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Despite bans and restrictions—not only in the U.S. but in Japan and other large countries—online gambling is a global phenomenon. According to consultants H2 Gambling Capital, worldwide online gambling revenues have quadrupled over the past 10 years to $36.9-billion.

ANGUS ROWE MACPHERSON/The Globe and Mail

David Baazov doesn't look like the card sharks you see in high-stakes poker tournaments on TV–the computer geeks or baseball-capped good ol' boys living the Vegas dream. Nor is the polished 34-year-old CEO of Montreal-based Amaya Gaming Group Inc. a Hefner-style swinger or a reclusive mastermind, like other entrepreneurs who have hit the jackpot in the young, chancy business of online gambling.

This past June, Baazov, who speaks in bursts of Internet marketing lingo–"platform-centric perspective," "time-based entertainment value"–showed that he's a brand-new type of player: a numbers guy who's positioned to rule the exploding global business of online poker. Baazov stunned the industry when his small software company announced a deal to take over Rational Group Ltd., the world's largest online poker provider and owner of the top-ranked PokerStars and Full Tilt brands, for $4.9-billion (all currency in U.S. dollars unless otherwise noted).

Talk about big bets–big cojones, even. Amaya borrowed $3-billion to do the deal, which closed in August. Yet PokerStars and some other providers are shut out of their largest potential market: the United States. Congress clamped down on Internet gambling in 2006, and it's by no means a sure thing that Baazov and his cohort will be able to convince lawmakers and regulators to let them back in. And then there's this: The politically powerful bricks-and-mortar casino business is also determined to keep online interlopers from poaching its business.

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On the other hand, if anyone's going to break open the giant piggy bank in a business dogged by shady connotations, a squeaky-clean Canadian public company seems to suit the part. The PokerStars deal helpfully put at arm's length some of the business's legal dodginess (about which more shortly).

Despite bans and restrictions–not only in the U.S. but in Japan and other large countries–online gambling is a global phenomenon. According to consultants H2 Gambling Capital, worldwide online gambling revenues have quadrupled over the past 10 years to $36.9-billion. Add to that another potential $3.5-billion in the U.S. if the market opens up.

Baazov has been careful not to get too pumped up about PokerStars' U.S. prospects, even though it would begin with a huge head of steam–by one measure, PokerStars and Full Tilt together have an estimated 66 per cent of the online poker market outside the U.S. Following the acquisition, he granted just two media interviews; he declined to be interviewed for this story. In a conference call with analysts after Amaya released its second-quarter results in August, he would only say that the company is "committed to working with regulators to create responsible and tax-efficient means to regulate within their jurisdictions." Translation: Let us in, and we'll play by your rules.

Before that happens, however, Baazov still has a lot of checkered history to overcome–that of PokerStars and the whole online gambling business.

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Pokerstars' roots actually go back to Canada, too–the business, oddly enough, has a consistent Canadian bloodline. In 2000, Isai Scheinberg founded a small firm called PYR Software Ltd. in the Toronto suburb of Richmond Hill. Now in his late 60s, the publicity-shy Scheinberg was raised in Lithuania and has a master's degree in mathematics from Moscow State University. After graduating, he moved to Israel and fought in the 1973 Yom Kippur War. He joined IBM in Israel, and then transferred to the company's Canadian arm. Schein– berg was also a serious card player–he competed in the 1996 World Series of Poker in Las Vegas and won $3,337.

Online poker, in which small groups of card players "sit" at onscreen tables and compete against each other in real time, was still in its infancy when Scheinberg collected those winnings. The first site to offer real-money games was Planet Poker, launched in 1998 by Edmonton engineer Randy Blumer. Others soon followed.

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The basic business model is still the same. Players deposit cash with the site provider, and the site randomly deals cards. It makes money the same way casinos do: by keeping a percentage of every pot–up to, say, 4 per cent. Savvy players–or addicts–often have hands open on several tables at once. Bets are as low as five cents, although pots of several hundred dollars per hand are not uncommon. PokerStars also offers mass online tournaments, such as its weekly Sunday Million, which costs $215 to enter, and offers a guaranteed minimum $1-million in payouts.

By 2000, the most popular poker sites included PartyGaming and Paradise Poker, which hosted about 2,000 players at peak times. But much of the gaming and administrative software was slow and cheesy-looking. Scheinberg figured that he could develop much more powerful systems. He launched PokerStars in September, 2001, and it quickly impressed the then-small but growing number of online enthusiasts. (The average number of non-tournament cash players on PokerStars.com at any given time is now about 23,000, and for tournaments it set a world record of 225,000 in 2013.)

PokerStars' first major marketing coup came in 2003 at the world's most renowned live tournament, the World Series of Poker, which is hosted in Las Vegas. The buy-in for each contestant was $10,000, and PokerStars spent $370,000 to send 37 players it had selected in qualifying tournaments online. Dressed in PokerStars shirts, many of them looked like rubes among the seasoned pros. Yet on the final day, a 27-year-old PokerStars player from Tennessee with the remarkable handle of Chris Moneymaker won the jackpot of $2.5-million.

The popularity of online poker and other forms of Internet gambling exploded. A slew of new sites launched, including Full Tilt, now based in Ireland, in 2004. PartyGaming, which offered casino games such as blackjack and roulette as well as poker, astonished the London Stock Exchange with its IPO in June, 2005: Its share price soared in the first two months, and its market capitalization shot up from $8.5-billion to more than $12-billion. Analysts expected PokerStars to ride the surge and go public, too.

In those days, the industry seemed to revel in its bad-boy image. Leading providers located their headquarters or computer servers in tax havens–PokerStars on the Isle of Man, and betandwin (now known as Bwin.Party Digital Entertainment after taking over PartyGaming in 2011) in Gibraltar.

Among the glitziest early successes was Saskatchewan-born Calvin Ayre, a software developer who launched the gambling site Bodog in 2000. His own lifestyle was his most effective promotional tool, featuring wild parties with scads of bikini-clad "Bodog Girls" at his compound in Costa Rica, and more partying in Hollywood and Hawaii with stars such as Al Pacino and Snoop Dogg.

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Ayre delighted in thumbing his nose at the U.S. Department of Justice. Even before Congress enacted its 2006 restrictions on Internet gambling, the feds alleged that Bodog was violating existing laws prohibiting the use of phones or other communications devices to accept bets. But Bodog collected $7.3-billion in wagers in 2005, 95 per cent of it from the U.S. Yet Ayre reportedly paid no personal or corporate income tax in Costa Rica or the U.S. In March, 2006, Ayre was featured as cover boy for Forbes magazine's annual ranking of the world's billionaires, next to the headline "Cyber bookie Calvin Ayre sticks it to Uncle Sam."

PokerStars, too, turned up the volume with glamour and celebrities. Like other online poker sites, it relies heavily on sponsoring live tournaments with dozens of top pros. Team PokerStars includes Toronto-born Daniel Negreanu, whom Scheinberg played poker with in the 1990s, and Liv Boeree, the most well-known female player. In the mid-2000s, PokerStars also began signing endorsement deals with actors and pro athletes, including Jason Alexander and Boris Becker, and Mats Sundin in Canada. One of the first images you now see on PokerStars' website is Rafael Nadal holding two aces and proclaiming: "The best and easiest poker software I have ever used; 100 per cent secure and fast to set up."

The heady early era ended in 2006 when Congress passed the Unlawful Internet Gambling Enforcement Act the day before adjourning for midterm elections. Then-Senate majority leader Bill Frist, a Republican from Tennessee, pulled a so-called midnight drop by tacking the act on to a much larger bill concerning port safety. The act banned anyone from accepting payments for illegal online gambling.

The poker and gambling sites cried foul, but the impact was swift and painful. PartyGaming's share price plunged by almost 60 per cent in one day. Like other leading sites, it pulled out of the U.S. market immediately. But PokerStars continued to operate. Scheinberg's lawyers told him that poker was a game of skill in which players bet against one another, not a game of chance, like blackjack or roulette, in which they play against the house. PokerStars vaulted past PartyGaming to become the biggest online poker site in the world.

But then came what the industry calls "Black Friday"–April 15, 2011. The U.S. Department of Justice seized the U.S. Internet addresses of the three largest remaining online poker providers–PokerStars, Full Tilt and Cereus (which operated Absolute Poker and UltimateBet). It also charged 11 gaming and financial executives with bank fraud and money laundering. Prosecutors accused the banks and payments processors of using elaborate ruses to accept bets illegally, including disguising them as payments to non-existent online merchants selling things like jewellery and golf balls.

Eight of the 11 executives have since pleaded guilty to some charges. The other three, including Scheinberg, have not entered pleas. Scheinberg doesn't set foot in the United States, and he reportedly has travelled by private jet rather than on commercial flights, for fear of a plane being rerouted to a U.S. airport in an emergency.

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However, there was a thaw between PokerStars and the Justice Department in July, 2012. The company agreed to a $731-million settlement and to buy Full Tilt, which had gotten into deep financial trouble, owing $160-million to American players alone while it only had $60-million in its bank accounts. The Justice Department dropped civil lawsuits against the two companies. And PokerStars agreed that Scheinberg would not serve in management or as a director.

The following year, PokerStars extended another olive branch. Prosecutors alleged that Scheinberg's son Mark, who was serving as Rational's chairman and CEO, received distributions from his company that were subject to the 2012 agreement. The younger Scheinberg was not one of the 11 defendants in that case, but in June, 2013, he agreed to pay $50-million to settle the matter, without admitting any wrongdoing.

Still, PokerStars remained shut out of the U.S. market. It was possible for Americans to play on the site, but only with some difficulty. They had to join a foreign-based virtual private network to disguise the domicile of their computer, or they could travel to Mexico, Canada, the United Kingdom or other countries where PokerStars still operates, and establish residency there.

PokerStars figured its best strategy was to seek a licence in one of the three states that, Washington notwithstanding, allowed and regulated Internet gambling. In December, 2012, PokerStars was in discussions to buy the Atlantic Club Casino Hotel in Atlantic City, New Jersey, for $15-million. That was in anticipation of a new law–passed in February, 2013–that allowed the state's land-based casinos to also offer online gambling. (In 2012, Delaware authorized online gambling, and Nevada created a regulated system.)

But PokerStars needed an interim casino authorization from New Jersey regulators. The American Gaming Association, the powerful lobby group for the casino industry, mounted a furious campaign against PokerStars, denouncing it as a company "built on deceit, chicanery and the systematic flouting of U.S. law." In July, 2013, PokerStars threw in the towel and abandoned its bid for the Atlantic Club.

By that point, the Scheinbergs were running out of options in the U.S. They needed an exit strategy.

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Enter the at-first very unlikely suitor: Baazov. Amaaya was only a fraction the size of PokerStars ($145-million a year in revenue, versus more than $1-billion for Rational Group). But Baazov, who was born in Israel and grew up in Montreal, had a promising track record. He got his start in marketing during the dot-com boom, and spotted the huge potential in online gambling in the early 2000s.

In 2005, he founded Amaya, which makes electronic gaming machines and software for online gaming and lotteries. It went public on the TSX Venture Exchange in July, 2010, at $1 a share. Its revenue and share price climbed steadily, and Amaya graduated to the TSX in October, 2013. It also impressed the market with several acquisitions: gambling software makers Chartwell Technology in 2011 and CryptoLogic the following year, and Cadillac Jack, a manufacturer of electronic gaming machines, also in 2012.

Baazov had a grand vision for the gambling industry and his company, too. In a June, 2013, interview, he talked about the importance of attracting or acquiring as many customers as you can. You then try to maximize revenue from each one with offerings in a full suite of "adjacent verticals"–land-based and online casino games, sports betting and so on.

Around that time, Baazov made his first overtures to Rational Group, to which Amaya was already pitching software. Rational was skeptical, but Amaya was persistent–and it was able to obtain financing.

Indeed, Amaya had impressed two important financial firms. In April, 2013, the fast-growing and aggressive Bay Street investment dealer Canaccord Genuity issued a glowing 57-page research report on Amaya. "We believe that Amaya is on the cusp of a transformation after a flurry of acquisitions supporting strong growth in 2013 and 2014 whether the U.S. opens or not," the report said. Canaccord, which has been on a roll in the mid-range mergers-and-acquisitions market, was lead underwriter for Amaya's $40-million (Canadian) share issue in June to raise money for future growth.

Last year, Amaya also won the backing of one of the most powerful investment banks on Wall Street, giant Blackstone Group. Last December, its GSO Capital Partners division, which focuses on debt financings and leveraged buyouts, refinanced $160-million worth of debt from Amaya's Cadillac Jack acquisition.

Serious takeover discussions and due diligence between Amaya and Rational also began that month. Baazov had secured a commitment letter from Blackstone saying it would be the anchor for up to $3-billion of the financing.

Still, the size of the deal and how fast it closed surprised many people on the Street and in the online gambling industry. Canaccord Genuity and Deutsche Bank were lead advisers, with Canaccord leading the underwriting for the sale of $640-million worth of subscription receipts that were converted to stock when the deal closed in August. And GSO bought $600-million of a $1-billion preferred share issue.

The hefty purchase price and the $3-billion in debt Amaya has issued worries some people in the industry. Angelo Dalli, CEO of Malta-based gaming-platform company Bit8, says that "PokerStars probably got the better deal." On the other hand, he says, "Baazov acquired a long-term future asset and a very strong brand." In a way, it was a win-win. But in the short term, Dalli says, "the winner is PokerStars, definitely."

The deal allowed the Scheinberg family, which reportedly held 75 per cent of privately owned Rational, to cash out. Isai and Mark Scheinberg will no longer have any role with the company. The elder Scheinberg remains a fugitive from U.S. justice. Baazov says PokerStars will keep its headquarters on the Isle of Man.

Baazov's prospects could improve dramatically if he can persuade a U.S. state to let PokerStars back in. New Jersey seems to be the best opportunity. Still struggling to rebuild after Hurricane Sandy in 2012, it desperately needs revenue. But the state's land-based casinos are in dire straits. Three Atlantic City casinos closed this summer alone, including the Trump Plaza. Indeed, the entire land-based industry is suffering from over-construction. In the case of New Jersey, competition from new casinos in neighbouring New York State and Pennsylvania is draining away its customers.

Soon after the Amaya-Rational deal was announced, George Rover, New Jersey's assistant attorney general and deputy director of its division of gaming enforcement, said, "We are looking forward to working with Amaya as we begin a comprehensive review of their acquisition of PokerStars. The Division has always maintained that the licensing process could be reactivated if there were significantly changed circumstances, and by all accounts, this acquisition has resulted in the removal of all previously existing ownership interests."

But a combative Calvin Ayre, who is still a fugitive from U.S. justice himself, thinks that Amaya may be in for a rough ride from the feds and regulators in other countries. He ought to know. In 2007, Ayre signed a licensing agreement with the Morris Mohawk Gaming Group in Kahnawake, Quebec, that gave it control of Bodog's North American gambling operations, and he announced his retirement. But he kept trying to promote Bodog as a consumer brand in Europe and Asia, and in 2009, he launched CalvinAyre.com, a gambling news site. In 2012, however, federal prosecutors in Baltimore indicted him on sports betting and money laundering charges that date back to activities before Congress's 2006 gambling clampdown. Ayre denounced those charges as "an abuse of the U.S. criminal justice system." He was also placed on the U.S. Immigration and Customs "Wanted" list.

Answering questions by e-mail from his new home base of Antigua, Ayre says that the Scheinbergs cleverly unloaded a hot potato on Amaya. "I think the Scheinbergs clearly got the best of that deal. They know that taking PokerStars public will cause major changes in its business model." Amaya used to just supply software to gambling sites; now it is an operator. Although PokerStars no longer offers real-money online poker in the U.S., it still serves many grey markets like Canada where online gambling's legal status is uncertain. "I expect them to be forced out of the Canadian market and many other markets in the world now," says Ayre. "The pressure will come from regulators in the United States, the U.K. and Canada to get out of all grey markets."

Ayre thinks that the online industry is maturing, but regulators still treat it as if it were toxic. "Over-regulation is going to stifle competition and erode consumer value, just like all government gatekeeping does in all industries," he says. "The Internet is essentially self-regulating already for gaming services."

I. Nelson Rose, a professor at Whittier Law School in California who is an expert on gambling and gaming law, says that Amaya's legal chances of success "are 100 per cent political chances." The key will be to dangle the carrot of increased revenue in front of the state politicians and regulators, and to make peace with land-based casinos by convincing them that letting PokerStars back in will expand the market for everyone.

In news releases and conference calls with analysts, Baazov has repeated that he's happy just to have acquired Rational's existing customer base of more than 86 million registered users worldwide. In an interview with London's Sunday Times in July, he said that "we have five main growth initiatives, and America is No. 4 on the list."

But if approval in New Jersey comes through later this year, as some industry analysts predict, get set for the profitable clanging of bells and whistles.

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