by Wendeen H. Eolis
Now that Amaya Gaming has completed its purchase of PokerStars, Isai Scheinberg and his son Mark, for whom he founded the company, are totally out. Daniel Baazov, Chairman and CEO of Amaya, and the architect of the PokerStars deal, is totally in. And today, U. S. gaming companies are better positioned to compete against the online behemoth, than ever before.
Not coincidentally, the management change has put PokerStars back in line for prompt licensing consideration by regulators in New Jersey. Less expected, however, are the kind words a Caesars executive bestows on the Amaya CEO. But, before a relationship between Amaya Gaming and American poker players moves forward in earnest, with plans to hook up online gaming in America from shore to shore, the Company will need to go through more than a few hoops.
PokerStars Train Rolling Across America
Things are looking up in New Jersey as PokerStars prepares to settle down, "suitably," in Atlantic City. The PokerStars partnership with Resorts is the talk of the town. New Jersey regulators are reportedly convinced that Poker Stars now deserves a welcome mat and are all but drooling over $$$ projected for the State. Wise casino executives, from the marina to the boardwalk are past their frustration over the anticipated competition; looking instead for the silver lining. Only die-hard naysayers are still warning, "It ain't over till the fat lady sings!"
In contrast, California is an unending battleground in the igaming world. Should PokerStars be admitted to the gaming party or should Poker Stars be excluded by a "bad actor clause;" that is the ongoing question. Casino industry lobbyists and legal experts at opposite ends of the pole have been opining on how to proceed with online gambling legislation. One side of the legal argument revolves around the Constitution. The other side invokes states’ rights that may effectively trump the Constitution. For lawmakers it is a classic case of Fiorello’s song, “Politics and Poker.” One online poker bill has just died on the vine. A second one threatens to face a similar fate, likely to push the debate down the road into 2015.
California, here we come—maybe
Earlier this month, longtime Whittier law professor and gambling law expert I. Nelson Rose took on Constitutional scholar and Harvard Professor, Lawrence Tribe. Rose rebutted Tribe’s legal opinion concerning the two online poker bills pending in the California legislature. Tribe challenges the “bad actor” clause in proposed legislation. Rose defends it. Tribe is advocating for a client. at Rose is engaged in an intellectual exercise .
Tribe relies on the Constitution to assail the “bad actor clause.” He says it is a pointed effort to cut out his client, PokerStars, from the re-emerging industry in the U.S. Proponents of the California-based bills, generally, make no bones about seeking to bar Poker Stars from entering the U.S market, anytime soon. And California lawmakers seem have plenty of like-minded company from Nevada to Pennsylvania. But Rose’s article sidesteps pointing fingers. He looks at the subject matter academically. He zeroes in on states’ rights, and police powers that provide for a state to protect its citizens, to make his argument that the bad actor clause is legally justified.
Rose’s Grandstanding Makes Sense!
Rose opens his article, recently published by Gaming Law Review and Economics (July/August 2014) with the words, “Larry Tribe is wrong!” At first blush, it sounds like mere showmanship against one of the most erudite and acclaimed U.S. constitutional scholars. Rose’s initial self-aggrandizement may tempt the reader to toss the article aside, immediately. And, online poker players, faithful to Poker Stars can only hope that Rose has little between his ears. But Rose's article is hard to dismiss.
Rose’s analysis is thoughtful, and well explained, even for lay persons. He asserts, “Gambling comes under the state’s police power… to protect the health, safety, welfare, and morality of its citizens.” He cites one case after another to show that the Courts repeatedly confirm nearly unrestrained power of the individual states. A State’s right to suppress gambling is a well-worn tradition!
Several other lawyers, queried for this article point out that state laws and public policy treat gambling as illegal in this country, except where states license and regulate it. They say that limiting this activity is a generally acceptable principle. Therefore, a state’s requirements for a license are less likely to appear unfairly onerous.
The Tenth Amendment Stirs Rose's view of States' Rights
Now enter into the mix the Tenth Amendment. According to Wikipedia, “The Tenth Amendment to the United States Constitution, which is part of the Bill of Rights, states the Constitution's principle of federalism by providing that powers not granted to the federal government by the Constitution, nor prohibited to the States, are reserved to the States or the people.” Stated, another way, the Federal Government can pass laws on things the Constitution specifically gives it authority to do, and otherwise the individual states are empowered to legislate as they see fit. So it would seem that the Tenth Amendment supports Rose's position on a state's rights.
Judicial interpretation----if you care!
The United States Supreme Court, United States v. Sprague (1931), declared the Tenth Amendment “a truism.” Where did that get us? The lawyers consulted for this article generally agree that Courts rarely declare laws unconstitutional for violating the Tenth Amendment.
"Bad actor"" clause stirs Tribe's Constitutional Argument
An active lobbyist for PokerStars, Tribe comes to his constitutional attack against online gambling legislation that would effectively excludes PokerStars, from another direction. He perceives the bills as incorporating punitive action without trial. He also complains about the bills’ arbitrary cutoff date for U. S. facing online gambling sites in America to cease operations here. PokerStars continued its operations in America after enactment of the Unlawful Internet Gambling Enforcement Act of 2006. The law was intended to end online betting in America.
Rose Knows the Gambling Business!
Rose notes that in America, gambling is an activity that traditionally faces restraints—in the interests of society. And, he suggests as a practical matter, the individual state’s police powers trump the Tenth Amendment. Rose’s analysis is compelling, say several gaming lawyers, echoing Rose's position which inherently opposes PokerStars efforts to enter the California market. According to a lawyer formerly associated with PokerStars, the Company has previously consulted with Rose.
Most of the Indian tribes and commercial casinos across the country welcome Rose’s legal stance, if only because it is compatible with their resentment of PokerStars’ success in the States post UIGEA (2006) which clearly barred processing of online gaming bets made by American-based players.
How Does Amaya Get Past New Jersey
Unlike American-based casinos that stood down after UIGEA, PokerStars profited handsomely, untilo shut down by the U.S. Department of Justice , in 2011. In the period of its operations from late 2006-April 2011 Poker Stars developed an astoundingly loyal American market base. Even If the Constitutional issue posed by Tribe proves to be nothing more than a distraction, the political questions live on in legislatures around the country and maybe in Congress as well.
Praise and Challenges for Amaya Chairman
While lawmakers sort out competing needs among their constituents, online gaming competitors and vendors will likely scrutinize PokerStars' business principles under Amaya management. Amaya Chair Dan Baazov is no stranger to the American gaming industry. Mitch Garber, the CEO of Caesars Interactive Entertainment (CIE), which owns the World Series of Poker, tells me, “I like and respect Dan Baazov.” CIE’s executive offices in Montreal are a stone’s throw away from Amaya headquarters.
Thus the stage is set for the cold war between PokerStars and Caesars, of past years to begin to thaw. Will the rest of the casino industry soon put bygones into a new perspective? Attorney Tribe supports that notion on legal grounds. Rose concedes in his article --after presenting his legal position--that Amaya will likely succeed in entering the online gaming market, one way or another. And American casinos have already gotten their way on one point, inadvertently--a more level playing field.
When push comes to shove, the banks are now PokerStars' most elite players. It is up to the politicians and regulators to figure out how to license, regulate, and tax online gambling fare across America. It is up to Amaya to figure out how to bring home the bacon to service the debt and maintain the level of customer service that turned Isai Scheinberg into King Midas with the golden touch.
Author's note: This article has been updated to provide additional information particularly including the most recent action on the online poker bills by the California Legislature.
Editor’s Note: Wendeen Eolis is CEO of EOLIS, a legal consultancy with a specialty in the gaming space. She has served as an advisor to Mayor Rudy Giuliani and as First Asst. to Governor George Pataki with responsibility for gaming issues in her portfolio. She was the first woman to cash in the main event at the World Series of Poker. See her wikipedia listing, and the eolis.com press clip index for more information. This article is her exclusive property. She can be reached at firstname.lastname@example.org; Twitter Facebook and LinkedIn or at the website: www.eolis.com.