PokerStars Options in New Jersey

John Mehaffey June 27, 2013

It seems that PokerStars has a long road ahead in its attempt to acquire the Atlantic Club, if there is any chance at all.  New Jersey is one of the few states that PokerStars may be able to enter due to the lack of a bad actor clause.  If Rational Group, the parent company of PokerStars, is unable to acquire Atlantic Club then it has other options in the New Jersey interactive gaming market. 

The deadline to apply for a New Jersey interactive license is June 30, 2013, if the company wants to go live on the proposed November 26, 2013 statewide online gambling launch date.  Companies may apply after that date, but they will have to launch after others already have.

Two Properties Likely For Sale

New Jersey interactive gambling laws require an operator to also be an Atlantic City casino owner.  This gives PokerStars just twelve properties to acquire in its quest to operate an online poker room in the State.  Including Atlantic Club, which won at least the first round of its attempt to back out of its sales agreement with PokerStars, ten of these casinos do not appear to be available to the company as an acquisition. 

There are two Atlantic City properties that may be available to PokerStars for the right price.  Each has its own unique issues. 

Trump Plaza

The Meruelo Group placed a $20 million bid on the Trump Plaza on February 2013.  The deal failed when Carl Icahn, who holds the mortgage on the property, refused to sign off on it.  It would have been the lowest purchase price for an Atlantic City casino in its history.  Trump Plaza consistently ranks in last place in terms of gaming revenue in Atlantic City.  Trump Plaza won $6.9 million in May 2013, down 27% from the year before.  The property’s gaming revenue is down 34% year-to-date. 

The Press of Atlantic City reports that the mortgage on the property totals $289 million.  While Trump Plaza may not carry this price tag, it will require substantially more than the $20 million the Meruelo Group proposed to acquire the property.

Showboat

There have been rumors flying around Atlantic City that Showboat may be for sale.  There are two problems that PokerStars may face trying to acquire Showboat.  The first is that it is owned by Caesars Entertainment.  The American Gaming Association voiced its opposition to PokerStars acquiring Atlantic Club.  Industry insiders felt this action was taken on behalf of Caesars Entertainment.  The other is that Showboat earns approximately triple the gaming revenue that Trump Plaza generates.  The opposition and the price tag may be too much for PokerStars and parent company Rational Group to consider acquiring Showboat.

Other Atlantic City Casinos

In addition to Atlantic Club, Trump Plaza and Showboat, there are nine other properties PokerStars may acquire to gain its operator’s license.  Three of these casinos are owned by Caesars Entertainment.  The others are Borgata, Golden Nugget, Resorts, Revel, Tropicana, and Trump Taj Mahal.  None of these properties are rumored to be on the market, though any private sale cannot be ruled out.  All would be substantially more expensive than Atlantic Club or Trump Plaza.

Software Provider

If PokerStars is unable to gain entry into New Jersey as an operator then it may be able to partner with an existing Atlantic City casino owner as a software provider.  PokerStars would still need to file an interactive gaming license application by the end of June to avoid getting left behind.  In addition, partnerships between operators and service providers would need to be disclosed by July 29, 2013.

The four casinos owned by Caesars Entertainment would not be available as a potential partner because these properties already have an agreement with Caesars Interactive that gives WSOP.com exclusive rights to these casinos.   Borgata already has an agreement with bwin.party and Golden Nugget’s Nevada agreement would seem to carryover to New Jersey.  A soured relationship with Atlantic Club probably hinders an agreement there, which leaves Resorts, Revel, Tropicana and Trump Entertainment Resorts. 

PokerStars does not currently have any publicly known casino software or any partnership created to supply these services.  This may be a deal breaker to New Jersey casinos that realize online casino games will probably outperform poker.  PokerStars could quickly find a casino partner, but then they are just the middleman.  There are dozens of integrated poker and casino platforms that would not require multiple agreements and would be far less controversial than PokerStars.

PokerStars Issues Could Hurt Software Partnerships

PokerStars knew that buying the Atlantic Club or another Atlantic City casino was its best bet to reenter the United States market.  That is because if it has to enter the U.S. market as a service provider it will have a difficult time finding clients.  Potential operators may question whether a partnership with PokerStars might hinder the group’s ability to get licensed in jurisdictions with a bad actor clause.  PokerStars may also have to settle past taxes, licensing and penalties on a state-by-state basis when regulated online gambling expands.  This could make PokerStars an undesirable partner for New Jersey casinos hoping to expand to future regulated states.

 

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