THE FIGHT…: Rational Group’s $50 Million Question

The biggest regulatory development of the week doesn’t have anything to do with new i-gaming laws or state-issued i-gaming licenses. At least, not directly.

On Wednesday, various media outlets reported that Rational Group, the parent company of PokerStars and Full Tilt Poker, reached a preliminary agreement to buy the Atlantic Club casino in Atlantic City for $50 million. Rational also filed an application with the New Jersey Division of Gaming Enforcement for an interim casino authorization, a regulatory requirement to close the deal.

The Atlantic Club has something of a tortured history. Since it opened in 1979, it’s had four owners and five names. Its current owner, Colony Capital LLC, is an international real estate investment firm with limited casino holdings.

The Atlantic Club’s glory days at the south end of the Atlantic City boardwalk were in the 1980s. Over the last ten years, the casino has ranked near the bottom of Atlantic City casino gaming revenues almost every year. For the first nine months of 2012, it reported an operational loss of $17.9 million.

You might wonder why Rational would be interested in such a perennially under-performing property, even despite that property’s storied poker past. Yes, Rational has expanded into live operations in other parts of the world. PokerStars-branded poker rooms are operating or planned in Macau, London and Madrid. But those venues are all limited to poker. On its face, turning around the casino and hotel operations of the Atlantic Club looks like a much taller task.

The answer lies in A-2578, the New Jersey online gaming bill currently awaiting Gov. Chris Christie’s signature or veto. That bill, which would authorize and regulate intrastate online gaming in New Jersey, requires that “all hardware, software, and other equipment that is involved with Internet gaming will be located in casino facilities in Atlantic City.”

Aha.

New Jersey, then, has become a litmus test for Rational’s re-entry into the broader U.S. online poker market. If Gov. Christie signs A-2578 into law, and if Rational can pass regulatory muster – answers that we won’t have until early February and mid-May, respectively – Rational will establish a toehold in a prominent U.S. gaming jurisdiction. The company might then be able to hold up its shiny New Jersey stamp of regulatory approval when seeking online gaming licenses in other states.

Or maybe Rational won’t need licenses in other states at all. Nevada is looking to enter into multi-state compacts with other states that have authorized intrastate online gaming. Is it possible that PokerStars and Full Tilt players could be pooled in Nevada (and other states, down the road) by virtue of Rational’s fully licensed presence in New Jersey?

Prior to Black Friday, Rational’s two brands, PokerStars and Full Tilt, were estimated to generate annual combined gross revenues of $2.5 billion, about half of which derived from the U.S. market. The company spent $731 million to get out from under the Black Friday civil case filed by the U.S. Department of Justice.

Compared to those numbers, $50 million to acquire a valid U.S. gaming license is the proverbial drop in the bucket. If New Jersey gives its blessing to this acquisition, that $50 million may be the best money Rational’s ever spent – whether or not the Atlantic Club ever turns a profit again.

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