PokerStars in New Jersey: Anatomy of a Killed Deal (Part 1)
On Tuesday, the Wall Street Journal reported that the agreement between Rational Group and Colony Capital to purchase the beleaguered Atlantic Club casino in Atlantic City, New Jersey had expired and that Colony sent a termination notice to PokerStars. Martin Harris chronicled the timeline of the attempted acquisition of the Atlantic Club for Flushdraw earlier this week.
News of the termination was shocking, to say the least. According to financial reports filed with the New Jersey Division of Gaming Enforcement, since Colony purchased the Atlantic Club in 2005, the property has put up an operational loss of almost $89 million. The Atlantic Club has not had a profitable year since 2007; last year alone its operational loss was $26.8 million.
Colony has been shopping the casino around since January 2011 without success. When PokerStars finally expressed interest in December 2012 and was willing to loan money to the property to keep it running until the sale could be closed, Colony had to be overjoyed. Even though the rumored $12 million purchase price was significantly less than what Colony paid in 2005, when it bought the AC Hilton along with two casinos in Mississippi and a riverboat casino in Illinois for a total of $1.2 billion, the company would be able to plug a massive drain on its resources.
That’s why Colony’s reversal four months later is so stunning. Yes, New Jersey enacted online gaming laws in the interim. The potential revenue to be earned by operating an online gaming site may have increased the perceived value of the Atlantic Club. But by how much? And will that increase in value result in other suitors for the property, bearing in mind that it has operated at an eight-figure loss for each of the last five years?
Stars was uncharacteristically silent on the story until Thursday afternoon when Eric Hollreiser, PokerStars Head of Corporate Communications, taking a page out of Phil Ivey’s book, issued a five-part statement via Twitter. That statement, in its entirety:
In December 2012, The Rational Group (d/b/a PokerStars) entered into a purchase agreement for the acquisition of the Atlantic Club. Several days ago we received a purported notice of termination of this agreement from the current owners of the Atlantic Club. It was the Rational Group’s expectation and understanding, based on the ongoing dealings between the parties that the closing date would be extended to allow the transaction to be completed. The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey.
Hollreiser’s statement seems to acknowledge that the closing date specified in the contract has passed. Without the contract to review, it’s unclear if he is correct on that point or if an earlier contractual deadline unrelated to the closing was missed – an important distinction we’ll return to in the next post in this two-part series.
More importantly for our present purposes, Hollreiser indicated that it was PokerStars’ “understanding” that the deadline would be extended. Understanding isn’t worth a whole lot when it comes to contract law. Additionally, it seems that Colony didn’t share that understanding. In that situation, PokerStars can be angry and frustrated, but there may not be much the company can do about it — another point I’ll return to next time out.