Update: Since this article was posted the Ongame sale price was revised up to €15 million with the opportunity for Party.BWIN to collect up to €10 million more should regulated online poker spread throughout the U.S. I still feel that Ongame is worth 50-100 times more than Absolute Poker so the point of the article is still correct in my opinion.
It has been almost 1.5 years since Absolute Poker and Ultimate Bet, the two poker rooms that made of the Cereus Network, were indicted as part of the Black Friday case. Since then, nothing but bad news has come from the group. Players owed money by Cereus have held out hope that the software would be worth enough money to receive as much as 20 cents on the dollar, especially since many players would not bother to file a claim. This number had always seemed extremely optimistic to me. The news that came out today shatters that hope.
Ongame Network Finds Buyer
A completely unrelated online poker sale today made it so that any hope players might have had about the Cereus Network’s software value was exposed today as being overly optimistic. After a failed transaction between Ongame’s owner Party.BWIN and Shuffle Master, a new buyer emerged for Ongame.
Amaya Gaming is reportedly buying the entire Ongame Network for somewhere around $7 million. Some people had thought that would be the price range that the Cereus software might be worth. Ongame has a lot more going for it than Cereus. Not only is Ongame open, it has about 1000 more peak players than Cereus ever sustained. If you take the players BWIN will take away when they move to the Party Poker platform, their player numbers will about equal the Cereus Network’s peak numbers.
Absolute Poker Software Issues
There is another issue with the software. Scott Bell has stated that the code has no documentation and is over 50,000 lines of code in Korean. The software was meant to be used internally for Absolute Poker, it was never meant to be sold to an unrelated party. This shows poor planning but should be no surprise to anyone that has followed the years of poor management by Absolute Poker.
This presents yet another challenge in unloading the software of Absolute Poker and Ultimate Bet. Some companies would be inclined to pass on software that had no documentation and was not in their native language. This excludes almost every major gaming company in the world from becoming the buyer unless they had the resources to take on a reverse engineering of the software. That would be time consuming and expensive, although it is possible the software designers would be willing to help. That would come at a cost.
The fact there was an insider cheating scandal also hurts the reputation of the software. Many players would be uncomfortable playing somewhere that they felt there may be a superuser account still alive.
What is Absolute Poker Software Worth?
If Ongame’s software is selling for about $7 million, what does that make the Cereus software worth? The former software of Jet Set Poker, a bankrupt online poker room, sold for only $15,000 back in the days closer to the online poker boom. Could the Cereus software sell for that low? It is certainly possible. If I had to make an over/under line, I would make that number under $100,000.
The optimistic valuations of the Cereus software can be partially blamed on the overpayment of the Entraction Network by IGT. Entraction was bought for $115 million. IGT is already throwing in the towel on the network and it will close in December. IGT may lose as much as $100 million from that deal. Now that we have a current sale to base a valuation on, there is no way the Cereus software will bring in any substantial money.
Player List Nearly Worthless
There are some other assets involved in the liquidation. The only other major asset is a 6 million long player list. Approximately half of this list has already been released publicly. This list went back years and included millions of inactive players. It is safe to say that nearly 100% of those players signed up before April 15, 2011. That makes the player info dated in terms of internet customer list age. Combining the age of the list, and the exposure of about half of those players already, the value of that list is likely to be very low.
Fight for Control of Absolute Poker
The DOJ is now in control of Absolute Poker’s main assets. Avoine, a company part of a shell game to hide the true owners of Absolute Poker, claim that they are the rightful owners of the Absolute Poker assets. The State of Kentucky also claims that they are due a portion of the proceeds related to a domain dispute involving alleged illegal internet gambling that dates back to 2008. The DOJ is contesting both claims. If either are successful, then Absolute Poker players would have to wait behind more people for the scraps of the company that are left.
False Hope From PokerStars-Full Tilt Settlement
Cereus players have also been optimistic about getting paid something since the sale of Full Tilt Poker assets to PokerStars. This is a completely different scenario though. The DOJ sold the software and contractually obligated PokerStars to pay all players either by reimbursing the U.S. players through the DOJ or paying Full Tilt Poker players through either Full Tilt or PokerStars. This deal should eventually release PokerStars from their liability in the case. No such deal was ever possible with Cereus.
The U.S. Government has always put the Full Tilt Poker debacle ahead of the Cereus one. There could be a number of reasons for this. The most likely one to me is that the DOJ saw Cereus as an empty, worthless shell. They always saw the value of the Full Tilt software and also had the ability to seize property from American board members of the company. The DOJ knew that they would see a return on investment by going after Full Tilt Poker.
DOJ Never Fought for Players at Absolute Poker
An educated guess might be that they did not feel the same way about Cereus. The officers of the company were all located in Costa Rica, Panama, or some other country outside of the arm of U.S. authorities. The assets seem to have been siphoned off for years, at least through insider cheating, if not through outright theft. There has been speculation that much of the missing money is held in countries with tight bank secrecy laws.
Scott Tom remains the only fugitive from Black Friday. If he turns up, then this whole scenario may change, but that is unlikely. Even if he is found, that does not mean the money will magically appear. Brent Beckley, another Absolute Poker officer, has already pleaded guilty. While he will have to serve over a year in jail, his fine is only $300,000. That is less than 1% of the total amount owed by Cereus. This deal signals to me that the DOJ was not intent on trying to force the issue of player payments as the prison term imposed could have been much longer if they were. It could also mean that the DOJ felt there was no money to recover and just wanted to close the case as they felt Beckley cooperated with the investigation.
Precedent for Online Gambling Bankruptcies
There is only one major case of bankruptcy involving an online gambling site where players got paid. That is BetonSports. Players received 4.63% of their balances after four years of waiting. While this did involve a Department of Justice (DOJ) action, that is about the only similarity. BetonSports was a publicly traded company. The liquidation also took place in Antigua, not the U.S., and is difficult to compare to the legal battle brought forth on April 15, 2011.
History of the Absolute Poker Bankruptcy
It was obvious in the days after Black Friday that there were issues at Cereus. The company immediately reversed all pending cashouts. A maximum cashout amount of $250 was imposed. This number soon became $500, and eventually $1000. Withdrawals were only allowed for players outside the U.S. U.S. players could not even access the full cashier to initiate a withdrawal.
Beyond the inability to pay players in a timely manner, there were several other controversies that came out of the very public implosion of the company. The company was forced to pay $3 million in severance payments to its Costa Rican employees. There was also an investment group called Madeira Fjord that held $250 million in notes of Cereus. Payments stopped in 2009 after Absolute Poker disclosed that they were losing over $30 million a year. Some of these losses can be attributed to partial refunds players received in two separate insider cheating scandals at Absolute Poker and Ultimate Bet. Madeira Fjord eventually filed for bankruptcy after it was clear they would never get paid. The previous Ultimate Bet owners also got stiffed on money they were owed from selling the network post UIGEA. Financial problems were clear well before the U.S. Government publicly exposed them.
Estimates are that Cereus lost $10 million to the Black Friday bank seizures. This left them with a reported $5-$6 million in liquid assets while owing an estimated $54 million. Even without Black Friday, the company would have been nearly $30 million in the hole. This was caused by cheating scandal refunds, a reported 29% cost in processing U.S. payments, and a company that clearly mismanaged their assets. Cereus had claimed that Scott Tom, the chief suspect in the Absolute Poker cheating scandal, was no longer involved in the company. That was not true. He was involved with Absolute Poker until the very end.
Players Left Holding the Empty Bag
After all of this, players are sure to receive nothing. Not even a penny on the dollar. It is unfortunate that players are the ones left getting stiffed. Many players honestly believed that the company had changed its way. A shell game was played involving Blanca Games just a few months before Black Friday that helped give players a false sense of confidence. Some players knew the risks and felt the quality of games made the poker room worth playing. Whatever the reason, those players will share in losses that total an estimated $50 million. The last little bit of hope was lost with the news of what poker software is worth today.