PokerWorldNow

Card Player reported recently that the Frank bill will not go to committee this month — apparently the House of Representatives is working on a few other issues at the moment. The PPA is now focusing on their secondary strategy of pushing the that was introduced a while back that will delay the enforcement of the UIGEA from December 2009 until December 2010. Well, December is right around the corner, and seeing how easily the House can become gridlocked, there is no time to waste.

Come on House, Chop Chop

John Pappas stated in the Card Player article that he hopes that if there were some small changes to the bill to appease the opposition that it could get passed without going to committee. I am skeptical. The opposition to the bill is coming from Republicans and I think (as the current trend is proving) that they have no interest in passing any sort of legislation that smells liberal. In that sense, online poker is pretty stinky. The Republican party is in a struggle to regain their identity and they see the best way of doing that is putting a stake in the ground for the issues that they believe in. However, I believe that this opposition will expose more cracks in the Republican position because it is what has gotten them in trouble in the first place: too much pandering and appeasing to the religious right. Fortunately, the democrats have majority, but nearly every one will have to vote in favor for it to pass.

We are running out of time. The bill first has to pass the House cleanly with no major revisions or concessions, then has to pass the Senate and finally put in front of the President. This all has to be done in the next 2.5 months. Banks are already implementing policies that will make online poker transactions even more difficult. The  cat and mouse game between the banks and the poker rooms will intensify. The banks have billions of transactions per day that need to be monitored and have no financial incentive. The poker rooms have plenty financial incentive in that they will be out of business. My money is on the poker rooms.

Just hours after I published my last blog speculating that one of the big boys came and snatched WPT away from Gamynia, it was announced that PartyGaming has officially made the acquisition. While I didn’t mention Party in my last blog, it fits in perfectly with the two strategic reasons that a large off-shore operator would be interested: pick up a powerful advertising medium in WPT’s TV distribution. and to provide a shell to help insure that the acquirer will have a chance at obtaining a license in a regulated environment.

Through a subsidiary, PartyGaming is acquiring WPT and is paying $12.3 million and 5% of future revenues. Gamynia was offer $9.1 million and 5%. The deal still needs to be finalized by share holders and becomes void February 24, 2010.

Those who did a detailed analysis (not me) on the deal in which Gamynia bought the World Poker Tour may have noticed that in the associated 8-K that was filed with the SEC there was a clause in the acquisition agreement that gave the WPT an out if a better deal came along. More specifically, the WPT has the right to terminate “under certain circumstances, including a determination by the Company’s Board of Directors to accept an acquisition proposal it deems superior to the Transaction.” All the WPT has to do is pay an “I’m sorry for changing our mind” fee of $1,000,000.

The WPT is getting a pretty good deal from Gamynia, to summarize: Gamynia pay $9.1 million in cash, WPT gets to keep the $21 million in the bank and WPT receives about 5% of future revenues.Who has come over the top (I promise the last poker metaphor that will ever be used) and piqued the WPT’s interest?

Assuming that the  Gamynia deal is really just a shell company for  PlayTech as I predicted in my first blog about this transaction, then perhaps one of the big boys, and by that I mean FullTilt or PokerStars, has taken a page out of this book and opened up their cash coffers. It is strategically logical for both companies to a) expand their push for producing TV shows as way of advertising and b) act as a hedge in a U.S. regulated environment because, as I wrote in my blog about the Menendez bill, it looks likely that off-shore operators will be rejected for licenses.

Thus far the WPT execs have kept mum about the deal, but I suspect if the deal goes through it will take a couple of weeks for an official announcement. Technically the Gamynia deal will automatocally terminate on Januray 28th, 2010.

Things are getting pretty serious. Back in June the United States Attorney of  the Southern District of New York announced that they were seizing $30 million in online poker funds. Yesterday, the same folks sent a press release to Card Player Media announcing that the stakes have gotten even higher. With the FBI, they have now announced the official indictment Douglas Rennick (frighteningly close to my name, but no relation), a Canadian citizen, who has allegedly been acting as the financial clearinghouse for poker and other gambling sites from “at least 2007.

Points of interest and opinion:

• The indictment also seeks the forfeiture of over $565,000,000 dollars which “represents the amount of proceeds obtained as a result of the illegal gambling and bank fraud conspiracies.” That’s a bunch of money. And, three fifths of it has already been paid out.
• Probably by no coincidence Mr. Rennick started this cloak and dagger operation only a few months after the UIGEA passed. If memory serves me right, many of the sites that remained in the U.S. were having payment processing issues until January 2007. This fits.
• Will the indictment blossom into more indictments accusing Rennick’s clients of wrongdoing? If so, this could have major implications for future licensing for the accused online poker rooms in a U.S.-regulated environment.

It surprises me that it took the feds and the banks this long to catch on. If it took them over 2 years to track down the single source that processed the majority of online poker and gambling payments, imagine what would happen if the UIGEA was actually enforced. Are they really going to stop a $10 deposit into a PokerStars account?

Senator Menendez is Our Hero?

As reported by CardPlayer.com Senator Robert Menendez (NJ-D) introduced a bill in the senate to regulate and tax online poker, or more accurately Internet games of skill. The major difference between this bill and Barney Frank’s bill is that this bill focuses on online poker specifically while Frank’s bill is more general to different forms of online gaming. Both bills oppose sports betting.

The Menendez bill (full-text, yawn) aims to:

• Regulate and license Internet games of skill
• Define poker as a game of skill
• Define who is and isn’t suitable for licensing, and make it illegal to operate without a license. The bill outlines the specific qualifications an applicant must posses and discusses. Under the “unsuitable for licensing” it does not list current operators of online poker in the U.S., but does list any business that has taken sports wagers. Good for Full Tilt and PokerStars and others who have operated in the U.S., not so good for Bodog. <Update: upon further reading and research, I discovered  there is a protectionist clause that states that companies who have failed to pay taxes in jurisdictions in which those companies have operated will be rejected. Sorry Full Tilt, PokerStars, PartyPoker, 888, Titan, and so on.>
• Protect against underage gambling
• Define tax code and collect tax revenue
• Further define the wire act (a throw in for the NFL lobby?)

As far as how much a license will cost: it will be based on the cost of setup and administration of each licensee. Seems fair.

While I share the Poker Players Alliance optimism in the fact that it appears that regulation of online poker is picking up some serious momentum, there are some inherent problems with the Menendez Bill:

• Focus on poker. Since the Menendez bill focuses on poker there isn’t too much room for politicking. It seems like a take-it-or-leave-it affair. While the Frank bill has a lot of room for concessions, such as taking out some of the generic online gambling proposals and leaving it for another discussion.
• Defining poker as a game of skill. Of course I agree with this statement, but it is one that has two diametrically opposed sides. Typically the people that play poker understand that it is a game of skill, but people that don’t (or tend to lean to the righter shade of red) see it has having about as much skill as a slot machine. Menedez should not open this debate. It will drag down the bill in an unresolvable argument.

All this being said, I can’t claim that I am and expert in the legislative process, so someone who is might argue that this is a strategy to build momentum for the movement regardless of the bill that gets passed. Since Frank’s bill is a house bill and this is a senate bill, perhaps they will coalesce into some form of consensus.

For over 2 years I have watched the World Poker Tour stock (WPTE) hover in the  40 to 50 cent range, bottoming out at 25cents in January of 2009. Then in June something amazing happening. The stock went crazy and was up nearly 7X from its bottom. Someone somewhere knew something and it wasn’t me. A few days later rumors came out that PartyPoker was making a bid and then another rumor surfaced that Bwin was the suitor. Finally, on August 3rd it was announced that WPT was bought by Gamynia Limited.

Who?

No one has ever heard of (or, can pronounce) this company. Ok then, time to Google…

Google returned 461 listings and every single one (I didn’t look at every one, but at least the first 100) had to do with the aforementioned acquisition. This leaves us with two possible scenarios: 1) a couple of moneybags decided that it would be fun to run a struggling televised poker tour with negative returns, created a shell company and away they went or 2) a company that saw a strong strategic fit despite large losses created a shell company and away they went.

I am going with number 2. The press release also gave it away by saying “Gamynia has secured the services of an industry leading online gaming marketing company Hardway Investments Ltd. which will seek to exploit and develop the WPT brands with the goal of maximizing future revenue opportunities.” Ok, online gaming marketing company probably means there is some sort of online gaming plan. So, who is this Hardway company anyway? Time to Google.

Unlike Gamynia the mystery company, Hardway actually has a website. From the looks of it they seem be the holding company for Titan Poker and a couple of online casinos, all of which are on the PlayTech network. They also operate EuroPartners, the official affiliate network operator of PlayTech.

To me this is all starting to seem like a PlayTech-backed play to position a WPT online poker brand in the U.S. once regulation occurs. It makes perfect sense. The WPT doesn’t have the cash or know-how to compete with the big boys, whomever they will be in the future. MGM Mirage? Harrahs? Full Tilt? The Mashantucket Pequot Tribe?  Playtech and Hardway have the cash resources and the know-how to build and market a U.S.-based online poker room. They have done it in the past. Gamynia was simply created as a shell to distance Titan, and other skins that have raked in the U.S., from this deal. That’s my theory and I am sticking with it.

Since the acquisition the stock has dropped back down to about a buck, but someone made some money somewhere…

The PPA is making strides in it’s lobbying effort to legalize and regulate online poker. This week was

Barney Frank is our friend

“National Poker Week” where the group set up over 100 meetings with members of congress. Here is the AP article that goes into more detail, no need to regurgitate.

The top three things that the PPA has gotten right:

1. Maintained a consistent message. They want government out of poker.
2. Gotten the word out. They have established relationships with the top online sites and have effectively communicated to the most important people in this struggle: the online poker players.
3. Assembled a powerful team. The addition of D’Amato in 2007 could prove to be a watershed event.

That being said, I think there are a few things they need to work on as well. The PPA has managed to organize and give a voice to poker players, a feat in itself, however, they have not yet figured out how to get beyond the lobbying effort and really mobilize its millions of supporters. What they need is a little Obama-esque grassroots organization and get their members to take action, such as:

1. Enable your members to do more on the PPA site. Currently, all that members can really do on the site is write a lawmaker. While this is necessary, it is really just the beginning. Let your members interact with each other and reach out. They are your strongest asset.
2. Organize on the local level. Many of the legal issues with poker start on the state level as we have seen in Washington, Kentucky, New York, North Dakota, etc. I admit, I have little knowledge with how the lobbying process works, but to me it seems if you have momentum on the state level it will carry over in the lobbying effort.
3. Fund-raise. Any heretic can come up with progressive ideas that would help the PPA achieve their goals, but what it really takes is money. I don’t know what their current financial situation is, but the fact that they sell a $20 premium membership that gives completely random benefits, probably means that they aren’t too rich with cash. Again, the members are your strongest asset and can collect money for you.

Overall, the PPA has done a good job with creating a movement, but they can’t get complacent. They have to keep pushing and try to make the small swell they have created into a tsunami. They have the added challenge of trying to motivate poker players to do something other than play poker. What may have to happen, unfortunately, is a legal precedent that further restricts poker, in order to really get people motivated. Hopefully Barney Frank’s bill passes and this discussion will be moot.

Also, read Card Player’s interview with Barney Frank