An application by an online gambling giant that lobbied for the legalization of Internet wagering in New Jersey has been suspended by the state for two years.
PokerStars, which operates the largest online poker website in the world, was notified Wednesday that the New Jersey Division of Gaming Enforcement would suspend its application due to lingering concerns about the company’s founder, Isai Scheinberg, who is tied up in a federal indictment involving illegal online operations.
The application for a casino service industry license, necessary to begin operations in New Jersey, could be opened again before the two-year window, but only if major changes are made to the company’s operations, DGE spokeswoman Lisa Spengler said
At stake, some experts say, is the revenue New Jersey’s online gambling industry can be expected to make without PokerStars’ immediate involvement. Lawmakers have said Internet gambling will not come close to hitting the state’s expected $160 million tax revenue mark by the close of the fiscal year. A stamp of approval from New Jersey’s historically tough regulators could open up doors for the company to operate in other U.S. locations.
“It’s a blow, obviously. PokerStars is going to have to decide just how much they want to be in the market,” said Brad Polizzano, a New York-based tax and gambling attorney. “They could just stay out of the U.S. if they wanted to. Obviously being here means a lot to them because they’ve hired lobbyists to pull for their interests. They may have to be willing to make some changes.”
PokerStars spokesman Eric Hollreiser and William J. Pascrell III, a state lobbyist who represents PokerStars, both said the company expects to continue the fight for New Jersey licensing.
“PokerStars is committed to continuing the dialogue, working towards licensure and fulfilling their commitment to the state of New Jersey,” Pascrell said.
PokerStars had plans to team with Resorts Casino Hotel to offer online gambling. The move was expected to result in a $10 million poker room built by PokerStars at the land-based property that hasn’t had live poker since early 2010. What’s more, the company had committed to establishing its North American headquarters in New Jersey, a plan expected to create 150 jobs by the second quarter of 2014.
The DGE on Wednesday issued Resorts an Internet gambling permit, but casino officials did not say whether they would pursue a partnership with another online gambling firm. Internet wagering in the state went live Nov. 26, with six casinos participating.
“We are disappointed that PokerStars was not issued a license. We are hopeful that they can resolve their issues with the DGE in an expeditious fashion,” Resorts President and CEO Mark Giannantonio said in a written statement.
Courtney Birmingham, a spokeswoman for Resorts, said the casino was not making any further statements Wednesday when asked about the possibility of other partnerships.
PokerStars has had a controversial history with Atlantic City in the past several months. It aligned itself with Resorts in July after a deal to buy Atlantic Club Casino Hotel collapsed. A legal battle continues in New Jersey Superior Court over whether the casino can keep the $11 million PokerStars paid toward the purchase price.
PokerStars would have been the first online-gambling company to own a U.S. land-based casino. At the time, the company also saw delays in licensing that would have been required for the deal. That, in part, led to speculation that PokerStars may face an uphill battle in licensing for online gambling.
On Wednesday, the DGE said its decision to suspend the application was based on concerns about Scheinberg and the involvement of unnamed PokerStars executives with illegal gambling operations in the U.S.
“The division … 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,” Spengler said in a written statement.
Polizzano said while there’s no way to know exactly what Wednesday’s decision means, he speculated the division may have given the company options it didn’t take, such as removing certain individuals from operations.
Last month, two shareholders of Borgata Hotel Casino & Spa’s online gambling partner, bwin.party, agreed to divest their holdings. Bwin said for reasons of privacy, Ruth Parasol DeLeon and James Russell DeLeon chose to give up their shares rather than go through the DGE’s licensing process for substantial shareholders. Industry analysts, however, speculated the decision removed individuals who may have faced difficulty in the state’s licensing.
“Clearly the DGE has the bargaining power here,” Polizzano said. “The biggest issue (PokerStars faces) is that other states are going to look to see what New Jersey did. If another state allows them in, that state faces the risk of being perceived as not a tough regulator. There’s a pressure on other states to follow New Jersey.”
State Sen. Raymond Lesniak, D-Union, who sponsored the legislation creating Internet gambling in New Jersey, said the decision isn’t good for revenue streams, but he downplayed the notion that New Jersey needs PokerStars to be successful.
“Look, it’s not good when you don’t have the big name in the business in play,” Lesniak said. “However, we have plenty of sites in operation, and I’m sure they’ll be able to step up and fill the gap.”
Ratings agencies have suggested New Jersey will see $200 million to $500 million in online gambling revenue in the first year, far from the governor’s predictions of more than $1 billion by the end of the fiscal year.
“The revenue projections were way too high from the start,” Lesniak said. “PokerStars would have made an immediate impact because they have such a huge name in the Internet gaming business.”
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