analysing the PokerStars Full Tilt deal
What does the amalgamation of pokerâs biggest players mean for the industry?
Thanks to a deal struck on the 24 July 2012, the spectre of Black Friday that had been hanging over the industry finally seems to be drifting away. In the most simplistic terms, the world’s largest poker site, PokerStars bought the former second biggest poker site, Full Tilt Poker. But the deal has far bigger and more important ramifications than this.
The deal was made under the watchful eye of the Department of Justice (DoJ) and is contingent on PokerStars paying a total of $547 million to the US government to acquire the assets of Full Tilt Poker and settle all civil charges against both firms. An additional $184m also needs to be made available within 90 days to settle all outstanding balances for players outside of the US. ‘We are committed to doing that by November 6th’, says Eric Hollreiser, PokerStars’ head of corp communications.
The money question
As with everything connected with the entire saga, the forfeiture of Full Tilt’s assets to its former rival is far more complex that it first appears. From a purely short-term perspective it is likely to give a huge uplift to PokerStars, potentially turning its substantial grip over the poker industry into something vice-like. But in the long-term it could see the totally unexpected rebirth of both brands in the US.
To answer the first and most obvious question, there will indeed be two brands going forward. Full Tilt Poker will remain distinct from PokerStars and indeed compete with the mother brand in some key markets. According to Hollreiser, the two entities will remain separate in almost every respect, except of course, ownership.
‘Full Tilt had a very strong brand and offerings that were different than PokerStars,’ he says. ‘We are going to maintain Full Tilt as a separate brand. We are going to bring back all of those things that made it distinct, that players really enjoyed about the site. My expectations and the plan is for that to be very much a Full Tilt experience.’
In fact, Full Tilt’s existing core team will continue to steer it. For instance, whether or not Red Pros will be re-introduced will be down to ‘the Full Tilt marketing team to determine what makes the most sense to them,’ explains Hollreiser.
This conclusion is all the more astounding when you consider that just 466 days before the deal was completed the two sites were the fiercest of rivals with a corporate animosity verging on hatred in parts. Yet more astounding is that both firms were subject to huge fines from the DoJ over their actions in the US and raft of alleged civil charges against them.
But thanks to the deal the slate has been wiped clean for both firms. Full Tilt Poker, which was facing a $1 billion fine for its actions in the US market post-UIGEA, settled the civil charges by agreeing to forfeit all of its assets to the US Department of Justice. PokerStars then agreed to purchase the assets from the DoJ, pay its own fine, without admitting any guilt, to settle the charges and agree to make good on all player debts at Full Tilt Poker. This in turn settled all civil charges, which attracted a potential fine of $1.5 billion.
The total bill for all this? A mere $731m, of which $184m will be in active player funds in the non-US market. While there is no doubt many players will simply cash out their funds in full, a large proportion of this is expected to stay on the site as players return to playing on the relaunched Full Tilt.
The land of the free
For the US customers, around $150m of the $547m paid by PokerStars will be made available to players. But PokerStars can’t point to a specific payback date, with Hollreiser simply explaining that ‘the US government will repay them from the funds.’ The theory is that each and every player will have to go through a formal claims process if they want to get a piece of the outstanding $150m sum.
PokerTracker spokesman Steve McCloughlin has some reservations about how easy this process is going to be. ‘It is my opinion that the ordeal that US players experienced is not over yet. We do not know when or how repayment of players will take place,’ he says. ‘The proverbial fat lady has yet to sing, it is still too early to call the end game for US players whose funds are now held by the DoJ.’
The final main condition of this unprecedented deal is that PokerStars founder Isai Scheinberg has to step down from his directorial role as he is still under a criminal indictment following the allegations from Black Friday. According to PokerStars, Scheinberg’s departure will hopefully be a temporary measure.
‘We obviously fully support Isai,’ says Hollreiser. ‘The agreement also calls for [his role] to be readdressed once his legal issues are resolved. In the meantime Mark Scheinberg is our board chairman and he leads the day-to-day management of the company.’
The home of the brave
Reaction to the terms of the agreement has been mixed. Louis Castle, CSO at ShuffleMaster thinks the world’s biggest poker site got off lightly. On the other side of the coin, Dominik Kofert, PokerStrategy’s CEO thinks that Isai’s departure is a major blow and bigger than the fine. ‘I am quite disappointed that Isai will have to step down as part of the deal with the DoJ,’ Kofert says.
‘Isai always made sure that PokerStars didn’t deviate from its long term and player centric strategy, even though there must have been countless temptations to do so,’ he says. ‘As I see it, this is one of the main reasons for PokerStars’ success and is probably something that hired execs would find hard to keep up,’ he adds.
Arguably, it’s the upsides of the deal which are stirring up the most interest. Under the terms of the agreement, PokerStars and Full Tilt admit to no wrongdoing. How exactly this sits alongside the DoJ’s statement that the ‘settlements demonstrate that if you engage in conduct that violates the laws of the US…you will have to answer for that conduct and turn over your ill-gotten gains,’ is unclear, but it’s unlikely to be an issue PokerStars is likely to want to quibble over.
‘Suffice to say that [admitting no wrong doing] is very important to us,’ says Hollreiser. ‘It’s something we felt strongly about and continue to feel strongly about.’ Without doubt the most remarkable aspect of the equation is that it ‘explicitly permits PokerStars to apply to relevant US gaming authorities, under both PokerStars and Full Tilt Poker brands, to offer real money online poker when state or federal governments introduce a framework to regulate such activity.’
No one is quite sure whether or not this means that PokerStars and Full Tilt have carte blanche to try and dominate the US market. ‘There is no question that it opens doors to the possibility to operate in US regulated markets as they go online,’ says McCloughlin. ‘The question that remains is if the regulators in each market will permit licensure to PokerStars or Full Tilt. Nevada is the perfect test bed, it should be interesting to watch it play out because politicians in this state had a bad experience with lobbying by PokerStars.’
Softly into the night
Castle is similarly tentative about PokerStars’ chances. ‘I think it remains to be seen if that action really does make them suitable to do business with, in the United States or in any territory. I’m sure they would say it feels like it opens the doors for them. I’m not so sure I would agree, but it’s not just me that has to make the decision.’
Kofert is more optimistic about US entry. ‘My personal view when it comes to regulation is that the number one priority for a regulator is to ensure the security of customer funds – and on that front, PokerStars has a strong track record.’
How it all plays out remains to be seen but as things stand there is a general consensus that the amalgamation of poker’s biggest players is a good thing for the industry after a dark period. ‘Black Friday was a scandal and disgrace for the whole industry,’ says Bodog Network’s VP Jonas Odman. ‘From April last year till now, it’s hurt the credibility of the whole industry. At least now we can establish some of that lost trust. I’m sure some has been lost forever, but this is as good as we could hope for.’
It could end up being the shake up the industry badly needs says Kofert. ‘Poker operators will have to make one fundamental decision,’ he explains. ‘Either they wake up from hibernation and really start and invest and compete in poker again, deliberately forgoing profits for growth, or they continue to cash-cow their poker products and let them dwindle into insignificance. There really is no middle ground, and also, there is no more excuse for taking the middle ground either.’