Gambling and the Law: PartyPoker Bets $105 Million on Return to U.S.

20 April 2010

By I. Nelson Rose

When the founders of PartyPoker decided to take the company public on the London Stock Exchange, they changed its name to PartyGaming, so they could offer gaming beyond their wildly successful online cardroom, PartyPoker.com. The June 2005 Initial Public Offering was, to say the least, successful: investors put a value on the company of $8.46 billion, greater than British Airways.

A little over a year later, the conservative Republican leader of the U.S. Senate, Bill Frist, rammed the Unlawful Internet Gambling Enforcement Act through Congress. The bill was approved by both Houses in the wee hours of Saturday, September 30, 2006. Before that Monday, PartyGaming announced that it would immediately stop taking players from the U.S., not even waiting until President George W. Bush signed the UIGEA into law on October 13, 2006.

All other publicly traded online gaming companies followed PartyGaming's lead.

Cutting off your largest market is obviously not good for business. Frist's UIGEA acted like a terrorist attack on the London Stock Market, wiping out $8 billion in equity of the online gaming operators in one day.

Some large, privately-owned online poker rooms decided to continue taking bets from Americans. Despite threats from the federal Department of Justice ("DoJ"), these operators, including Full Tilt and PokerStars, have made hundreds of millions of dollars. How could they miss? It was like selling cars (before the current recession/depression), and finding General Motors and Toyota had decided to abandon the U.S. market.

Now PartyGaming wants back in. And it wouldn't mind if Full Tilt, PokerStars and the others were forced out.

PartyGaming feels it made the right choice in leaving the American market. If Internet poker is made completely legal, it believes that only those companies that did not take online bets after the passage of the UIGEA will be able to operate here.

But there was one additional problem. The DoJ declared that even those companies that stopped taking bets from the U.S. were still criminally liable for the years when they did have American online poker players.

The DoJ may be wrong. After all, no one has ever been convicted by a judge or jury for merely running an online poker room (although one of PartyGaming's partners did plead guilty, without a trial).

Still, PartyGaming needed to get rid of this threat. And it just agreed to pay $105 million to have the DoJ drop all charges.

Legally, PartyGaming is only settling with the U.S. federal government. But the political reality is that the states probably will not now pursue independent prosecutions.

So, PartyGaming has bought legitimacy, making it easier to raise money for acquisitions and to create joint ventures with both online and land-based gaming operators in the U.S. and abroad.

Internet gambling, particularly poker, may be about to expand in the U.S. This year, there have been court cases in Colorado, Pennsylvania and South Carolina, finding that poker is a game of skill. California may legalize intra-state poker. Most importantly, Rep. Barney Frank is pushing for major changes in the UIGEA.

Advertising of money sites, "dot coms," is still restricted. But the growing respectability and optimism means we will see more money spent on "dot nets," free sites with the same names, like "PartyPoker.net." The most successful Internet gambling companies are primarily the ones with the best marketing, so PartyPoker and its competitors have to get their name recognition back in the U.S.

We will not see a return to the glory days of PartyPoker in every state. But other Internet operators, like 888.com, now have to think about settling also, to get back into the market that is about to open.

Gambling and the Law: PartyPoker Bets $105 Million on Return to U.S. is republished from Online.CasinoCity.com.