Pokerstars' Bid to Buy Casino Could Signal Gambling Gold Rush

The Atlantic Club Casino and Hotel is seen Thursday, Feb. 14, 2013, in Atlantic City. (AP Photo/Mel Evans)
The Atlantic Club Casino and Hotel is seen Thursday, Feb. 14, 2013, in Atlantic City. (Mel Evans, AP)
By COLLEEN CURRY

A move by the online gaming giant Pokerstars to buy an Atlantic City casino could signal a gold rush for the gambling industry, according to industry watchers.

Online companies are expected to be scrambling for land and casinos in states like Nevada, New Jersey, and Delaware, which recently passed laws allowing online gambling if it is affiliated with in-state casinos. Similar bills have also been introduced in Pennsylvania and Illinois.

Pokerstars, part of the online gambling corporation Rational Group, based in the U.K., struck a deal earlier this year to buy the Atlantic Club, an 800-room hotel and casino on the Atlantic City boardwalk, according to paperwork filed with the state's division of gaming enforcement.

The move came after New Jersey Gov. Chris Christie signed a law Feb. 26 allowing online gambling for residents as long as the games were hosted by in-state casinos located in Atlantic City.
The company, which was previously indicted by the Department of Justice for offering online gambling to U.S. residents, wants to legally operate its website and the casino, according to its owners. They reportedly paid about $30 million for the casino.

"In a nutshell, the future of gaming will require a mix of online and offline expertise," Eric Hollreiser, spokesman for Pokerstars, told ABCNews.com in an email. "We are the world's largest online poker company and one of the largest producers of live poker tournaments in the world, which we produce in many of the world's best known casinos."

Hollreiser said that the proposed business model would help drive online gamers into casinos for live tournaments, and remind casino-goers to log on and game at home until their next visit.

"We drive traffic from our online tournaments to our major casino partners around the world. This drives a poker tourism business in cities such as London, Monte Carlo, Barcelona, (and) Rio," he said. "The traffic runs both ways as we introduce new audiences to poker in these live tournaments."

Precedent-Setting Decision

Pokerstars is awaiting approval from the Division of Gaming Enforcement and the state's Casino Control Commission. If it goes through, it could represent the first time a gaming website has transformed into owning and operating a hotel and casino.

The development could send waves through the gaming industry.

"The casino-going population is older. You have this huge bubble of younger people who have never gone to a casino or intend to go to one, but spend half their waking life on smartphones or computers, playing games, social networking. So how does the gaming industry respond?" said Joe Brennan, director of the Interactive Media Entertainment and Gaming Association (iMega), who has studied the effects of disruption on the gaming industry.

Because states are requiring online gamers to have a casino in the state, companies on both sides of the issue are rushing to take advantage of business opportunities. Casinos are partnering with online gamers or developing their own web games, while online poker giants are rushing to find real estate in states where casinos are legal, Brennan said.

"Pokerstars is indicative of this: that online giants aren't going to sit back and let U.S. (casino) companies eat their lunch. They built their industry and I don't think they're going to passively sit back and allow it to be acquired," Brennan said.

The American Gaming Association, the casino industry's main lobby, filed a brief opposing Pokerstars' application to buy and operate the New Jersey casino.

Federal Regulation Sought

Frank Fahrenkopf, president and CEO of AGA, declined to comment on the brief, but insisted that the AGA supported the future of online gaming and would like to see the industry federally regulated.

He insisted that legalization of online gambling won't cut into the profits of casinos.

"We did some studies a few years ago and looked at the question of whether or not online poker would cannibalize our brick and mortar businesses, and we came to the conclusion that it would probably not be a cannibalization but a new profit center," Fahrenkopf said. "A lot of the people online tend to be young men, with a higher education and a little higher income than the average player, and these people historically have not gone to casinos."

In the race to serve both online and in-person gaming audiences, the odds favor the online gaming operators, according to Brennan. The casinos are typically enormous hotels that have struggled, especially in Atlantic City, in past years as casinos have cropped up in neighboring states.

"A lot of these online gaming companies have cash on hand, whereas you look at the biggest and best of the brick and mortar companies and they're challenged. They're saddled with debt. They don't have a lot of cash on hand," Brennan said.

Industry Could Benefit

Still, as the companies adapt to the changing marketplace, both the brick-and-mortar shops and the web-based businesses could benefit, he said.

"Brick and mortar casinos are not just going to drop off the face of the earth. People are not playing at the same stakes online as they are in casinos. It's much smaller stakes," Brennan said. "The world leading poker companies, over 90 percent of users are playing at a penny or a dollar per hand. You can't sit down at table in Atlantic City or Las Vegas for those kind of table stakes. It seems like a fantastic opportunity to start grooming those players to take a visit to Atlantic City or Vegas."

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