by Wendeen H. Eolis
No sooner than Laurent Tapie hit the send button on an email to employees of Pocket Kings (a Full Tilt Poker company) explaining that discussions to acquire FTP had gone down in flames, word began to spread like wildfire of another suitor for the online poker site—FTP’s longtime arch rival, PokerStars.
Tapie Deal Goes South
As previously reported, Tapie’s repayment plan to refund non U.S. “Rest Of World” (ROW) customers was a bone of contention in Group Bernard Tapie’s negotiations with the DOJ during the past few months.
It didn’t take long for the DOJ to turn one deal on its head and land right side up with another! In the early morning of April 24th, rumors which had already begun to circulate on a popular poker forum, gained heat when Chili Poker CEO, Alex Dreyfus tweeted, “PokerStars buys FullTilt for a consideration of $750 million, including settlement with the DOJ and full balances of players ($330 million). I’m impressed.”
By noontime, on the same day GBT went fully public with a statement that confirmed the collapse of their negotiations with the DOJ to acquire FTP’s assets, PokerStars’ corporate communications director, Eric Hollreiser, reacted to the rampant rumors by posting a response on the PokerStars Blog.
Acknowledging both the company’s legal problems with the DOJ and the massive inquiries (following Dreyfus’ tweet), Hollreiser stated simply that the company was obliged to refrain from any premature comments on the “chatter.” As a practical matter, however, PokerStars’ response added support to Dreyfus’ assertion of a bizarre twist in the FTP tale that might well end with the sale of FTP assets to PokerStars.
Tapie Rises to its Own Defense
For his part, Tapie relied upon GBT counsel Dayanim to respond to Poker Player Newspaper, about the extraordinary turn of events. Dayanim acknowledged the deal as going sour approximately two weeks earlier when the DOJ hardened its position on repayment terms to ROW players, requiring the full refunds within a period of 90 days. He said, "It was a deal breaker."
Dayanim chalked up the cratered deal “to a business decision on the part of the DOJ.” On questioning, he acknowledged that under the Tapie plan, players with larger balances would have had to wait years for a substantial amount of their funds.
Morgan Stanley Fancied Online Poker Not So Long Ago
Before the DOJ’s shutdown of online poker at the three most popular online poker sites April 15, 2011, the online poker kings were poised for unbounded growth and several high powered investment banks, most notably including Morgan Stanley, had buzzed around the online poker industry with visions of acquiring a major stake in it. They all seemed to believe the hype of affirmative federal legislation to license, tax, and regulate this activity as being on the near horizon.
During the 2010 World Series of Poker, Gabi Campos took up residence on the Isle of Man, as a consultant to PokerStars and with a deal in hand to take over the reins as the new CEO of the Company, October 4th of that year.
Campos was reportedly hot to trot with a public offering, not bothered by a story in the Financial Times that had recently reported the existence of a grand jury investigation of online poker.
Stateside, at the same time, FTP’s most well-known director Howard Lederer and his wife were hosting their Annual World Series of Barbecue in Las Vegas, a lavish event that showcased Lederer’s status as a king in the online poker industry. Ambling around the pool at the Golden Nugget was as an investment banking king and a poker playing trust fund kid (“Trust Fund Kid”), talking about the just held meetings between Morgan Stanley and Ray Bitar and Lederer.
In the interest of full disclosure, EOLIS learned of certain discussions through Morgan Stanley’s investment banking division, but it was not in the context of EOLIS’ professional relationship with lawyers associated with the firm.
According to a Morgan Stanley senior executive, The Kid had donated big bucks in live poker games that featured Chris “Jesus” Ferguson and other FTP celebrity pros. The Kid had no trouble hooking up the banker with FTP directors for a serious discussion. And the banker did not shy away from offering The Kid the prospect of millions of dollars as a business broker, if a deal were to be made.
The Trust Fund Kid also moved the needle for the investment banker by arranging a conversation with PokerStars top brass, shortly after the WSOP festivities. The Kid made the connection with Mark Scheinberg, son of PokerStars founder Isai Scheinberg, after securing an un-inked, but nevertheless reliable, agreement for a big payday if a deal were to fall into place, according to a Morgan Stanley money man.
Most of the protagonists in these high finance talks seemed to be oblivious to the DOJ’s sharp lens on the online poker industry.
Morgan Stanley Falls Out of Love
In the early fall, Morgan Stanley expanded its discussions of online poker beyond PokerStars and FTP and elevated its due diligence. The feedback indicated uncertainty as to whether Senator Harry Reid would bring about passage of a favorable bill in the Congress in the near future. Morgan Stanley’s appetite for online poker is said to have fizzled not only due to concerns over predicting the timetable for legalized online poker, but also because the Morgan Stanley managing director spearheading the initiative into the online gaming space was eyeing other options. He later set his sights on gaming interests in Macau; he left Morgan Stanley.
Reid Falters; PokerStars Hits Reset Button
At the end of 2010, Harry Reid suddenly halted his efforts to pass a favorable online poker bill during the last session of the Congress that year. According to some politicos, Reid made the tactical mistake of publicizing the planned gambling bill too far in advance of insertion into a broader must-pass bill, thus giving opponents of such a bill a wide berth to succeed in scotching any such attempt.
PokerStars’ political machinations continued in 2011 with continuing efforts in the spring on both the state (NV) and federal level. Meanwhile, Campos was actively contemplating grand online poker economics —including the possibility of going public—to make the company ever richer. Black Friday put an obvious brake on the astounding growth of the industry in recent years.
Insiders have said that Black Friday caused PokerStars’ to give up on a public offering for a second time; the first being in 2006 after passage of the Unlawful Internet Gambling Enforcement Act ("UIGEA").
The Company changed course, opting to make a big push for the customer base of public online poker companies that pulled out of the US market once the UIGEA legislation was signed into law. This move was key to growing the power and wealth of PokerStars over the next five years.
And since Black Friday the Company has continued, unabated in growing its footprint and services to customers outside the United States.
PokerStars Sees Full Tilt as a Catch to Throw Back
According to a PokerStars insider last summer, it was soon after arranging for repayments of account balances to its American customers—more than 100 million dollars was repaid within a month of the shutdown of the site in America—PokerStars got busy looking into gobbling up Full Tilt Poker.
With FTP’s financial distress becoming more obvious by the day, PokerStars went into full throttle, deliberating carefully the possibility of investing in the site, according to the powerful insider at the time. He said, “Due diligence on a possible purchase of FTP is a high priority.”
Apparently soon thereafter, PokerStars became weary of FTP directors’ insistence on obtaining silent handcuffed investors who would allow management and control of the company to be left in FTP hands.
PokerStars Revisits Full Tilt
Less than a year later, PokerStars is now known to be back in the hunt to acquire Full Tilt Poker, in a more sophisticated game plan. Lawyers familiar with recent events say PokerStars seeks to make the Full Tilt Poker asset purchase part of a global settlement of the company’s legal problems with the U.S. government.
Most of the lawyers interviewed for this article believe that such a settlement would clarify that DOJ has no interest in interfering in any future effort by PokerStars to return to American licensing authorities in the event that online poker is legalized in America.
Since Black Friday, the poker industry has been kept in the dark by the Justice Department, both with regard to any incomplete negotiations with defendants and with respect to its intentions surrounding repayment of American player account balances.
But parties privy to the various talks between the DOJ and various suitors along the way say the DOJ is genuinely interested in seeing players refunded all of the monies due to them. Towards that end, these sources concur that DOJ made a raise on Tapie’s fourth street bet, once it was clear that Poker Stars would call. Tapie apparently made a crying call. In the next round of betting, DOJ made a continuation bet Poker Stars stayed in and and Tapie insta folded. Thus, the otherwise unfathomable current chapter in the tale of the highest stakes online poker competition played in the history of the game
DOJ is the Current King of Online Poker
In the interview with Tapie’s most active spokesperson, Counsel Behn Dayanim, he emphasized the sincerity of the GBT effort to reach a deal with the DOJ that would have resulted in GBT’s re-launch of the FTP site. The smart money around the Federal Courthouse in Manhattan took no bets on completion of the Tapie deal.
The chances of PokerStars taking down the pot are viewed with far more enthusiasm by the mix of lawyers interviewed, albeit with the caveat that it will take more than big bucks before the case against PokerStars is closed. They predict the departure of founder Isai Scheinberg as part of the company’s management.
Author's Note: An earlier version of this article, appeared, briefly, on the site today.
Editor’s Note: Wendeen H. Eolis is CEO of Eolis International Group a legal/government affairs consultancy. She was formerly a senior advisor to Mayor Giuliani and Governor Pataki, and now heads Hope Champion Task Force. She was the first woman to cash at the WSOP. This article and related research is part of material planned for use in connection with other writings of the author. She can be reached at email@example.com and at the website www.eolis.com you can also find her on Facebook and LinkedIn.