Online gaming groups licensed in New Jersey, speeding U.S. re-entry


By Joseph Menn

Nov 8 (Reuters) - The state of New Jersey granted its firstonline gambling licenses to several big international gamingcompanies on Friday, dramatically speeding their re-entry to thelucrative U.S. market.

New Jersey joins Nevada and Delaware in permitting onlinepoker and it is more populous than those states. New Jersey alsowill allow its residents to play electronic versions of othercasino games.

Bills to legalize online gambling are pending in California,Pennsylvania and Massachusetts and more states are likely tofollow, eventually letting residents of those states gambleagainst people in other regulated states.

New Jersey's action also is a landmark for the issue ofsuitability, in which regulators weigh the conduct of the onlinegaming companies before allowing them into an industry withhistoric corruption.

State gaming authorities gave "transactional waivers," whichdo not preclude additional regulatory scrutiny, to companiesincluding the parent of PartyPoker, which dominated online cashcard games in the United States for years.

PartyPoker pulled out of the U.S. market in 2006, whenCongress strengthened federal gambling. It later paid $105million in a non-prosection agreement with the U.S. JusticeDepartment and admitted violating wire fraud and other statutesbefore the 2006 law took effect.

Other recipients of waivers on Friday were 888 Holdings, and the online affiliate of Las Vegas' Caesars'Entertainment Corp.

Two controversial PartyPoker co-founders are divesting theirstakes in order to get their company back into the UnitedStates.

New Jersey did not approve PokerStars, a company that keptgoing in the United States after Congress' 2006 law on internetgambling.

PokerStars spokesman Eric Hollreiser said the company's NewJersey application "remains under review" and that "we remaincommitted to working with them to complete the process." BothPokerStars and PartyPoker's parent, DigitalEntertainment, had focused their licensing efforts onNew Jersey.

"We're excited to see the launch of internet gaming in NewJersey," said American Gaming Association Chief Executive GeoffFreeman. "New Jersey will send a strong message to all states."

Even with online casinos outlawed, Americans contribute anestimated $3 billion to a roughly $33 billion world market,Freeman said.

Combined with recent actions in other states, the New Jerseydecision suggests it could be hard for PokerStars to reach theAmerican market.

Last year, the Isle-of-Man-based company forfeited $731million to settle U.S. government fraud claims and acquire rivalFull Tilt poker, which shut down after a similar lawsuit. U.S.authorities also filed criminal charges against the founders ofboth companies.

Even PartyPoker's re-entry was more difficult than many inthe industry had expected. Parent pulled out of manyof what it called "gray markets" with uncertain laws andjettisoned several PartyPoker executives, filling its top ranksfrom the other side of a merger with Bwin.

The most dramatic concession was the agreement by PartyPokerco-founders Ruth Parasol and Russ DeLeon to divest their shares,which combined for 14.3 percent of As reported lastweek, they will put their stakes into funds that will sell offthe stock to others during the next three years.

Even as the two co-founders leave the stage, they willbenefit from any share-price gains from the U.S. return.

Parasol, an American and former phone-sex and Web-porninvestor, became a billionaire when predecessorPartyGaming sold stock to the public in London. Advisers saidshe left her home country long ago to avoid U.S. legal scrutiny. said it would launch poker and casino games underthe land-based casino license of its partner in New Jersey,Borgata Casino, owned by Boyd Gaming Corp's and MGMResorts, using both Borgata's and its own brands,including, beginning Nov. 26.

PokerStars could still be approved but it is very unlikelywithout at least the same sort of divestiture that Bwin.partyagreed to, according to a consultant who spoke on condition henot be named because he works with New Jersey applicants.

"PokerStars will not simply coast into the New Jerseyinternet gambling market," the consultant said.

He said PokerStars founder Isai Scheinberg, who remains acriminal defendant in a U.S. case, would have to divest, andeven then the role of his son, the current chief executive,could be a factor.

CEO Mark Scheinberg personally forfeited $50 million to enda Justice Department inquiry in June, although he did not admitwrongdoing.

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