Here’s What Actually Happened With PokerStars in New Jersey

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There was a bevy of breathless reporting earlier this week regarding the latest development in PokerStars’ attempt to gain licensing in the New Jersey market for regulated online gambling.

Headlines such as “PokerStars barred from New Jersey online gaming for 2 years” and “New Jersey deals PokerStars out of its Internet betting for 2 years” made it sound as if PokerStars had been definitively shut out from the NJ market for a minimum of two years.

Except that’s not what actually happened.

PokerStars is not blocked from New Jersey

As Marco Valerio noted, it’s important to read the full statement from the New Jersey Department of Gaming Enforcement before jumping to any conclusions.

That statement, in its entirety:

The Division of Gaming Enforcement has determined that the application of Rational Services Limited (PokerStars) casino service industry licensure (CSIE) will be held in a suspended status for a period of two years.

The Division, within that period, may consider a request for relief to reactivate the application if significantly changed circumstances are demonstrated at which time the Division’s investigation of Pokerstars and its affiliated entities and associated individuals will be resumed to assess suitability.

The Division’s determination is based primarily on the unresolved federal indictment against Isai Scheinberg for the alleged violation of federal gambling statutes, namely, the Illegal Gambling Business Act and the Unlawful Internet Gambling Enforcement Act (UIGEA), and the involvement of certain PokerStars executives with Internet gaming operations in the United State following the enactment of UIGEA.

So what the DGE has actually done is hit the pause button on the licensing process for PokerStars.

That’s a far cry from barring, banning or otherwise restricting PokerStars from taking part in New Jersey’s iGaming industry.

And make no mistake, the DGE certainly has the tools to enact such a ban should they see fit. But that’s not what they did here. And that distinction is an important one as it relates to PokerStars’ chances in New Jersey.

How PokerStars could win approval from NJ regulators

What would it take for New Jersey regulators to resume their vetting of PokerStars? The DGE actually laid out the conditions very clearly in their statement:

  1. Isai Scheinberg needs to resolve his indictment with the DoJ.
  2. PokerStars needs to sever their relationship with “certain PokerStars executives.”

It’s my sense that these are the only outstanding issues prohibiting approval of PokerStars in New Jersey. The DGE has been vetting the company for close to a year at this point, so they’ve had plenty of time to uncover anything else objectionable.

It also seems unlikely the DGE would demand such extreme concessions from PokerStars only to then deny the company a license based on some other shortcoming.

And as for the “certain PokerStars executives,” I can’t say for certain who the DGE is referring to or why the DGE wasn’t willing to name names.

The only other PokerStars executive named by the DoJ in connection to Black Friday – that I’m aware of – was Paul Tate. But the statement does employ the plural – executives – not the singular.

I feel confident that the issue of “certain PokerStars executives” is effectively peripheral. I can’t image Isai Scheinberg settling with the DoJ before first ensuring that this issue was resolvable, and I have no doubt that Scheinberg has the means to ensure that resolution.

Is Isai Scheinberg willing to play ball?

Only Isai Scheinberg knows for sure. And, when asked, PokerStars declined to offer any additional comment beyond their official statement.

But I think there’s a reasonable chance Isai Scheinberg will strike a deal with the DoJ.

I base that assessment on a few factors:

  • If rumors are to believed, Isai Scheinberg has been negotiating a settlement with the DoJ for several months.
  • Isai Scheinberg has reportedly retained former Attorney General Michael Mukasey of high-powered firm Debevoise & Plimpton – to represent him.
  • For all intents and purposes, New Jersey is the United States market. If PokerStars can’t get the green light in NJ, it’s tough to see them getting approval anywhere else in America. And the American market simply doesn’t seem like something PokerStars is willing to surrender.

On the DoJ’s side, Scheinberg and Tate are two of only three remaining loose ends to the Black Friday indictments. The resolution of that case, especially a resolution with a hefty fine attached, is undoubtedly attractive to the DoJ.

Put it all together and it seems certainly plausible – and arguably likely – that Isai Scheinberg and the DoJ are moving in the direction of a deal.

Why did the DGE take this step?

That’s an interesting question. I asked a representative of the DGE if there was any recent precedent for a suspended application. She said that to the best of her knowledge, there wasn’t one.

In short, this isn’t a move the DGE makes on a regular basis. So why did they take this route with PokerStars?

Logically, the DGE only makes this move if they don’t want to reject PokerStars, but can’t reasonably approve them. So my guess is that negotiations between PokerStars and the DGE had basically hit a standstill, with the DGE holding firm on their requirements regarding Isai Scheinberg and “certain PokerStars executives.”

At that point, the DGE likely felt compelled to publicly address the issue for the sake of resolving ambiguity, both for PokerStars’ proposed partner Resorts and for the market as a whole.

What happens after two years?

The application is held in a suspended state for up to two years. So what happens after that, assuming PokerStars doesn’t resolve the open issues to the satisfaction of the DGE?

Apparently, no one knows. There’s no obvious precedent in past DGE decisions to draw upon. And when I asked a DGE representative what happened after the two year clock ticked away, I was told that they had “no additional information.”

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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