Five Questions from the PokerStars Buyout of Full Tilt
THE WEEKLY SHUFFLE, 2012-08-05, by OzoneGroundbreaking news last week of the PokerStars buyout of Full Tilt has left many in the poker world with questions. We thought we'd take a stab at addressing five of the more interesting questions from this historic settlement that will result in $390 million being returned to Full Tilt Poker's worldwide player base.
Question #1: Will PokerStars go for an IPO?
Some have wondered if there is anything in the way preventing PokerStars from becoming a publicly traded company. It's a good question.
As per their settlement with the U.S. Department of Justice, PokerStars is in the clear with the U.S. thanks to a "no wrongdoing" provision. Additionally, their founder and CEO, Isai Scheinberg, is required to step down from any significant role in the company within 45 days. So by the end of September, PokerStars will basically be operating from a clean slate with regards to their standing with the U.S. federal government. Could this make them fit for a public investment market?
There's no debating that PokerStars is the top brand in the online poker market. With their acquisition of Full Tilt Poker, they will control a vast majority of the worldwide real-money player base. But there are some reasons why they may want to raise funds from outside investors.
First, as Zynga Poker seriously eyes an entrance into the real-money poker fray, PokerStars could see a serious rival bloom overnight. They may require outside funding to compete with that.
Additionally, it's going to cost PokerStars money to replace the talent they're losing in Scheinberg as well as to make a push into the U.S. gaming market. PokerStars has the green-light to operate in the U.S. "as long as it is legal for them to do so". While the DOJ will not stand in the way of PokerStars getting a license to operate in the US, state and federal legislators may not be so quick to forgive their past behavior. There are already indications that Nevada regulators might not be quick to grant them a license in their state due to their past violations of various iGaming jurisdictions (Nevada puts operators under high scrutiny).
They may also need to IPO in order for Scheinberg to unload his substantial holding in the company on his way out the door. Rumors of a PokerStars IPO have existed for years but never has the reasoning for them to do so been so high.
Joining Party Poker, 888 Poker and others as publicly traded companies could be a logical next step for PokerStars. Let's just hope they don't turn into some big, evil corporation in the process and lose sight of what helped them become the best online poker room in the first place.
In the past, when poker operators IPO'd, rake hikes and tougher games soon followed. Furthermore, under pressure to raise revenues, poker rooms became sloppy at keeping the fish/shark ratio under control and allowed people to multi-table as many tables at will. This led to the destruction of soft cash games as grinders multiplied and made the games too difficult to be enjoyable for recreational players.
Short Answer: Maybe! (But it's really anyone's guess right now).
Question #2: Will Lederer, Ferguson and co. return to poker? Play in the 2013 WSOP?
For a few reasons, we're going to answer this question with a bold and confident yes!
Here are some of the reasons why not only will Howard Lederer and Chris Ferguson show their face in the poker world someday but that they might do so soon - as soon as the next WSOP perhaps:
1. Defense mechanisms and public relations campaigns. Never doubt the power of denial and revising history. These guys will come up with ways to make themselves forgiven in their own minds as well as in the community at large. Lederer and Ferguson are legends in their own mind. They have nicknames and get recognized in public by strangers.
There are already Lederer and Ferguson apologists in the poker world. There are still people out there who would get excited at the chance to get their picture taken with one of them. Public opinion will be manipulated or muted enough for these guys to reappear in the poker world despite how improbable that might seem at the moment.
2. As Jon Aguiar put it, "poker players are really nearly all complete bitches." He's right. For this reason, people like Annie Duke, Joe Sebok, Erick Lindgren and others have had no problem showing up to play live tournaments in the wake of having mislead or defrauded a substantial number of people in the poker community. Essentially, the poker world isn't going to do anything to stop Lederer and Ferguson from showing up and playing in tournaments.
3. They might need the money! Don't discount the possibility that these guys might be motivated to play poker because they need to get paid. Playing poker (and running a giant online poker scheme) is all these guys really know when it comes to making money.
4. They're stupid. Howard Lederer and Chris Ferguson are both brilliant men in some aspects but they are very stupid in other ways. We've been saying for years that they were stupid for running a giant, illegal online poker operation while continuing to live in the U.S. (why do you think the much smarter and more successful Isai Scheinberg never dared to set foot in the U.S. while running an identical operation?)
Lederer was even dining out in Las Vegas after Black Friday. He is also rumored to have hosted his traditional July 4th BBQ this year at his Vegas mansion while thousands of players with money tied-up on Full Tilt were across town at the Rio competing in the WSOP.
The precedent has been set. Howard Lederer is definitely clueless enough to stroll back into the public eye as though all is well.
Short Answer: You can count on it!
Question #3: How will the culture of success at PokerStars change without Isai Scheinberg?
Anyone who views the DOJ provision that Isai Scheinberg must step down from PokerStars as "no big deal" is fooling themselves. Scheinberg is the Steve Jobs of online poker. That is a comparison that has been made directly by PokerStars insiders themselves.
The culture of success at PokerStars and manner in which they became industry leaders in nearly every aspect imaginable was due to Scheinberg's vision and leadership. PokerStars was his baby. He built it from the ground up and understood every facet of the company just as well as any individual working for him. He was a visionary that understood how to induce other people to perform at their highest level. Businessmen like him do not come around often.
In all likelihood, PokerStars will continue to be the incredible company that customers have come to know and love, but losing Scheinberg is a big deal for them. Transitioning on without him will make the next few months very important for that company.
Short Answer: Probably not very much, but it'd be a mistake to equate this with Scheinberg not having been hugely important to them.
Question #4: Does the agreement mean PokerStars will have a near-monopoly in poker?
Will PokerStars' acquisition of Full Tilt mean higher rakes and lowered quality of play as their market share has ballooned to a massive proportion?
For the time being, yes, PokerStars has gotten impressively close to controlling the entire online poker world. But for a reason we mentioned earlier, this shouldn't mean players should expect to see a dropoff in quality from them.
Two words: Zynga Poker.
Some very smart people in Silicon Valley are trying to get their online poker game with more than 30 million registered users into the real-money fold. This alone is enough incentive to keep PokerStars on their toes and performing at the level customers have come to expect. If they get lazy right now and start alienating their goodwill in the poker world, Zynga could become the largest online poker room within weeks of debuting.
Short Answer: Yes, but it shouldn't concern players too much as PokerStars still has plenty of reason not to piss off their customers.
Question #5: Was Preet Bharara's comment meant to suggest DOJ will go after Lock Poker, Merge Network and other U.S.-facing?
In the DOJ's press release regarding the PokerStars settlement, U.S. Attorney Preet Bharara had some very strong words aimed at current operators catering to the U.S. market.
Said Bharara, "Today's settlements demonstrate that if you engage in conduct that violates the laws of the United States, as we alleged in this case, then even if you are doing so from across the ocean, you will have to answer for that conduct and turn over your ill-gotten gains."
These sharp words could either be empty threats or a signal that the U.S. isn't done with their war on poker. Operators of sites like Lock Poker and the Merge Network should be hugely concerned about what outcomes could await their cash-grab operations.
It hasn't been discussed much, but the DOJ profited wonderfully from the PokerStars settlement. PokerStars gave up $547 million to the DOJ. Only about $209 million of this is owed to U.S. players. The rest is being retained by the government to "cover legal claims made by others to Full Tilt assets."
That's $338 million to fight legal battles that may never even exist.
So where will this money actually go? Who knows. But one thing is for sure, Preet Bharara's office has made plenty of people in the government happy. It's been a career-maker for him. He or someone in a similar position have plenty of motivation to run the same scheme all over again targeting current U.S.-facing operators.
We have emphasized it before and we cannot emphasize it enough: your money is not safe on sites currently servicing U.S. players. Do not play there.
It's downright negligent the number of "respected" poker information sites sending their U.S. readers to these poker rooms. No one in their sane mind could think players' money at these sites is safe. Advertisers working with Lock Poker and others are selling their readers down the river.
Short Answer: It's probably a lot more than a mere empty threat.
The Weekly Shuffle is our Sunday column with our observations and commentary on the poker world. Have an idea for an article? Leave a suggestion on the feedback page.
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