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Posted by on Jan 17, 2013 in Blog, General Poker | 1 comment

Nolan Dalla — On the Ramifications of Pokerstars’ Purchase of the Atlantic Club

 

Atlantic Club in Atlantic City

 

Yesterday’s public announcement that Rational Enterprises intends to purchase The Atlantic Club in New Jersey stands as the online poker giant’s equivalent of launching a D-Day invasion at Normandie.

It’s a complete game-changer.

The objective — first land in Atlantic City, then take over an entire continent.

Think I’m overstating things a bit?  Consider this.  A lot of competitors have gone broke underestimating what’s become the unrivaled global mammoth in online poker.

Indeed, although it doesn’t look like much from the outside, The Atlantic Club represents a beachhead that is not only symbolic but practical.  It’s a precursor for much bigger things to come.  For the soon-to-be new owners, it’s a bold legal move and a brilliant public relations strategy.  For a relatively small investment reported to be around $50 million, in due time Rational Enterprises could conceivably re-emerge as the heavy favorite to regain its lofty status as the online poker market leader within the United States — potentially worth billions.

Of course, Rational Enterprises is the parent company of global online poker powerhouse — PokerStars.  Prior to the events of Black Friday, PokerStars was the world’s most popular online poker site by any measure.  The United States market represented a sizable percentage of its players and ultimately — its revenues.  Long before what happened nearly two years ago, the company foresaw the future and began making preparations.  Like reality actors on Doomsday Preppers, PokerStars began to diversify its international marketing, which in retrospect turned out to be a brilliant strategy.

But growth in international markets didn’t mean PokerStars didn’t feel a serious sting when the Department of Justice joined the game and essentially checked raised everyone out of the country.  With the equivalent of prohibition as the law of the land, the site and its games haven’t been accessible to American players since April 2011.  Burdened with legal troubles and the stain of an indictment against its owner, it appeared PokerStars’ lucrative golden age of operating freely inside the United States was over.

But a lot has happened within the past six months.  Prior to yesterday’s announcement, the biggest story was PokerStars’ agreement to come of the financial rescue of floundering Full Tilt Poker.  Overnight, PokerStars managed to take a toxic asset and essentially re-brand the company as a viable, financially stable entity.  Moreover, PokerStars’ financial deliverance provides hope that tens of thousands of poker players will eventually be reimbursed for the $150 million they are owed.  In short, PokerStars is being looked at almost in heroic terms, and rightly so.

So, why would PokerStars want to buy a run-down property located at the far south end of the Atlantic City Boardwalk in a market that’s been in a steady free-fall for years?  The Atlantic Club, which used to be the “Atlantic City Hilton” and was “Bally’s Atlantic City” long before that, has taken quite a tumble from twenty years ago when Frank Sinatra once headlined the showroom and it was considered the crown jewel at the south end of the famous Boardwalk.

By some estimates, the property is now losing $15-20 million a year.  Worse, the hotel and casino are in desperate need of renovation.  Perhaps the biggest challenge, however, is that even with The Atlantic Club re-emerging as a sparkling new attraction, the competition has become so intense within New Jersey and nearby states that it seems impossible for the property to recapture its glory days during the late 1980s.  With multiple casinos now open in Pennsylvania, Delaware, West Virginia, and coming soon to Maryland, as well as expanded gambling at New York’s racetracks, there’s little or no reason for the hoards of visitors who used to take the highway in from New York, Philadelphia, Baltimore, and Washington to make a 2 to 4-hour drive.  Why pay $15 in tolls and burn a tank of gas when you can stay much closer to home and play in a casino down the street?

Fact is, PokerStars investment in The Atlantic Club has little to do with any illusions they can miraculously reverse the effects of what’s become a broken dam, and re-harness the massive numbers of visitors now tumbling downstream instead to The Parx, Delaware Park, Harrah’s Chester, and Aqueduct.

Oh, I have no doubt whatsoever that PokerStars will make dramatic improvements to the property.  They might even stop the ceaseless hemorrhaging of red ink.  But The Atlantic Club most assuredly will not turn a profit — not soon, not eventually, perhaps not ever.

And that suits PokerStars just fine.

See — this isn’t about investment for profit’s sake.  It’s about achieving a groundbreaking victory, winning a public relations coup, making a lot of powerful allies, and eventually using those advantages to create a new market presence in other states.  It’s also about achieving respectability in the mainstream.  As respectable a company as PokerStars is, they’re still looked upon by some as renegades.  But with a bona fide land-based company in its portfolio and thousands of employees, on American soil, it becomes the equal of General Electric or Disney.  A lot of people are going to be watching closely what PokerStars does, and once they succeed (and they will), it’s going to set a precedent of similar tumbling dominoes elsewhere.  The phone at PokerStars is going to be ringing off the hook from depressed regions and casinos in desperate need of a jump start.

Alas, PokerStars stands as the knight on a white horse at the moment.  No investor on earth wants to touch anything near Atlantic City.  Yet here is a global giant based on the Isle of Man ready to open up its checkbook and essentially guarantee the financial sovereignty of what’s become a third-rate sawdust joint.

This is a public relations dream come true.  Prior to the announcement, the 2,000 workers at The Atlantic Club had to wonder if each day they went to work might be their last.  Now, a few thousand jobs have been saved and many new jobs will be created once the property begins a much-needed renovation.  All those workers have families and friends who will talk among themselves.  They will look at PokerStars as a savior.  Alas, news like this plays well on all fronts — in the local community, to state legislators desperate for Atlantic City’s dwindling tax revenues, and perhaps most importantly to New Jersey Gov. Chris Christie, likely to become a presidential candidate in 2016.

With no other investors and increasing amounts of plywood being nailed onto Atlantic City’s windows, Gov. Christie should (and likely will) roll out the red carpet when PokerStars decides to parade into town.  One thing’s for sure — you can never have enough friends in high places.  And given Gov. Christie’s immense popularity, this might be as strong a political ally as there is right now.

PokerStars hopes that, just like Nevada did a few years ago, New Jersey will legalize online poker.  And those companies with New Jersey gaming licenses in good standing are likely to be the very first in line to receive the goodies handed out by a new online poker licensing commission.  Unlike Nevada, which probably can’t turn much of a profit for online poker sites due to its small population and saturation of other forms of gambling, New Jersey has a large enough population to make a significant investment worthwhile.  And once New Jersey gets going, other states — strapped for tax revenues — will most certainly follow suit.  It’s just a matter of time before 5 or 10 states jump on board.  Eventually, 20 to 30 states will probably be linked by an interstate online poker compact, just like Powerball.

PokerStars’ advantages in this battle are obvious and irrefutable.  While other companies must undergo the rigorous process of establishing new technology, marketing their product, and eventually gaining the loyalty of poker players, PokerStars essentially has to do only one thing.  Flip a switch.  Actually, they don’t even have to do that.  The light is already on and the game is already going.  For casual poker players facing a choice, what’s more appealing — making a deposit at a new poker site with fewer games or logging on to the global leader in this field with literally thousands of poker games at all limits going day and night?

Finally, owning The Atlantic Club gives PokerStars a place to host land-based events.  If you thought the turnout at the most recent PokerStars Caribbean Adventure was big, imagine what a tournament series might draw in Atlantic City, within a 200-mile radius of 40 million people.  The possibilities are endless.  The numbers could be astronomical.

The bottom line is — the ground is starting to rumble.  The noise is getting louder.  King Kong is about to set foot again in America.  The Atlantic Club is simply the banana.

Addendum:  

Over the past twenty years, I’ve spent a lot of time at what’s now “The Atlantic Club.”  When New Jersey legalized poker in 1993 (poker had been illegal inside the casinos up to that point), what was then “Bally’s” built a brand new poker room that overlooked the Atlantic Ocean.  Joe Nicosia was the first poker room manager.  I wrote my second Card Player magazine column ever when I interviewed Joe for the grand opening.

A few years later, I was invited to attend a gala event with baseball-great Willie Mays in attendance.  He signed some autographs, once which I still have

One time, I was invited to meet Paul Anka, the singer.  Many people may not know this, but Anka wrote “My Way” which was later made famous by Frank Sinatra and Elvis.

Another time, I had a chance to visit Bally’s and arrived very late at night.  It was snowing and miserable.  The entire casino was booked solid.  The front desk saw that I was a guest of management, and for some reason were so desperate that they gave me the only room that was still available on the property.  It turned out to be half of the entire top-floor penthouse at Bally’s, which usually hosted the star entertainers.  It’s probably my only claim to fame being able to say I slept in the same bed where Frank Sinatra, Liza Minnelli, Cher, and other legends slept.

I played a lot of Seven-Card Stud at Bally’s too, which eventually became the “Atlantic City Hilton.”  They used to offer a spread limit Stud game there, which I think was $2-20.  It was one of the best games in Atlantic City.  

Later, one of the best poker room managers on the planet took over operations.  Of course, I’m talking about the great T.K. Kraus.  He later moved on and took over the Hollywood Casino in Indiana.  But for someone who loved poker and was extraordinarily gifted at his job, I haven’t met too many people who come close to T.K.  Of course, once he left town and moved away, and the casino was re-sold yet again and renamed The Atlantic Club, things have not been the same.

I expect PokerStars is going to be making some significant changes, and dramatic improvements.  The company has way too much pride not to try and make this work.  In the end, the winners will be the casino employees, New Jersey, poker players, and most of all — PokerStars. 

DISCLAIMER:  I worked as a consultant to PokerStars for three years during 2003-2006.  The opinions expressed here are my own and do not reflect the position of any company which I have worked with, past or present.

1 Comment

  1. It appears Thomas “T.K.” Krauss, “extraordinarily gifted at his job”, as you put it, is back at the Atlantic Club Casino now that Pokerstars is in charge.

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