Having a monopoly in a market with years of pent-up consumer demand ought to be a recipe for easy success, and that’s exactly what PokerStars has enjoyed in the first two weeks of real-money online poker play in Michigan. While the Michigan Gaming Control Board has yet to issue any formal revenue updates for online poker, anecdotal reports from players and market watchers alike indicate a flying start for Stars’ return to the Wolverine State.
One online tracking site has already reported that Poker Stars Michigan’s cash-game traffic has already topped the 1,000-player plateau on a couple of occasions, and some of the basic tournaments with $5 to $20 buy-ins have already brought in hundreds of entries each. It always takes at least some time for an online site to build up an operational “critical mass” of players, so these numbers represent exceptional and exponential growth.
As we’ve seen with PokerStars’ other toe-steps in the US market, in New Jersey and Pennsylvania, the brand name still carries plenty of recognition and consumer trust with American players. It’s likely that Stars will soon return to a role in the old grey-market days, where it was the country’s (and planet’s) largest online-poker brand. While America’s Cardroom and GGPoker — and perhaps the Bovada/Ignition brand family — are clearly larger in terms of serving American players, it’s a interesting thing to see Stars hammer away at brands such as PartyPoker and WSOP.com in the five-US-state “regulated” markets.
PokerStars won’t quite have the free run its enjoyed in Pennsylvania, however, where its monopoly continues. Michigan regulators have announced that a second approved site, BetMGM Michigan, will come on line for real-money before the end of the month. BetMGM Michigan is tied into a conglomeration that also includes Party-branded software, which will be used here, and there’s a chance for the “Party” brand name to appear as well on future Michigan skins. However, Detroit’s MGM Grand Casino will be launching its first online skin under its own name, betting that that option attracts more players.
Meanwhile, PokerStars Michigan will push ahead as quickly as possible, trying to maximize its early lead. The site has already announced plans for its first major online series, dubbed MICOOP, the Michigan Championship of Online Poker. With a million dollars in guaranteed prize money and a 60-event slate, that’s a big push.
Lest one think that this piece is all about promoting PokerStars in Michigan, however, let’s introduce a leftover story line from January. Last month, the Kentucky Supreme Court ruled in favor of that state in a near-decade-old battle over PokerStars’ former offering of its services to players in that state. Due to the archaic, 19th-century gambling law used to calculate damages in the case, Kentucky’s highest court ruled that PokerStars is liable for $880 million in damages, plus accrued interest that pushes the total to whopping $1.3 billion.
PokerStars actually made about $54 million in profits during the several years covered by Kentucky’s lawsuit. Following the ruling by the state Supreme Court, PokerStars parent company The Stars Group issued a statement objecting to the ruling and declaring that the company still had several legal options.
One of the most direct options is an appeal to the US Supreme Court. SCOTUS, as it’s acronymed, hears less than one percent of cases appealed its way, but it has shown some interest in gambling matters, as when it addressed the reach of the 1961 Wire Act in a famous case brought by New Hampshire. SCOTUS, as we all know, essentially declared the old Wire Act unconstitutional, and in doing so opened up the way for many US states to offer sports betting, online gambling, and other regulated forms of gambling to its residents.
In the Kentucky v. PokerStars matter, there are different issues in play, though there’s some common ground as well. One argument Stars can make is that the judgment is exorbitant and far beyond the actual damages caused. The law used to calculate the judgment, when applied in this case, meant that each individual hand of poker played on PokerStars was deemed a gambling act, with its own wins and losses. While that’s true in one sense, it ignores how the game of poker is actually played, and in practice it inflated the real profits and losses by more than an order of magnitude, into “exhorbitant” waters.
A second legal angle has to do not with how the damages were calculated, but to the range of years that Kentucky chose to seek damages for, in the case. Kentucky’s lawsuit specified only that period of time from late 2006, when the United States’ Unlawful Internet Gambling Enforcement Act (UIGEA) went into effect, and April of 2011, when the “Black Friday” crackdown forced PokerStars and two other companies out of the US in their entirety.
Ah, but there’s a huge catch, one that The Stars Group’s attorneys are sure to latch onto in their SCOTUS appeal. The 2006 UIGEA was built upon the 1961 Wire Act, and now, that same Wire Act has been tossed out as bad law. Since Kentucky based its claims only on those years that the UIGEA was in effect, it can be argued that it negates Kentucky’s own claims regarding its own anti-gambling laws, the ones used to calculate the damages that date back to the 19th century.
Why didn’t Kentucky’s lawsuit ask for damages back to 2001, when PokerStars was launched and when it would first have been available to Kentucky’s players? That part of the framework of Kentucky’s lawsuit remains incredulous, in that the state was allowed to make its case on the “merits” of a federal law, but was allowed to calculate damages separately, on an antiquated state code. That’s what having a massive home-court legal advantage does for you, I suppose.
There are other options for PokerStars, too. One is something of a nuclear option, in that the company could simply renounce all its current US operations, or it could restructure them into an entity that would then declare bankruptcy, or The Stars Group could do something else to make the judgment uncollectable in a legal sense. If PokerStars was still entirely outside the US, it would have told Kentucky to go take a flying leap long ago.
Instead, PokerStars US is enjoying early success in New Jersey, Pennsylvania, and now Michigan. Its own success in these three states actually makes it harder to negotiate against Kentucky’s outrageous claims. If Kentucky would settle for something in the $100 million range, then PokerStars would likely bite the bullet and pay that shakedown number, despite the case being garbage and the ruling being nothing more than legal extortion.
Sometimes it’s possible to be too successful. PokerStars, in pushing its way back into the US, is learning the depths of that particular truth.