One of the interesting twists in the spread of legal online gambling in the U.S. has been the absence of PokerStars, perhaps the world’s leading poker website. It hasn’t been for lack of trying. PokerStars made a failed attempt to buy a struggling casino last year as a way to begin operating in New Jersey, and since then the company hasn’t been able to secure a license through a partnership with any other physical casino—the only way that online-gambling companies can operate in the state.
Now the Oldford Group, owner of both PokerStars and Full Tilt Poker, is changing tacks and selling itself for $4.9 billion to Amaya, a Canadian company a fraction of its size. The purpose of the new deal remains the same: getting into the U.S. market.
Amaya is definitely hitting above its weight class. Oldford brought in $1.1 billion in revenue last year, about seven times Amaya’s take. To buy the much bigger company, Amaya is borrowing heavily—its total assets as of 2012 totaled only about 7 percent of the price it has agree to pay for Oldford.
If the deal is a high price for Amaya, it may also be a low one for Oldford. Compare it to Priceline’s acquisition of OpenTable, the online reservation company, in another newly announced deal. The price totaled $2.5 billion, or 56 times OpenTable’s annual revenue. By contrast, Amaya is paying 4.5 times Oldford’s annual revenue.
“That’s a fire sale,” says Joe Brennan, director of the Interactive Media Entertainment and Gaming Association. Amaya’s investors are acting as if this as the greatest thing the company’s ever done. Shares began rising sharply in May when rumors of a deal emerged, and the stock has been at its record highs ever since. Amaya shares rose more than 30 percent on June 13 alone.
PokerStars had to sell at a discount, because it seems to have run out of other options to get back into the U.S. “Amaya believes the Transaction will expedite the entry of PokerStars and Full Tilt Poker into regulated markets in which Amaya already holds a footprint” the company said in a statement.
Amaya is fighting its own history. PokerStars and Full Tilt trace their troubles to 2006, when the U.S. government passed a law tightening restrictions on online gambling. While most online poker startups stopped operating in the country at that time, PokerStars and Full Tilt decided to keep going while arguing that their actions were still legal under the law. Both poker websites were shut down in 2011, leading to the collapse of Full Tilt and accusations from prosecutors that the company was a “global Ponzi scheme.” PokerStars eventually bought its ailing rival, building a business that now has 85 million registered customers, mostly in Europe.
The U.S. has remained a step too far. The founder of PokerStars, Isai Scheinberg, is under indictment in the country. His son, Mark, is in charge of the company, but the Amaya deal will remove the family from the business once and for all—making the younger Scheinberg a billionaire in the process.
Gambling companies have changed hands in the past as a way to placate regulators, a development that ended the era of Mafia involvement with the Las Vegas casinos. David Rebuck, director of New Jersey’s Division of Gaming Enforcement, said in a statement that he was encouraged by Amaya’s move. But the distribution of online gambling licenses remains a highly political process, and a simple change of ownership doesn’t guarantee success for PokerStars.
The company has been lobbying to make sure states don’t pass liberalized gambling laws with so-called bad actor clauses, which would prohibit companies with checkered pasts from getting gambling licenses. Getting those removed wouldn’t be a silver bullet: A complaint from the American Gaming Association, a casino trade group, managed to stymie PokerStars’s attempts from operating in the state, even though the state’s law doesn’t have such a clause.
If PokerStars’ objective for an acquisition was to buy legitimacy in the eyes of regulators, it could have found a better buyer, Brennan argues. “There is so much political animosity by the U.S. companies against PokerStars. They are not exactly entering the community of nations here,” he says. “They will continue to be a foreign company after this transaction—they weren’t bought by a U.S. casino company.”