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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Nevadan at work: Online gaming company keeps it clean, cashes in

29 October 2012

LAS VEGAS -- It wasn't easy for CyberArts founder Chris Derossi to watch rival Internet gaming technology companies provide products to websites that accepted wagers from American gamblers.

Derossi concluded in 2003 his Oakland, Calif.-based online poker software development company would not get into any predicaments that could jeopardize its future.

At the time, there was still question about the legality of Internet gaming in the U.S.

"It wasn't a tough decision to stay 100 percent clean, but it was tough watching competitors operate illegally and be so successful," Derossi said.

That business move paid off last year.

Derossi sold CyberArts to Fertitta Interactive in October 2011 for an undisclosed price.

The company, an Internet gaming startup controlled by Station Casinos owners Frank Fertitta III and Lorenzo Fertitta and former Golden Nugget owners Tom Breitling and Tim Poster, is close to launching an online poker website in Nevada.

Fertitta Interactive was licensed by the Nevada Gaming Commission on Oct. 18 to operate Ultimate Gaming, which is themed on the Fertitta-owned Ultimate Fighting Championship.

The technology and software created by Derossi and his team are awaiting approval by independent testing laboratories and the Gaming Control Board.

Derossi said Ultimate Gaming is far ahead of the competition in the Nevada market. The CyberArts' technology has been used in a dozen European Internet gaming markets and already addresses concerns of age and location verification, problem gambling protection and other issues that worry state gaming regulators.

"These issues are not new," Derossi said. "They are new for us in Nevada but we have addressed them for years."

Derossi, who worked as a software designer and technology architect for Apple Computer, created CyberArts to be an online casino.

That changed when he received mixed signals about Internet gaming and the United States.

Instead, CyberArts began licensing the software to companies licensed in legal European gaming jurisdictions that didn't accept wagers from American gamblers.

His decision was solidified in 2006 following the passage of the Unlawful Internet Gambling Enforcement Act, which made it illegal for U.S. businesses to process financial transactions associated with online wagering.

CyberArts also became attractive to Nevada's casino industry, which was looking at the possibility of Congress legalizing Internet poker. The company, with its clean record, grew more appealing following the April 15, 2011, federal government crackdown on unlawful Internet gaming, otherwise known as "Black Friday."

Following sales discussions with several casino companies, Derossi reached a deal with Fertitta Interactive.

Derossi stayed on as chief technology officer and his team of some 20 employees based in Oakland remained in place. He is now seeing his original idea come close to being a reality.

"Our road map is laid out for us," Derossi said. "You can sense my excitement that we're finally going to be able to do what this company was born to do."

Question: How did your role and job duties change following the merger?

Answer: I'm still responsible for the executive-level decisions about the product and the technology, but I get to spend a little more of my time hands-on with all the technical stuff.

I don't have CEO responsibilities for business development and sales. I do have a whole new category, which includes all of the Nevada gaming regulations and working with the control board in going through the qualification processes. We now have to worry about everything with being an operator.

Question: How did you get interested in Internet poker?

Answer: I learned to play poker in California card rooms. The advent of the Internet and poker seemed like a natural idea. It was a Pandora's Box type of thing. Once it was open, you could not un-invent it.

When I decided to start the company, I looked at the available technology and it was all very first generation. So I concluded I needed to develop my own technology.

Question: How different is the technology from when you started out?

Answer: It's constantly evolving. The game of poker itself hasn't really changed. All the little things around it; player protections, how you interface with reliable payment processors; geolocation; mobile devices; all that stuff is new.

Question: What was behind the decision to not accept wagers from Americans?

Answer: We talked with folks in Las Vegas and it became really clear that even though it wasn't illegal in many ways, it was still very gray. The risk was too high. We talked with people who said if we did anything on the gray side of the line, we would be forever tainted. We wouldn't be able to do business with a Nevada licensed entity. They wouldn't want to put their license at risk. We decided to be 100 percent clean from that point forward.

Question: Did the Unlawful Internet Gambling Enforcement Act change your business?

Answer: It really didn't change anything because we were working with customers in 2005 and 2006 that didn't have anything to do with the U.S. market. One thing we did change was that we put a clause in all of our contracts that said you will not take wagers from U.S. players or we can terminate the contract.

Question: What changed for CyberArts after "Black Friday"?

Answer: We were doing things the right way and, through our own sales efforts, we wound up talking to most of the companies here in town. We had ongoing conversations with people of different levels of interest depending on perspectives with the speed of which regulation was happening in the U.S.

We were talking with multiple parties when we got serious in our conversations with Fertitta Interactive. It was almost like the dream scenario and we needed very little convincing. Frank and Lorenzo have a strong entrepreneurial attitude that resonated with our Silicon Valley atmosphere. With the synergies between Station Casinos and the UFC, they have a chance to be major player in online poker.

Question: After nearly 10 years of providing gaming software, what will it be like when Ultimate Gaming accepts its legal first wager?

Answer: This has allowed us to realize the original vision I had with the company, which was to offer poker to consumers. As Tom Breitling put it, we've been in the penalty box waiting for a regulated market in the U.S. It's now legal in Nevada and no question, the launch is going to be exciting.