David Baazov has bought himself a pricey seat in a very high-stakes poker game.
After years of steadily building his technology and software company as a supplier to the gambling industry, the 33-year-old Canadian recently made a huge splash with the blockbuster $4.9-billion (U.S.) acquisition of the company that owns the popular PokerStars and Full Tilt Poker online sites.
Observers say the deal has the potential to transform online gambling, but also contend that Mr. Baazov’s company, publicly listed Amaya Gaming Group Inc., has taken on a hefty debt load to get its hands on some valuable brands and is betting big on the likelihood that major U.S. states are soon going to legalize Internet gambling.
There are also some key legal, regulatory and social issues to deal with, not least the lingering opposition from many quarters to the idea of legalizing online gambling and the refusal of major banks, financial institutions and credit card companies to have anything to do with the business.
Mr. Baazov, who was born in Israel and grew up in Montreal, says his game plan is to not only increase PokerStars’ and Full Tilt’s pool of 86 million registered players, but to roll out a convergence strategy involving other online games, mobile apps, partnerships with land-based casinos and tapping the vast social-media sphere.
“We expect to acquire additional customers and bring them into the mix that may be specific to poker but really expand that customer base,” the chairman and chief executive officer of Amaya said in a recent interview.
“The focus is to grow the sector,” he said.
“The exciting part of this company [Rational Group Ltd., the owner and operator of PokerStars and Full Tilt Poker] is that it comes with 86 million customers. Not 86 million gamblers specifically; 86 million customers.”
So far, only a few small states have legalized online gambling. California and several other states are studying the matter. Opponents, including existing industry players, are fighting any such move. Casino mogul Sheldon Adelson, for example, is spending millions to get Washington to once again impose a federal ban on online gambling.
Isle of Man-based PokerStars has been stymied in its attempts to re-enter the market after a U.S. Justice Department crackdown on online poker in 2011.
Isai Scheinberg, described by federal prosecutors as the founder and owner of PokerStars, and 10 other online gambling executives were indicted three years ago on charges of conspiring to break the Unlawful Gambling Enforcement Act, which bans banks and other institutions from accepting payments for illegal online gambling.
Mr. Scheinberg denies any wrongdoing and is contesting the legal actions against him. His son, Mark, founded PokerStars owner Oldford Group. Under the terms of the deal with Amaya, he and other principals in the company will sell their stock and will no longer be involved in the company while existing management stays on.
With the slate wiped clean, Mr. Baazov believes the way is cleared for Amaya to spearhead the expansion of PokerStars and Full Tilt Poker in the U.S. and in other regulated jurisdictions around the world.
Mr. Baazov says the U.S. is only part of a larger expansion strategy taking in key markets in hot gambling regions such as Europe and Asia.
Asked if California, a populous state where gambling is big, is key, Mr. Baazov replies: “Yes and no. From a broader perspective I think that poker is going to grow regardless of the U.S. The game of poker is going to grow not just domestically but internationally.”
And he believes the financial institutions will eventually come around.
“It’s just a question of time, and I see that as more states continue to regulate, you’re going to see more and more banks get involved.”
Amaya is taking on $2.9-billion in debt to finance the transaction, with Blackstone Group’s credit arm providing about $650-million.
Frank Legato, editor of Global Gaming Business, said the deal is great for the Scheinbergs, but more of a gamble for Amaya.
“Amaya is a relatively small company that is borrowing the majority of the money to buy PokerStars,” he said in an e-mail.
In the meantime, he questions how quickly some big U.S. states will legalize online gambling.
“Will Amaya’s other worldwide revenues, including PokerStars, be enough to finance the new debt the company is incurring?” With 86 million users, he adds, “I’d say it’s a pretty good gamble.”Report Typo/Error