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The Kentucky Bwin.party $15 Million Settlement; Another PokerStars Hurdle

partypoker-greenlogoOver the weekend, news broke that the Commonwealth of Kentucky had agreed to a $15 million settlement with European online-gambling giant bwin.party over the pre-UIGEA activities of bwin.party precursor PartyPoker in allowing Kentucky residents to play.  How this ended up as its own complaint is a little bit complicated, so here are the highlights:

  • October 2006 — The United States UIGEA is signed into law by President G.W. Bush.  PartyPoker parent PartyGaming is among numerous offshore gaming sites that leaves the US market at that time.  Besides poker (through PartyPoker), PartyGaming also allowed US residents to play blackjack via the PartyPoker client, casino-style games via PartyGaming, and even futures betting for a short time on the PartyMarkets site.
  • September 2008 — Kentucky officials, including Governor Steve Beshear, announce a seizure attempt launched against 141 Internet domains allegedly associated with online gambling.  The seizure attempt is decried not only by the online-gambling industry, but by business and internet-freedom groups who protest that Kentucky did not have proper standing.  The list of domains itself is haphazard, including numerous sites that are defunct, news-only, or otherwise not connected with the alleged gambling activities, and is assembled via a private law firm doing Kentucky’s bidding on a contingency basis.
  • December 2008 — PartyGaming co-founder Anurag Dikshit, the site’s primary early programmer who owned 27% of the company, reaches a massive $300 million settlement with the DOJ.  Dikshit, a citizen of India, pled guilty to a single count of violating the 1961 Wire Act, which now seems nonsensical in the wake of the 2011 decree by US Attorney General Eric Holder that the Wire Act applies only to sportsbetting.  As part of his plea deal, Dikshit receives no prison sentence but is forced to say, “I came to believe there was a high probability [PartyGaming] was in violation of US laws.”
  • April, 2009 — PartyGaming reaches a $105 million “non-prosecution” settlement with the Department of Justice over Party’s pre-DOJ activities.  The deal does not forbid states themselves from taking legal action against Party, hence…
  • August, 2010 — Kentucky officials quietly bring a separate complaint against PartGaming regarding the pre-UIGEA activities above.  The Party sites were among those omitted from the initial 2008 seizure attempt.
  • March, 2011 — PartyGaming (based in Gibraltar), merges with Austria-based bwin.  At some point the Kentucky complaint was likely amended to address the change in ownership.  Bwin, a sportsbetting giant, never offered its services to US customers.
  • April, 2011 — The DOJ unseals its massive “Black Friday” indictment targeting PokerStars, Full Tilt and Absolute Poker.  All three of these (along with UltimateBet, owned by AP) were among the 141 domains Kentucky attempted but failed to seize in 2008.  Late in 2011, Kentucky officials file a claim against seized assets connected to the Black Friday case, reflecting their own unsuccessful seizure efforts.  Eventually, $30 million is held in escrow by the DOJ’s claims
  • June, 2013 — Kentucky receives a $6 million “go away” settlement with the DOJ to drop its claims in the Black Friday case, which DOJ lawyers themselves protested in numerous filings, asserting Kentucky’s lack of standing.  As part of the deal, Kentucky retained the right to litigate against PokerStars and its parent, Rational Group, in future actions.  The other two companies in the Black Friday case, Full Tilt and Absolute Poker, have since ceased operations.
  • June 2013 — Kentucky receives a separate $15 million settlement from bwin.party to resolve its 2010 complaint.  According to a news release from Gov. Beshear’s office, one which is not currently available on Beshear’s website, he said, “I’m pleased that we were able to recover losses on behalf of Kentuckians.  Bwin.party is making every effort to comply with the laws of the United States and demonstrate that they want to be known for their integrity and honesty in this industry.”

That’s where the PokerStars saga pops up between the lines.  If one remembers the circumstances of the initial PartyGaming settlement, there seemed little rationale for it, except for the possible “poison pill” effect it might have in the future upon sites such as PokerStars and Full Tilt, which remained in the US market and quickly took over Party’s former top ranking: For years, Party billed itself as “The world’s largest poker room,” even putting that wording in its logo (above).

Such poison-pill concerns represent one reason why bwin.party might have gone ahead and resolved this matter, since the company is seeking its own state-level approval in Nevada and elsewhere.  Bwin.party and PokerStars have been mortal enemies for a decade, and the Party folks would clearly like to differentiate themselves from Stars in any way possible.  That’s true despite the fact that in the years 2004-06, when Party and Stars were 1-2 in market supremacy, the up-and-coming Stars was generally held in higher regard by the poker industry.

It’s all a continuation of a decade-long war with implications far behind Kentucky’s $15 million settlement price tag, though all of it is a wonder when you connect each of the dots.

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