July 16, 2009
Feds declare war on Internet poker
The seizures, which follow previous federal crackdowns on Internet gambling sites accepting bets from Americans, are among the most aggressive government actions to date involving poker sites.
But insiders disagree on how the action will affect online poker, which has a substantial following in the United States despite the government’s insistence that all forms of Internet gambling are illegal.
The government’s position was bolstered in 2006 with passage of the Unlawful Internet Gambling Enforcement Act, which forbids banks and other financial services providers in the United States from processing money transactions generated by online gambling, which can be tracked through merchant codes. American banks and credit card companies have mostly exited the business as a result. The void has been filled by debit-card transactions and third-party payment processors, which maintain domestic bank accounts subject to U.S. laws.
On June 2, a federal judge signed a warrant issued by the U.S. attorney for the Southern District of New York to seize the assets in a Wells Fargo account in San Francisco held by Account Services Inc., a company that processes transactions for major online poker sites that accept U.S. bets. Details of the seizure were filed under seal, and the U.S. Attorney’s Office and Justice Department declined to comment, according to news reports.
The U.S. attorney also sent a subpoena to Allied Wallet, another payment processor, to appear before a grand jury in New York last month. The subpoena requested documents including correspondence, records of financial transactions and contracts between Allied Wallet and Internet gambling companies dating to 2001 as well as information on owners and employees.
Citing alleged violations of Title 18 of the U.S. Code, the feds reportedly seized or froze more than $30 million in online gambling funds at multiple banks doing business with major sites, including Full Tilt Poker and PokerStars.
Poker proponents argue that online poker involves a great deal of skill and therefore can’t be viewed as illegal gambling, which would involve games of chance, according to their view. Some add that their sites aren’t conducting gambling themselves but are merely hosting bets that occur among players — an argument similar to that made by music file-sharing Web sites that attempted to skirt federal copyright laws.
But such arguments are no match for the will and means of the Justice Department and the U.S. Internal Revenue Service, said Sanford Millar, chief financial officer and general counsel of Centaurus Games, a Las Vegas company that hosts free and subscription-only poker tournaments online.
“The Department of Justice has never agreed with those arguments,” said Millar. “If they think they are going to outmaneuver the U.S. government they are out of their minds.”
ICAHN ACQUIRES A.C. TROP FOR $200M. AND NO CASH
Corporate raider Carl Icahn has snapped up Atlantic City’s third-largest casino in a non-cash bankruptcy sale for the bargain-basement price of $200 million.
Icahn and a group of investors accomplished the acquisition by canceling $200 million of a $1.4 billion mortgage they hold on the Tropicana Casino and Resort on The Boardwalk.
U.S. Bankruptcy Court Judge Judith H. Wizmur approved the sale last month, saying, “There is basically no other option available at this point,” according to a report in The Press of Atlantic City.
Originally expected to fetch $1 billion or more, the Tropicana had been on the market ever since the former owners, hotel group Columbia Sussex, were stripped of their New Jersey gaming license in 2007. The license was revoked following mass layoffs and regulatory violations. In the months that followed the Trop’s value shrank dramatically as the recession hit and the Atlantic City gaming industry saw revenues plummet.
Icahn, a master of the distressed purchase, had acquired the former Sands Casino Hotel in Atlantic City out of bankruptcy for a mere $65 million and later sold it for $270 million. In similar fashion his American Real Estate Partners bought the Stratosphere Casino Hotel in Las Vegas and three other smaller casinos for about $300 million and flipped them for a reported $1.3 billion.
STEER CLEAR OF CASINOS, MOODY’S TELLS LENDERS
Bond rating service Moody’s isn’t altering its negative outlook for the casino industry, saying it believes the going will continue to be rough for at least the next 12 to 18 months.
Senior Vice President Keith Foley said trends that began with the onset of the recession in 2008 have not shown any “tangible signs” of stabilization.
“Our outlook for the U.S. gaming industry remains negative amid uncertainty about the timing and degree of a recovery,” he wrote in a note to clients
He said the industry’s biggest risk is the possibility consumers will further reduce discretionary spending.
“We do not assume that because gaming demand declined along with the economy, it will return to pre-recession levels once the economy improves,” he said.
He was especially pessimistic about the Las Vegas Strip and Atlantic City markets, whose struggles continued into 2009 with double-digit gaming revenue declines through April.
TRIBES FEELING RECESSION IN CALIFORNIA, ARIZONA
Gamblers are still spending money at California’s Native American casinos, just less than they used to.
Revenues at Indian casinos across the United States were actually up 2.3 percent in 2008, according to the annual report from the Nation Indian Gaming Commission. But in California, where most of the 58 tribal casinos are in areas affected by last year’s collapse of housing markets, revenues were down 5.6 percent.
“We have the same amount of players, although people seem to be spending less everywhere lately, and we are certainly no exception,” said Mike Hiles, a spokesman for the Soboba Band of Luiseño Indians, which runs a casino near San Jacinto, Calif.
Tribal casinos in the state had slightly less than $7.4 billion in gambling winnings last year.
Arizona, which also has been hit hard by foreclosures and other housing issues, was the only other tribal market where revenue declined last year.
In contrast, gambling revenue in Oklahoma was up 18 percent. Overall, the nation’s 405 Indian casinos and bingo halls in 28 states won more than $26.7 billion in 2008.
ILLINOIS CASINOS WANT RACING MILLIONS BACK
Four Illinois casino operators have filed a $267 million racketeering lawsuit against former Gov. Rod Blagojevich and a prominent racetrack owner over a controversial law that requires casinos to contribute part of their revenues to struggling racetracks.
The complaint, filed last month in U.S. District Court in Chicago, grew out of a federal investigation into an alleged pay-to-play scheme the former governor is accused of running.
The plaintiffs in the suit are operations owned by Harrah’s Entertainment, Penn National Gaming, MGM Mirage and the Pritzker family. They accuse Blagojevich and John Johnston, whose family owns and operates several racetracks in the Chicago area, of violating the federal Racketeer Influenced and Corrupt Organizations Act.
A federal affidavit alleges Blagojevich attempted to pressure Johnston for a $100,000 contribution in return for the governor’s signature on legislation to help the state’s racing industry. The legislation, which was enacted in 2006, requires the state’s four top-earning casinos to contribute 3 percent of their gross adjusted annual revenues to racing for two years. To date, casinos have paid $89.2 million into an escrow account being held for the racing industry.
HOUSE OKs NEW TRIBES — BUT NOT NEW CASINOS
Seven tribes in North Carolina and Virginia would gain federal recognition under legislation passed last month by the U.S. House of Representatives. However, they would not be allowed to build casinos.
The Lumbee Tribe of North Carolina and six Virginia tribes would be eligible for up to $800 million in federal funds for housing, education and health benefits under two bills approved by the House and awaiting passage in the Senate.
In the case of the Lumbees, the legislation would allow North Carolina to continue to have jurisdiction over all criminal offenses on tribal land and would not permit the tribe to own or operate gaming facilities there.
The six Virginia tribes, which have around 3,000 members, have been seeking recognition since the 1990s. They are the Eastern Chickahominy, Chickahominy, Upper Mattaponi, Rappahannock, Monacan and Nansemond tribes. They would also be prevented from owning or operating casinos under the legislation.
Virginia Gov. Tim Kaine testified in support of their recognition earlier this year. The state’s two Democratic senators, Jim Webb and Mark Warner, support the legislation and have introduced a bill on the tribes’ behalf in the Senate.
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