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Gambling Compliance’s Chris Sieroty broke the news this morning that Flutter, the owners of Stars Interactive and the PokerStars brand, has reached a settlement with the Commonwealth of Kentucky totaling $300 million.
As Flutter had promised its investors, the settlement is significantly less than $1.3 billion. That sum is what the Kentucky Supreme Court awarded the Commonwealth in December last year.
Stars Interactive had retained famed Supreme Court litigator Lisa Blatt of Williams and Connolly LLP to represent them at the United States Supreme Court. Stars Interactive filed its petition on August 26, 2021. Its argument hinged in large part on the notion that the judgment and interest awarded by the Supreme Court violated the excessive fines clause and due process clause of the U.S. Constitution.
The case that led to this settlement dates back to 2010. That was when the Commonwealth of Kentucky, reportedly unable to bring PokerStars within their jurisdiction to charge them criminally, used a 200-year-old statute to recover the money lost by Kentucky gamblers. It was the first time that law was brought to bear by the Commonwealth itself.
The Kentucky Loss Recovery Act (LRA) dates all the way back to 1798. The statute’s full intent has been largely lost to history. What is known is that the law was intended to provide a means for victims and their families to recover money lost to illegal gambling.
The LRA has generated only a handful of reported decisions over the last 200 years. Prior to 2010, it had been 60 years since the law had seen use that ended in a decision.
Most importantly, across those two-and-a-half centuries, the Commonwealth itself had never before sought to act on behalf of those who lost money.
The LRA differs from most states’ gambling recovery statutes in a number of ways. Many states do not consider the operator of a contest (like poker or fantasy sports) to be a “winner” simply for having collected rake or an entry fee. However, the Kentucky LRA was interpreted decades ago to include such an operator as a person from whom recovery could be sought.
This feature created a unique situation in the Commonwealth for PokerStars and other poker operators. They faced legal exposure for conduct that falls largely outside of the scope of many other similar statutes.
As a counterexample, the Illinois’ Appellate Court recently concluded that companies such as FanDuel do not qualify as winners for the purposes of that state’s loss recovery act. They could not, therefore, be sued to recover losses.
The Kentucky statute also allowed for not only the losing gambler to recover. If a gambler did not act within six months to recover their own losses, anyone indirectly affected could sue the winner and recover triple damages.
Having failed to bring PokerStars within the reach of its criminal justice system, the Kentucky decided to sue. It sought to use the 1798 LRA to recover losses on behalf of Kentucky gamblers as a group.
Funding for problem gambling organizations might have been an appropriate use for such compensation. The $1.3 billion awarded to the Commonwealth by the Supreme Court could have gone a long way in that regard. Instead, the Governor announced that Kentucky would use the funds to shore up the state’s pension obligations.
The Kentucky Supreme Court’s judgment raised several questions and a lot of eyebrows. First, the $1.3 billion award was the largest civil award in the history of the Commonwealth. Even the original $870 million judgment would have been a record. However, the Supreme Court tacked an additional $400 million in interest on to that.
One point Stars Interactive has stressed is that players in Kentucky never lost $870 million on PokerStars. In fact, they did not even really lose $290 million (the amount prior to punitive tripling).
That is because the Kentucky courts looked at the gross losses in PokerStars’ records, without ever deducting player winnings. A player who won $100, then lost $100, then won an additional $100 would end the day with $100 in net winnings. However, the court’s accounting would consider only the $100 loss.
In addition, those triple damages became even heftier for PokerStars due to excessive interest. At the time, Kentucky had a statutory interest rate of 12% compounded annually. As the Supreme Court petition notes, Kentucky amended the rate to 6% in 2017.
The settlement will close out a saga that has gone on for the majority of the new millennium. It opens the door for Flutter to move forward without the uncertainty of a billion-dollar judgment clouding their books.
At the same time, it means that some questions will be left for the Supreme Court to answer another day. This case presented a unique opportunity for the Supreme Court to address some important questions about the scope of the Excessive Fines Clause.
The “cruel and unusual punishment” portion of the Eighth Amendment has been the subject of extensive litigation over the years. By contrast, the Excessive Fines Clause has only come up in a small number of cases. However, the unanswered questions about the Eighth Amendment are no longer concerns for Flutter. That battle will be fought by another plaintiff, some other day.