A Kentucky circuit judge awarded his state a massive windfall at the expense of PokerStars this week. If the award is upheld in court and other US states took the same path, it could bankrupt the world's number one poker site.
Franklin County Circuit Judge Thomas Wingate awarded the State of Kentucky $870 million in damages caused by PokerStars in the years it accepted real money play from gamblers in the state. The damages are meant to make up the difference in payouts taken from Kentucky gamblers after the UIGEA was passed and a federal ban on online poker was being enforced, from 2006 to 2011.
Troubles with Justice Department
In those years, PokerStars continued to accept players from the United States, though the U.S. Justice Department's policy stated such gaming was banned under the Unlawful Internet Gambling Enforcement Act of 2006. The UIGEA went into effect on December 31, 2006, but PokerStars continued to accept payments from American gamblers until April 15, 2011.
People in the gambling industry know that April 15th date by a more famous name: Black Friday. That was the day a US federal judge ordered the seizure of the domains of 3 prominent international poker sites, while releasing indictments on 13 different executives in those companies. The Justice Department not only indicted the poker execs for violating the UIGEA, but it also alleged the gaming sites used smaller U.S. banks to hide payments from American players and skirt the federal ban on poker.
PokerStars Paid $731 Million to US Gov
Eventually, PokerStars paid $731 million in fines to the US government stemming from the Black Friday scandal. Because the PokerStars executives indicted in the investigation never cleared their names, PokerStars has been banned from operations in the United States, even after the Department of Justice stopped enforcing the UIGEA's ban on Internet poker and casino sites later in 2011. Eventually, PokerStars and other properties were sold for $4.9 billion to a third party gaming software company from Montreal, Amaya Gaming Inc. Amaya's CEO, David Baazov, prepared to take the poker site into a brave new era of American operations.
The award by Judge Thomas Wingate for the people of Kentucky is even larger than the sum paid to the Justice Department. That fact has left the gaming media astounded in the hours since the judge's ruling was announced.
How Wingate Chose $870 Million
Judge Wingate awarded the money on behalf of 34,000 Kentuckians who are thought to have gambled on PokerStars between 2006 and 2011. Wingate estimates those people lost $290 million gambling on the site in those 5 years. An arcane law in Kentucky allows judges to award 3 times the damages in a case, which is how the $290 million became $870 million.
In justifying his award, Wingate wrote "that breaking the law was good for business [for PokerStars]". To twist the knife, he ordered the State of Kentucky to collect the damages and to take on 12% interest each year until PokerStars paid.
Marlon Goldstein Statement
The lawyer for PokerStars sounded outraged in his written statement for the press. Amaya General Counsel Marlon Goldstein wrote, "This is a frivolous and egregious misuse of an antiquated state statute to enrich the contingent-fee plaintiff's attorneys hired by the commonwealth and not the people of Kentucky."
Amaya Gaming has stated it will appeal the decision. The ruling comes at a bad time for Amaya Gaming, as PokerStars prepares to reenter the US market for the first time in 5 years. The New Jersey Division of Gaming Enforcement approved a gaming license for PokerStars in the fall of 2015, clearing the way for a long-awaiting New Jersey poker site operated by the partnership of Resorts Casino (Morris Bailey) and PokerStars. The launch of the PokerStars' US gaming portal sometime in 2016 was supposed to be the beginning of the poker brand's US revival. With the DGE's approval, more US states likely would follow.
Outlook for PokerStars
Now, PokerStars and Amaya Gaming have a major financial hurdle to clear in the form of Kentucky, which would be a minor player in PokerStars' eventual US ambitions otherwise. The appeals process is likely to take months or even years, eating up lawyers fees and muddying the legal waters whether the gaming company wins or loses its appeal.
PokerStars has the financial werewithal for a protracted battle. The site claims it has 97 million online members in over a hundred countries worldwide. PokerStars is thought to have 4 to 5 times the number of members of the second-biggest online poker room and generates tremendous revenues every year. But $800+ million is a massive indemnity for any company, especially one like Amaya which spent $4.9 billion last year on a buyout.
Las Vegas Review-Journal's Opinion
The gambling media has been harsh in its criticism of Thomas Wingate. The Las Vegas Review-Journal suggested the Wingate decision was motivated by Kentucky's budget shortfall.
It connected the dots between the PokerStars case and a statement on Monday by Kentucky Chamber President Dave Adkisson. Discussing the shoddy state of Kentucky's finances, Adkisson said, "It's a pretty deep ditch that we find ourselves in, and it's gonna take probably 20 to 30 years to climb out of it."
One has to assume the damages were assessed not for the benefit of the Kentucky Treasury, but the 34,000 Kentucky residents who gambled on PokerStars. In such cases, the award is generally handed out to all those damaged, as in a class-action lawsuit. If the State of Kentucky pockets the cash, then it would be a massive fraud against both PokerStars and the gamblers whose interests Kentucky claimed to represent.
