UK Licensing Deadline Could Accelerate PokerStars / Amaya Deal

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Amaya Gaming and the Rational Group (PokerStars) have told us that the target for the merger completion was the end of September.

But, thanks to an announcement from the UKGC, we can be more precise: Midnight GMT 16th September 2014 is now a pretty hard deadline.

Why UK law will likely accelerate the PokerStars / Amaya timeline

From the 1st October any firm offering remote gambling services in the UK must have a UK licence.

Today licences from “white list” jurisdictions (Isle of Man, Alderney) or from  EU/EEA jurisdictions (Malta, Gibraltar) can legally offer gambling in the UK.

To make this change simpler for existing providers, and prevent a break in service for gamblers, existing providers can apply for a transitional licence which will be granted automatically and allow them to continue operating as the detail of their application is assessed.

The deadline for that application has been set as midnight GMT on the 16th.

Some critical licence application requirements

Whilst the transitional licence will be granted to anyone already operating legally  this is just a temporary arrangement – the application itself is a full and detailed one.

If the application fails then the transitional licence can be pulled. If it succeeds a full new licence replaces the transitional one.

For PokerStars/Amaya, three important components of the application process make it important to have the deal done before the application goes in: ownership disclosure, Isai Scheinberg and business continuity.

1) Ownership Disclosure

Extensive disclosure regarding control and ownership of the company is part of the licence application.

The requirement is explained by the Gambling Commission thusly:

We [UKGC] therefore require any shareholder with a 3% or more share is listed within the application and those with over a 10% share complete an Annex A form to enable further checks to be carried out. If the beneficiary of any business is a Trust, we will require details of the beneficiaries of that Trust. If the applicant is a company based overseas, or part of the company structure is based overseas, we require a full description of the company structure, and may carry out checks with overseas regulators.

Anyone with a qualifying ownership position in PokerStars who has kept their investment confidential to date might much prefer not to tell the UKGC about it now, especially as they are selling it to Amaya.

There are many reasons for wanting privacy, we all like our privacy, but when it comes to PokerStars there are  potential tax issues and a chance that some who have avoided becoming embroiled with the DOJ for post UIGEA activities and in the Black Friday settlement, or the publicity around it, would very much like to keep it that way.

An Amaya Group application is far more straightforward as a listed firm, the share ownership list is public domain and control issues far simpler to assess than with a nest of privately owned firms, partnerships and complex trust arrangements. Control of listed firms is far more transparent.

2) Isai Scheinberg

Talks on the merger began shortly after the Division of Gaming Enforcement (DGE) suspended the Rational Group’s application for a New Jersey licence – primarily because of the unresolved federal indictment of Isai Scheinberg.

That ruling is a very good reason to keep Isai Scheinberg’s name out of any application to the UKGC for a licence.

This is what the UKGC say about how they will assess the suitability of those applying for a licence with regard to “integrity”:

Integrity – The integrity of the applicant and any person(s) relevant to the application will be assessed using a variety of means. The Gambling Commission will consider whether the information it collects raises any concerns about integrity. This includes an assessment of an applicant’s criminal record, and any past involvement in civil or regulatory investigations or proceedings. We will also consider the manner by which the applicant has conducted their business with specific regard to the provision of gambling in other jurisdictions. The Gambling Commission will also consider the evidence and findings of any complaints about the applicant and/or investigations by other regulators, and we will investigate any history of business failure.

Emphasis mine.

With Isai Scheinberg as part of the application the UKGC are obliged to go over every dot and comma of not just the New Jersey DGC ruling but also the DOJ settlement.

Regulators can be competitors, there can even be open tension and disagreement (as we have seen between the UKGC and Gibraltar Regulatory Authority (GRA) over this new Act), but they also tend to respect each other’s role and findings.

It is tough for a regulator to ignore the clear findings of another regulator. When the DGE say no to Isai Scheinberg then it is tough for the UKGC to actively endorse him.

Ergo, the licence application is safer without Isai Scheinberg’s name in it.

A UK Licence application from the Amaya Group is far cleaner and, to my view, comes with a more certain outcome. The past history of operation in grey or black markets, the whole UIGEA and Black Friday sagas become history,  the past of the firm but with no impact upon the integrity of the current owners.

3) Business Continuity

Applying for gambling licence is a bureaucratic nightmare at best. The prospect of submitting one application and then days later repeating the whole process or completely changing it is not one anyone would like to have to do.

Worse though is the risk if the Amaya Group takes over after the transitional licence has been applied for under different ownership, an ownership that may not be deemed acceptable.

The special transitional arrangement is only for those currently operating legally in the UK. The deadline is part of a statutory instrument. It is basically set in legal stone.

If the application is in on time, even though the investigation will be far from complete by the 1st October when the law kicks in, a transitional or continuation licence will be issued and business can carry on.

If that application is rejected or ruled to be from someone who was not operating legally before the cut off then this special treatment could be lost.

Regulators are sticklers for the letter of the law. If their legal advice is that a new or revised application after the deadline cannot be considered “transitional” then this protection for business continuity as the licence application is determined could be lost.

With no licence it would be illegal for PokerStars and Full Tilt to operate in the UK.

With the UKGC having dozens of applications and immense amounts of paperwork involved for each that break would likely be months rather than days. The UKGC are facing a tsunami of paperwork and due diligence work but have not had a huge increase in personnel or funding to gear up for it.

And there are no guidelines about change of ownership post applying for a transitional licence. There is no legal certainty and precious little precedent.

Bottom line: Submitting as an Amaya owned subsidiary is risk free in terms of continuity, while changing the application from Rational Group to the Amaya Group post application carries real risk to the ability to access the UK market.

Now you could try to mitigate that risk by seeking help or guidance from the UKGC but the far simpler option is just to do the deal before the 16th September and submit the licence application under the new ownership regime.

UKGC regulations likely played a pivotal role in deal

Some have speculated that the New Jersey DGE judgment was the straw that broke the camel’s back and made this merger stack up for both the Rational Group and the Amaya Group.

I tend to agree that it set the deal running but the UK licencing changes have altered the position with regard to grey and black markets, making it even more vital that PokerStars can operate in all the white markets.

It is the new UK regulatory regime that tipped the balance as much as the DGE ruling and it is the UK legislative deadline that gives us the end date.

When the Amaya / PokerStars deal was announced it was said to be by the end of September, just before the new law comes in to force in the UK. But this new announcement of the 16th September deadline for licence applications has brought that forward by a few weeks.

And if the deal falls through? Then the Rational Group will have to apply to stay in the UK market. But it is far from clear why the UKGC would rule differently to the DGE given the criteria they have said they will use to assess “integrity”.

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