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N.J. bet on PokerStars is double or nothing

Online gaming company may save Atlantic City, but could cost state its image as tough regulator

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The Atlantic City skyline.
The Atlantic City skyline. - (Aaron Houston / NJBIZ)

As the online gaming company PokerStars makes its bid to purchase the Atlantic Club Casino Hotel, proponents of the deal note the potential to revive the casino, save thousands of jobs and bring a big-name online poker company into the New Jersey market.

But critics warn the deal could make a different kind of impact. They say granting a casino authorization to PokerStars, with its history of legal troubles, would upend New Jersey's decades-old reputation as the world's toughest casino regulator.

State Sen. Richard J. Codey (D-West Orange) said when he was helping craft New Jersey's Casino Control Act of 1977 as an assemblyman, the intent was to be strict.

"You had this cloud over our head that we were going to let the mob come in, like Vegas," he said.

The resulting regulatory framework has proven so stringent that it has weeded out even well-known, established gaming conglomerates.

"New Jersey basically has a reputation that if you get a license in New Jersey, you're probably going to get a license anywhere in the world," said Frank Catania, an attorney and gaming consultant who previously served as director of the Division of Gaming Enforcement.

PokerStars.net was one of three sites shut down by the Justice Department in 2011, accused of using fraudulent methods to circumvent a 2006 anti-online gaming law. Last year, PokerStars paid a $731 million settlement, though didn't admit guilt. It also was given the assets of one of its chief rivals, Full Tilt Poker.

The settlement came after two PokerStars business associates pleaded guilty to helping online poker companies fraudulently process payments. In September, Nelson Burtnick, who said he managed payment systems for PokerStars and Full Tilt, admitted to misleading banks and disguising transactions for poker customers in the United States.

Al Luciani, a longtime casino executive who once ran the Golden Nugget — now the Atlantic Club — and also worked on the Casino Control Act in a prior career with the attorney general's office, said the PokerStars case should be open and shut.

"These guys have done things that violated United States laws," he said. "…And I just find it hard to believe that New Jersey would, because of economic issues, loosen its standards to the point where I think it's almost embarrassing."

Eric Hollreiser, a spokesman for PokerStars' parent, The Rational Group, said the company has been cleared by Justice to apply for a license, and is committed to working with regulators here.

Hollreiser said none of the four individuals listed on PokerStars' casino authorization application have been accused of illegal activity, including Mark Scheinberg, son of PokerStars' founder Isai Scheinberg.

However, Hollreiser said Mark Scheinberg has held leadership positions at the firm, including during the timeframe Justice alleged the company acted illegally. Further, while Isai Scheinberg left his management role with the firm — a requirement of the settlement — Hollreiser said Justice is aware that the elder Scheinberg remains involved with the company "in a limited consulting capacity."

Still, the potential PokerStars deal last week drew the opposition of the powerful American Gaming Association. State Sen. Raymond Lesniak (D-Union), a champion to legalize online gaming, blamed AGA's opposition to PokerStars squarely on Caesars Entertainment, which he said lobbied for a provision that would temporarily ban PokerStars and other companies that took online bets after 2006. Caesars operates four casinos in Atlantic City.

"They are scared to death that PokerStars will dominate the market, because of their brand name and their success that they have wherever they operate," Lesniak said.

Hollreiser also blamed Caesars for the opposition. "Just last month, (Caesars) approached PokerStars about potentially acquiring their Rio casino in Las Vegas, which they suggested would help us gain a license in Nevada," Hollreiser said. Caesars declined to comment.

Jason Gross, former corporate counsel to Caesars Entertainment and now a partner at Sills, Cummis & Gross P.C., in Newark, said the casino industry has long been cold to online gaming — "and staunchly so," he said — though that's begun to change. Caesars, for instance, has an interactive division, active in Europe's online gaming market, he said.

Lisa Spengler, a spokeswoman for the Division of Gaming Enforcement, said when PokerStars' interim casino authorization application is complete, the agency will investigate for up to 90 days before issuing a recommendation to the Casino Control Commission. If approved, a longer investigation would take place prior to permanent licensure.

Jim Whelan, a state senator and former Atlantic City mayor, said he's not for or against PokerStars, but he doesn't want the evaluation process unduly influenced by companies like Caesars.

"I want a level playing field," said Whelan (D-Northfield). "I'm not advocating for PokerStars per se, but I want them to have the opportunity."

But Codey, who helped craft those strict gaming regulations, said he doesn't see much of a case in PokerStars' favor.

"If I were a regulator," he said, "I wouldn't let them in."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

Write to the Editorial Department at editorial@njbiz.com

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