It was October 2006. President Bush had just signed the Unlawful Internet Gambling Enforcement Act into law. Poker sites were leaving the U.S. left and right. Party Poker, iPoker, Paradise Poker, Ongame, Boss Media, Cryptologic, 888 and many more all ran for the exits and banned their U.S. players.
PokerStars was one of the few online poker sites that decided to continue accepting Americans. Its competitors scoffed at PokerStars and other sites that stayed in the market. The management of these companies that decided to play conservatively went on record as saying companies that stayed in the U.S. would run into problems, including difficulty in payment processing.
The processing environment immediately after the UIGEA was enacted was much different than it is now for offshore sites.
Neteller, a popular ewallet for Americans at the time, as well as players throughout the world, stayed in the U.S. market. It ceased U.S. operations after its founders were indicted in January 2007. Other ewallets that processed U.S. payments after UIGEA included PrePaidATM, QuickTender, UseMyWallet, eWalletXpress, ePassporte, PicClub, MyPayLinq, and EcheckUS.
These ewallets slowly met their demise one at a time. Some were forced out by U.S. law enforcement. Others simply went out of business. The loss of each payment processor made the environment more difficult for sites like PokerStars to stay in the U.S. market.
Many, including Full Tilt Poker, got to the point that processing U.S. payments was nearly impossible. PokerStars still found a way and ran away as the market leader.
UIGEA Propelled PokerStars to Number One Spot
PokerStars was not always the number one online poker site. Party Poker beat PokerStars it in terms of cash game players up until the UIGEA became law. PokerStars was already the tournament leader at the time.
Party Gaming Settled with U.S. Authorities
Party Poker’s parent company Party Gaming took the safe route by leaving the U.S. market, but yet it still felt the need to settle with the United States. Anurag Dikshit, one of the company’s founders, pleaded guilty to violating the Wire Act. He agreed to forfeit $300 million. In a court statement, Dikshit said, “I came to believe there was a high probability it was in violation of U.S. laws”.
Party Gaming also settled with federal authorities. It paid a $105 million fine and stated at the time, “Certain of the U.S. customer transactions intended for PartyGaming that were processed by third parties, and other gaming and payment-related activity, were contrary to certain U.S. laws.”
This makes the grand total Party Gaming and a founder spent settling with the U.S. $405 million. It also put a guilty plea on record, as well as statements that allude to some level of guilt.
PokerStars Shines after Black Friday
PokerStars found itself in hotter water. It was indicted and blindsided by the actions. It had funds seized and the legal position the company held for more than four years was being called into question.
The company did not panic. It found a way to pay players and arguably came out looking better than it ever had. The fine paid was nearly double the combined amount paid by Dikshit and Party Gaming. There were two differences. PokerStars bought Full Tilt Poker for what amounts to the difference in fines. It also got to stay in the U.S. market for 4.5 more years that its competitors that fled where it may have raked as much as $2 million a day.
Fast forward to 2014. PokerStars has maintained its dominant number one position, even after booting U.S. players. The rake made off those players helped it to build its software platform, increase its marketing, and attract top online poker talent to its stable of pros and customer service departments. Much of this can be attributed to rake generated by U.S. players.
Then, of course, there is the $4.9 billion the founders will be taking home should Amaya Gaming shareholders approve the sale. This is the ultimate jackpot for a company that went against the opinion of its competitors. The previous dominance of PokerStars in the U.S. market has made its brand and player database valuable assets as the online gaming industry hopes to tap the largest economy in the world.
Amaya Gaming hopes that purchasing the PokerStars assets and removing the founders will make it licensable in all states. Whether that is the case is debatable at this point, but it is a bet Amaya Gaming is willing to make.
Had PokerStars bailed from the U.S. in 2006, it may not be any more valuable than bwin.party, which has a market cap of about $778 million as of June 27, 2014.
Staying in the U.S. market proved to be the right decision for PokerStars and Isai and Mark Scheinberg are laughing all the way to the bank.