Posting About Posting at Bellagio

This past week I spent four days in Vegas on a big group trip which included my significant other and another ten of our friends. I initially booked three rooms at Venetian based on a good email / players' club offer, but switched over to Bellagio which came through a week prior to our trip with an even better offer. So, out of convenience and a desire to snag future room rate offers from the MGM Megalith, I split my poker playing time between Bellagio and Aria. Incidentally, for those of you looking to book a nice hotel for a Vegas poker trip, the Aria poker room is actually a short, easy walk from the Bellagio spa tower (the tower past the conservatory and on the southwest corner of the property) through Vdara and into the north valet entrance of Aria, making the Aria poker room nearly as accessible as the Bellagio poker room.

I had not played poker at Bellagio in over a year, and I'm honestly not sure why. Historically, I have found Bellagio to be a consistently profitable place for me to play, with some of the softest $2/$5 NLHE games in town, along with a top-notch (if occasionally snooty) staff and top shelf booze. But since Aria's poker room opened, my poker play has been predominately at Aria and Venetian, with significant cameo appearances at Mirage and Planet Hollywood. Most of the reason for dropping Bellagio from my regular poker rotation was that Bellagio really did not care about low-stakes players, treating them mostly as an annoyance. After this trip, however, Bellagio has certainly earned a promotion back into my Vegas poker lineup.

Although Bellagio still caters to the highest stakes players—even midweek during the WSOP the room was spreading multiple $25/$50 PLO games as well as limit and no-limit hold 'em and mixed games with blinds from $10/$20 up to $800/$1600—the room's management, floors, and dealers seem to have for the most part made their peace with lower stakes players, welcoming hordes of poker players looking to play $1/$3 and $2/$5 NLHE. In fact, those low stakes players now routinely fill nearly half of the Bellagio's 40 poker tables, even as Doyle Brunson continues to hold court in Bobby's Room and name pros like Erick Lindgren drop by to get into the high-stakes PLO games.

During my lengthy absence, the Bellagio poker room management had switched the $1/$2 NLHE game to a $1/$3 game, with a commensurate rise in maximum buy-in from $200 to $300. This is a rule change I applaud as it allows deeper stacked play, not to mention encourages bad players to put more money into play. However, I also discovered another, less welcome rule change the hard way.

During my first session, I was seated at a $1/$3 NLHE table just behind the button. The dealer asked me if I wanted to "post in"—i.e., post a $3 big blind to receive a hand—or wait for the big blind. Now this process of posting in is common in many (though not all) Midwestern casinos. But in my experience, no other Strip poker room requires posting in; instead, a player is simply dealt in without posting, unless the new player is in the blinds, in which case the player either posts the blinds in turn or waits and is dealt in for free (i.e, without posting) after the button passes. Still, it was only $3, so I didn't think much of the posting rule at the time.

During my next session at Bellagio, I was sent to a $1/$3 NLHE game where my seat was between the small blind and the button. Generally, poker rooms will simply deal around the new player in this spot, then on the next hand pass the button past the new player and deal in the new player. Some poker rooms, however, allow the new player to "buy the button" by posting both the small and big blinds, allowing the button to move normally on the subsequent hand with the new player keeping the button and the blinds proceeding to the left naturally, albeit with a one hand interruption.

As I was unracking my chips, the dealer asked me, "Do you want to post in?" I wanted to give off the image of a fish eager to play—made easier because it was accurate—so I flipped in a $5 chip. A player in late position raised, I folded as did the rest of the limpers, and we moved on to the next hand.

Except the dealer moved the button past me. WTF?!?

Me:  "Excuse me, I bought the button."

Dealer:  "No, you just posted in."

Me:  "No, I put out $5 to buy the button."

Dealer:  "I asked you if you wanted to post in. You never said anything about buying the button. You could've bought the button, but you didn't put out $4."

Me:  "I put out $5 to buy the button. Why on earth would I want to post in in the blinds without buying the button."

Dealer:  "Some players just don't want to wait to play."

Although I was mildly annoyed, I let it go as it was a small issue in the grand scheme of things. Plus, there's really no benefit in continuing to argue over this type of issue when it's clear that not only wasn't I going to "win", there really wasn't any remedy for what was a simple misunderstanding. Eh, caveat emptor. Live and learn. Fool me once ...

Anyway, over the next four days, I witnessed over a dozen new players move into a spot to the left of the button under similar circumstances—in fact, considering many players leave the table when the big blind hits them, it is rather common for new players to move into that particular spot between the small blind and button. Every single time, the dealer asked if the player wanted to "post in"; not once did a dealer ask if the player wanted to "buy the button", even though buying the button is far more advantageous for the player.

I question why Bellagio, alone among the major Vegas poker rooms, feels the need to require players to post in to games. The only rationale for posting in is that a player should have to put some money into the game before being able to play, in order to prevent a player dealt in for "free" from hitting and running after winning a big hand before paying the blinds. But this rationale is incredibly weak. How often do players sit and play only a few hands, unless they get terribly unlucky? Also, even if an occasional player pulls a hit and run in the first orbit to avoid paying the blinds, they still have to put their chips at risk if they do play a hand. Finally, if the posting in rule is on the Bellagio's books because it is perceived as necessary for some reason for the high-stakes games regularly spread in the room, we're only talking one big blind per new player, hardly enough to affect the course of play regardless of the stakes of the game.

Nonetheless, if Bellagio is going to require players to post in, then why are Bellagio's dealers not offering new players in the blinds the additional option to buy the button? Buying the button is quite common in many poker rooms, while Bellagio is unique in my experience in permitting players to post in between the button and blinds. So, offering players the option to buy the button would prevent confusion. Further, buying the button is significantly more advantageous for players, so dealers should let players know that buying the button is also an available option, rather than asking only about posting in.

Look, the Bellagio's posting in rule ultimately doesn't have any significant impact on game play. It's more a quirky rule to be aware of, rather than a reason to avoid the room. Still, it's not the type of rule that is player-friendly, and the Bellagio still has some room to improve in that regard.

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ADDENDUM (30 June 2013; 1:16 CT):  I just stumbled on a recent 2+2 thread that repeated rumors that David Sklansky's table jumping habits led to the Bellagio posting rule. Sklansky and Mason Malmouth both jumped into the fray to declare the rumor bogus (see HERE, HERE, HERE, HERE, and HERE).

Managing Expectations for DiCristina

This week, the Second Circuit Court of Appeals heard oral arguments in the DiCristina poker case. The DOJ is challenging a federal district court decision which found that the Illegal Gambling Business Act (IGBA) did not apply to poker because poker is a game of skill and the IGBA only applies to games of chance. Poker media guru "Diamond Flush" posted an excellent summary of the arguments, which by all accounts went very well for the pro-poker side.

PokerNews published highlights of a discussion with PPA litigation director Patrick "Skallagrim" Fleming, which is well worth a read. Unfortunately, PokerNews dropped the ball on a couple of major legal issues:

A Circuit Court ruling that IGBA doesn't include poker would be a big victory for the legality of poker. As it's already been determined that The Wire Act doesn't apply to poker, the IGBA is the last federal law the DOJ interprets as making poker illegal and was at the center of the Black Friday indictments. Other charges of money laundering and violating the Unlawful Internet Gambling Enforcement Act were dependent on operating a poker business being unlawful under the IGBA.

....

The case is sort of a freeroll for poker. If the DOJ wins, it will be able to continue interpreting the IGBA to include poker as it has been. If DiCristina wins, the DOJ won't have any legal standing against poker on a federal level. There also seems to be very little chance that the court would overrule Judge Weinstein's finding that poker is a game of skill since it doesn't affect the appeal.

There are two significant errors here, which are somewhat interrelated. First, the money laundering and UIGEA charges in the Black Friday indictments were not solely predicated on the IGBA violation. Instead, the indictments were based on violations of both federal law and New York state gambling laws. Certainly having the IGBA found inapplicable to online poker would undermine the Black Friday charges, but a pro-poker decision in DiCristina would not negate the UIGEA and money laundering charges.

Second, and more significantly, it is simply untrue that "the IGBA is the last federal law the DOJ interprets as making poker illegal" and that a victory in DiCristina means "the DOJ won't have any legal standing against poker on a federal level." Of course, the UIGEA still prevents the transmission of money to fund online poker sites operating in violation of state law, and most states have laws which classify poker as gambling for purposes of gaming regulations. More to the point, however, is that the Travel Act—a breathtakingly broad statute targeted at criminal enterprises—very much remains in play. As I wrote when analyzing the federal district court ruling in DiCistina:

The [DiCristina] decision only interpreted the IGBA. There are other federal statutes that could still be used by federal prosecutors against businesses offering poker, most notably the Travel Act. Unlike the IGBA which contained its own definition of "gambling", the Travel Act simply relies on a violation of a state gambling law to establish the predicate offense. Also, note that the Travel Act prohibits use of "the mail or any facility in interstate commerce" to "distribute the proceeds of any unlawful activity" or "otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity". This arguably could mean that merely mailing checks, promotional materials, or awards to players could be a violation of the Travel Act. So far federal prosecutors have not used the Travel Act in any poker-related prosecutions (at least not to my knowledge), but that might change if they lose the IGBA as a tool because of this decision.

My words turned out to be prophetic (though my prophesy wasn't any more challenging than predicting that LeBron James would win multiple NBA titles). A mere three weeks after the district court decision in DiCristina was issued, the DOJ amended their Black Friday civil forfeiture complaint against PokerStars, Full Tilt Poker, Ultimate Bet, and various business entities and individuals associated with those sites to include a Travel Act violation as a basis for forfeiture of poker-related assets. So, although it's unclear where PokerNews was getting its legal information on this point, PokerNews' coverage was unquestionably inaccurate on a significant legal point.

Now, why does it matter if PokerNews got this legal point wrong? The biggest issue is that this kind of misinformation feeds into the poker community's collective misunderstanding of applicable law and raises unrealistic expectations, in particular an impression that a favorable appellate ruling will clear the way for legalized online poker on a national basis. If the Second Circuit affirms the district court's decision—and I certainly hope that it does so—the effect on online poker will almost certainly be rather modest. As I wrote in my previous analysis of the DiCristina district court decision:

Even if the [DiCristina] decision is affirmed on appeal, its impact on the poker legalization fight is likely to be minimal. In many states, whether poker is a game of skill is utterly irrelevant as poker is explicitly regulated as gambling. In other states where poker's status is not defined by statute, courts have already ruled that poker is gambling, and those courts are unlikely to reverse course after having decided the issue. The decision probably has little application to other federal gambling statutes because the decision is based on the IGBA's particular definition of "gambling". ... Most likely, the decision will ultimately have only symbolic value.

Now, I don't want to leave the impression that DiCristina is not important; it is unquestionably a significant case. In fact, if the Second Circuit affirms the district court's ruling, then the DiCristina case will have significance both in removing poker from the ambit of another federal statute, and in being the first appellate court decision finding poker to be a game of skill. Nonetheless, at the end of the day, even a win in DiCristina will have little discernible impact on the effort to legalize poker. [FN1]. That's a fight that will need to be waged on a state-by-state basis, at least for the time being.

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[FN1]  As I previously discussed, one potential major winner from a DiCristina win in the appellate court is PokerStars:

Because the decision is from a different court, it does not change the pending DOJ Back Friday criminal or civil forfeiture cases other than to make it marginally easier for the remaining defendants to leverage a better plea bargain or settlement because the DOJ's IGBA and associated money laundering charges are now in a somewhat weaker position. The Black Friday cases are ultimately more about the banking and financial shenanigans of those involved than the underlying poker businesses themselves. But the decision certainly strengthens the argument to be made by PokerStars to state gaming regulators that merely running an online poker business did not violate federal law. Even if the decision is reversed on appeal, PokerStars could still argue that if a respected federal judge thought that poker was not regulated by the IGBA, then they certainly had a good faith belief they were not violating the IGBA. Of course, there would still be the matter of PokerStars allegedly violating state gambling laws, the UIGEA, federal money laundering laws, and federal banking laws. But if the applicability of the IGBA and the Wire Act can now be called into question, it becomes easier to raise doubts about some of the other laws in the mix.

Unfortunately, appellate courts rarely move quickly. A decision will likely take three to six months to be issued. If so, then PokerStars will be denied an opportunity to rely on a potentially favorable appellate court decision as New Jersey considers PokerStars' application for a gaming license.

PokerStars v. Atlantic Club Casino—Looking at PokerStar's Legal Options

In the wake of a New Jersey judge lifting the temporary restraining order (TRO) which had blocked the potential sale of the Atlantic Club Casino to buyers other than PokerStars, PokerStars has declared they "remain committed to New Jersey". The judge's decision to lift the TRO less than two weeks after putting the brakes on the PokerStars-Atlantic Club breakup left some observers in the poker community baffled, while others have pondered what legal and business options remain viable for PokerStars in New Jersey. From a litigation perspective, PokerStars chances of salvaging the Atlantic Club deal look rather grim.

I.  Appeal

Many in the poker community suggested that PokerStars appeal the judge's ruling. Unfortunately, as a matter of procedure, an appeal is a difficult option for PokerStars at this point in time. Generally speaking, a party has the right to appeal only after a case has reached a final judgment, which generally requires either a verdict after trial, or a dismissal or judgment entered on a motion (e.g., a motion to dismiss or a motion for summary judgment). The judge's ruling lifting the TRO is not a final disposition of the case, so PokerStars cannot appeal as a matter of right.

However, PokerStars could file an application with the state appellate court for permission to file what is known as an interlocutory appeal, or an appeal from a non-final ruling. Interlocutory appeals are strongly disfavored because appellate courts prefer cases to be fully litigated prior to appeal. This practice permits the evidentiary record to be fully developed prior to appellate review, and also allows potentially erroneous rulings by the court early in the case to be rendered moot by later developments in the litigation. Consequently, courts generally only grant interlocutory review when a party will suffer substantial prejudice from being forced to wait for a conclusion of the litigation process to have an erroneous ruling reviewed. Examples of situations where an appellate court might be inclined to grant interlocutory review include where a party claims the lower court lacks jurisdiction over the party or claim, or where a lower court has ordered production of privileged documents.

In the present case, the court's denial of PokerStars' TRO request is not a likely candidate for interlocutory review. In order to get a TRO, PokerStars had to convince the trial court judge that it was probable it would ultimately prevail on the merits of the claim. The trial court's denial of the TRO implies that PokerStars is unlikely to ultimately prevail, and thus the appellate courts are less likely to see a need to grant interlocutory review. Also, as a practical matter, appellate courts are more likely to grant interlocutory review of a trial court's granting of a TRO than a denial of a TRO; the imposition of a TRO is much likelier to prejudice a party than the denial of a TRO.

Still, the TRO in this case has some attributes that distinguish it from run-of-the-mill rulings and might make an appellate court interested in granting an interlocutory appeal. In particular, PokerStars may essentially be deprived of the benefit of its bargain if it proceeds to trial and wins, only to have had the Atlantic Club sold to a third-party in the interim. In an emergency telephone hearing on May 7, 2013—the day after PokerStars filed its complaint and the court entered the preliminary TRO—the judge specifically noted the "potential chaos" that might result if a TRO was not granted at least until he had the opportunity to review all of the parties' arguments and evidence on the merits. This same line of reasoning may make an appellate court more inclined to grant interlocutory appeal. Still, the trial court judge ultimately reviewed the parties' submissions and determined a TRO would not be appropriate, implying he felt PokerStars was less likely to ultimately prevail, which detracts from PokerStars' argument for a grant of interlocutory review.

If PokerStars decides to pursue interlocutory appeal of the judge's ruling, they would need to do so by this Thursday, June 6 (New Jersey Rule of Appellate Procedure 2:5-6 requires an appeal to be filed within 20 days of the district court's ruling), unless they file a motion for reconsideration with the trial court. However, appellate courts rarely move quickly, particularly in standard civil litigation arising from a commercial contract dispute. A certain period of time—possibly several weeks—will pass as the Atlantic Club resists the application for interlocutory appeal and as the court considers and issues a decision to grant the appeal; this decision is unlikely to be entered prior to the Division of Gaming Enforcement's (DGE) decision on PokerStars' application for a gaming license (a/k/a an Interim Casino Authorization or "ICA"). Then, unless the appellate court grants a stay and enters its own TRO pending appeal (again unlikely), several months will pass as the parties file briefs on appeal and the appellate court reaches a decision on the merits of PokerStars' request for a TRO. Also, because the judge's denial of the TRO would be weighed by the appellate court under a highly deferential "abuse of discretion" (a/k/a "arbitrary, capricious, or unreasonable") standard of review, PokerStars would be fighting an almost impossible uphill battle to win on appeal.

II.  Fight On

If PokerStars decides not to pursue an interlocutory appeal—and their failure to file an application with the appellate court within a few days after the ruling suggests they do not intend to do so—PokerStars can still press on with their lawsuit against the Atlantic Club. However, continued litigation is probably a rather unsatisfactory option for PokerStars given its ultimate goal of becoming licensed in New Jersey and offering online poker in the state.

First, an interesting provision in the Purchase Agreement (Section 10.2(c)) states that the parties waive the right to a jury trial and agree to have any dispute heard by a trial court judge. The trial court judge has already ruled that PokerStars is unlikely to prevail on the merits. Unless some type of "smoking gun" evidence of improper behavior by Atlantic Club pops up—e.g., emails showing Atlantic Club was pursuing other buyers during the contractual exclusivity period—it seems unlikely the judge will change his mind based on a trial. Even if a different judge handles the trial, having a judge already weigh in on the merits of the case will give Atlantic Club a leg up at trial, as many trial court judges are reluctant to contradict another trial court judge absent a clear error. Frankly, the TRO skirmish in these types of lawsuits often decides the ultimate outcome, or at least gives the prevailing party substantial leverage going forward.

Further, a review of the actual Purchase Agreement demonstrates PokerStars is on shaky legal ground with respect to its claims. As I've discussed in greater detail previously, PokerStars' argument that the "Outside Date" used by Atlantic Club to terminate the deal violates New Jersey's gaming statutes is unlikely to carry the day. The remaining claims for promissory estoppel and unjust enrichment are equally weak in light of the express terms of the Purchase Agreement. With respect to promissory estoppel, PokerStars is claiming that Atlantic Club misled them into paying advances and incurring expenses in seeking a gaming license. Yet PokerStars was already required to do those very things by the contract. Similarly, PokerStars is claiming Atlantic Club has been unjustly enriched by keeping the advance payments and a termination penalty essentially equal to the total purchase price. But again, PokerStars agreed to those very terms in the contract. A court is unlikely to grant PokerStars equitable relief from the Purchase Agreement it negotiated and agreed to, absent evidence of actual fraudulent conduct by Atlantic Club. Courts simply will not invoke principles of equity to save a party from a bad deal of their own making.

Finally, the time and expense of proceeding to trial will be significant, particularly in light of the likelihood of prevailing at trial. Going through discovery, motions, and trial will easily cost PokerStars north of half a million dollars, and quite possibly well over a million dollars in legal fees alone (trust me, even in less pricey venues than New Jersey, a month of depositions will run over $200,000, and a week of trial can easily run over $250,000). Also, a trial date is likely more than nine to eighteen months away. If there is little chance of prevailing on the merits, the expense and hassle of continued litigation may well give PokerStars good reason to cut their losses, pay the termination fee, and walk away.

III.  Pursue Other Options

PokerStars has been incredibly confident that the New Jersey gaming authorities would grant them a license; Isai Scheinberg even allegedly told Atlantic Club executives he felt there was a "90% chance " PokerStars would get a New Jersey license. At this point, given statements by Atlantic Club questioning PokerStars' qualifications for getting a gaming license, it seems unlikely PokerStars will put in additional money to resurrect the Atlantic Club purchase (if Atlantic Club would even entertain a sweetened offer from PokerStars).

Although PokerStars would need a physical base in Atlantic City to offer online poker, the Atlantic Club is only one option for PokerStars. PokerStars could continue to pursue a New Jersey gaming license with an eye toward purchasing another casino or even partnering with a casino to offer online poker. New Jersey certainly offers PokerStars better odds of being licensed than in other states, given its unique combination of poor economic conditions for the state's casinos coupled with the lack of any "bad actor" clauses in the state's online poker statutes. Thus, even though the Atlantic Club deal may be dead, New Jersey may well remain PokerStars' best opportunity to break into the regulated United States online poker market. The only question would be how much the failed Atlantic Club deal, including the Atlantic Club's incendiary comments about PokerStars' "criminal" connections, would impair PokerStars' ability to navigate the licensing process. Still, PokerStars will need to jump the licensing hurdle sometime, somewhere, if they want to operate in the United States, and New Jersey may well remain their best opportunity to do so.

PokerStars v. Atlantic Club Casino—Bad Deal, or Deal Gone Bad?

"Well, with that the argument began—and it went hot and heavy. At first, Jabez Stone had a flicker of hope, but when he saw Dan'l Webster being forced back at point after point, he just sat scrunched in his corner, with his eyes on that japanned box. For there wasn't any doubt as to the deed or the signature—that was the worst of it. Dan'l Webster twisted and turned and thumped his fist on the table, but he couldn't get away from that. He offered to compromise the case; the stranger wouldn't hear of it. He pointed out the property had increased in value, and state senators ought to be worth more; the stranger stuck to the letter of the law. He was a great lawyer, Dan'l Webster, but we know who's the King of Lawyers, as the Good Book tells us, and it seemed as if, for the first time, Dan'l Webster had met his match."

~ "The Devil & Daniel Webster", by Stephen Vincent Benét (1936)

I.  What Does the Contract Say?

When Rational Group US Holdings—parent company for PokerStars—filed suit to enforce an agreement to purchase the Atlantic Club Casino from Resorts International Holdings, the Complaint painted a picture of PokerStars as a white knight rescuing the Atlantic Club from certain disaster, only to be repaid with treachery. Not surprisingly, commentary in the poker community has generally taken PokerStars' side in the dispute, calling the Atlantic Club's termination of the purchase agreement a "loophole" which was grossly unfair given the fact that PokerStars had already paid $11 million of the $15 million purchase price as weekly expense advances to keep the Atlantic Club solvent and operational. The Atlantic Club's demand for an additional $4 million termination fee was portrayed as simply twisting the knife in PokerStars' back.

Of course, to this point the actual purchase agreement has not been released to the public, so commentary about the case has naturally been shaped by how PokerStars portrayed the purchase agreement. But when it comes to contracts, the devil is in the details. To evaluate the dispute between PokerStars and the Atlantic Club, there is no substitute for reviewing the nitty gritty of the actual purchase agreement.

Via some contacts in the legal community, I was able to obtain copies of all of the court filings related to the temporary restraining order (TRO), including a copy of the Purchase Agreement (attached as an Exhibit to the Complaint). So, without further ado, lets take a look under the hood.


II.  The "Outside Date"

Probably the biggest issue raised by PokerStars was a claim that the "outside date" in the purchase agreement (April 26, 2013) was void for violating this New Jersey gaming statute provision:

"[W]henever any person contracts to transfer any property relating to an ongoing casino operation … under circumstances which require that the transferee obtain casino licensure … the contract shall not specify a closing or settlement date which is earlier than the 121st day after the submission of a completed application for licensure or qualification… Any contract provision which specifies an earlier closing or settlement date shall be void for all purposes."

PokerStars' argument is that its application was not "completed" until April 11, 2013, and thus any contractual provision for an "Outside Date" less than 121 days later (before August 9, 2013) would be void pursuant to law. However, for PokerStars' argument to work, the "Outside Date" in the Purchase Agreement would also have to be the "Closing Date" specified in the Purchase Agreement. Otherwise, the "Outside Date" is something different than a "closing or settlement date" and the statute would not apply.

From the outset, this argument struck me as dubious, primarily because a "closing or settlement date" is generally understood to be the date the actual transfer of property and money occurs between buyer and seller to conclude the transaction. Obtaining any required licenses and other regulatory approvals would usually be a condition precedent to a closing on the sale of a business. A purchase agreement dependent on licensing of the purchaser or similar regulatory approval would never specify a closing date prior to conclusion of the licensing or regulatory approval process. Thus, it seemed fairly clear to me that the "Outside Date" referenced in PokerStars' Complaint and Brief almost certainly was not the same as the contractual "Closing Date".

The Purchase Agreement confirms my expectations, and does so right out of the gate. Section 1.1 provides:

Section 1.1. Purchase and Sale of Interests. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, each Seller shall sell, transfer and deliver to Buyer ..., and Buyer shall purchase from the Sellers, the Interests set forth opposite each Seller's name on Schedule I, for an aggregate purchase price of Fifteen Million Dollars ($15,000,000) ...

Section 1.2 sets out the calculation of the purchase price, and includes references to a "Closing Date", "Closing Date Payment I' and "Closing Date Payment II". [FN1]. Similarly, Section 1.5 sets forth a number of legal documents that are to be executed and delivered "at Closing". In contracts, capitalized words and phrases are generally defined terms, meaning they are a shorthand reference to a particular set of facts, calculations, or conditions used for clarity and consistency throughout the contract. "Closing" and "Closing Date" are defined in Section 1.4 of the Purchase Agreement:

Section 1.4. Time and Place of Closing; Actions Prior to Closing.

(a) Unless this Agreement is earlier terminated pursuant to Article VII hereof, the closing of the transactions contemplated by this Agreement, including the purchase and sale of the Interests (the "Closing"), shall take place not later than the third Business Day following satisfaction or waiver of all the conditions set forth in Article VI hereof (other than those conditions intended to be satisfied or waived at Closing), at the offices of Wilkie Farr & Gallagher LLP, ... unless another time or place shall be agreed to by the parties (the "Closing Date").

As expected, one of the conditions precedent to Closing was for PokerStars to obtain an Interim Casino Authorization (ICA) (Section 6.1):

Section 6.1. Conditions to Each Party's Obligation to Effect the Closing. The respective obligations of each party to this Agreement to effect the Closing is subject to the satisfaction of each of the following conditions on or prior to the Closing Date, any of which may be waived in whole or in part in a writing executed by all the parties hereto:
....

(c) Interim Casino Authority. The ICA will have been obtained and will be in full force and effect.

Because obtaining the ICA was a condition precedent to Closing, the Closing Date was not a specified date in the Purchase Agreement, and in fact could not be specified as that date was pegged to PokerStars obtaining an ICA (which will not occur, if at all, until later this summer).

By contrast, the "Outside Date" is a specified date in the contract. Pursuant to Section 10.1(a), the general definitions section of the Purchase Agreement:

"Outside Date" means April 26, 2013.

Section 10.1(b) also specifically notes that "Closing" and "Closing Date" are defined in Section 1.4. So, by definition the "Outside Date" is not a "closing or settlement date". Given these provisions, PokerStars improperly conflated the Outside Date with the Closing Date in its Complaint (para. 81) and initial Brief (pp. 20-22). [FN2].

PokerStars did back away from this assertion in its Reply Brief (pp. 11-16), instead suggesting that the Outside Date and Closing Date were "inextricably linked". According to PokerStars, termination via the Outside Date provision is only possible if the transaction had not closed, and closing is dependent on PokerStars obtaining an ICA; therefore, the Outside Date implicitly requires closing on or before April 26, 2013, and thus violates the 121-day provision of New Jersey gaming law.

Although PokerStars' argument may have superficial appeal, it falls apart under closer analysis. The Termination provisions of the Purchase Agreement (Section 7.1) state:

Section 7.1. Termination. This Agreement may be terminated at any time prior to the Closing (with respect to Sections 7.1(b) through 7.1(f) hereof, by written notice by the terminating party to the other parties):
....

(b) by the Sellers' Representative or Buyer, if the transactions contemplated hereby shall not have been consummated on or prior to the Outside Date; provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose action or failure to act has been the primary cause of or resulted in the failure of the Closing to occur on or before the Outside Date and such action or failure to act constitutes a breach of this Agreement;
....

The plain language of Section 7.1(b) contemplates that the Outside Date is a deadline for consummating the deal that might occur "prior to Closing". Nothing in Section 7.1(b) requires Closing to occur on or before the Outside Date. [FN3]. Rather, Section 7.1(b) simply provides that, if Closing has not occurred by the Outside Date for whatever reason (including reasons unrelated to the ICA application), then after the Outside Date either party may choose to terminate the Purchase Agreement so long as the party terminating the agreement has not caused the failure to close by breaching any of its duties under the agreement. PokerStars and the Atlantic Club were free to allow the Purchase Agreement to remain in force after April 26, and even through August 9 or later if they had wanted to do so while awaiting the DGE's decision on PokerStars' ICA application. Thus, the Outside Date and Closing Date were not "inextricably linked". [FN4].

It is unquestionable that the Purchase Agreement placed tight time deadlines on PokerStars. Section 5.5(b) required PokerStars to submit an ICA application within three business days, which PokerStars did on December 24 (presumably PokerStars had been working on the ICA application since at least the signing of the original Term Sheet on November 7). From December 24 to April 26 is 123 days; clearly the Purchase Agreement provided more than 121 days for the DGE to consider PokerStars' ICA application. Thus, it was possible pursuant to the Purchase Agreement for PokerStars to obtain an ICA before the Outside Date and still complete Closing as contemplated by Section 1.4(a); of course, this would require PokerStars to have submitted a complete application by December 24. Further, Section 5.5(b) of the Purchase Agreement contemplated that the DGE might determine the ICA application was incomplete and require supplemental filings.

By agreeing to an Outside Date a mere 126 days subsequent to the signing date of the Purchase Agreement, PokerStars put itself in a situation where the ICA approval process needed to go smoothly. The ICA approval process and timelines were known to the parties. There was an inherent risk that PokerStars' ICA application would require additional time to process. Yet PokerStars agreed to an Outside Date that left little margin for error. The Outside Date was a contractual term bargained for by the parties. Absent fraudulent conduct, it would be unfair to set aside a contractual term merely because the provision ultimately worked to the benefit of one of the parties, or resulted in an outcome not anticipated by one of the parties.


III.  Retention of Advance Payments / Termination Penalty / Poker Room Buildout

The linchpin of PokerStars' equitable arguments is the claim that, because PokerStars has already paid the Atlantic Club slightly more $11 million in advances to fund the casino's operations since last November, it would be unfair to terminate the Purchase Agreement considering the total purchase price is $15 million. In fact, once a $4 million termination fee is added to the advance payments, the Atlantic Club will essentially receive the full $15 million purchase price, yet PokerStars will be left with no casino, a result PokerStars understandably considers "inequitable and unjust." (PokerStars Brief, pp. 28-29).

Once again, let's turn to the contract. Section 7.2 of the Purchase Agreement governs the rights and remedies of the parties upon termination (emphasis added):

Section 7.2. Effect of Termination.
....

(c) Remedies of Sellers. Notwithstanding anything to the contrary contained in this Agreement (including, for the avoidance of doubt, Section 7.2(e)), if this Agreement is terminated for any reason pursuant to Section 7.1 (other than by Buyer pursuant to Section 7.1(e)), Buyer shall pay to the Sellers' Representative, for further distribution to the Sellers, within two (2) Business Days of such termination, an amount equal in cash to Four Million Dollars $4,000,000 (the "Termination Payment"), and the Company shall be entitled to retain all Advances paid by Buyer to the Company pursuant to this Agreement and the Binding Term Sheet as of such termination.
....

PokerStars has also complained about paying nearly $320,000 to the Atlantic Club to fund the construction of a poker room in the casino, as well as incurring more than $1 million in additional fees and expenses in connection with the purchase agreement (a safe guess is that most of these fees and expenses were legal fees connected to the casino purchase and the ICA application process). (PokerStars Brief, p. 13). Section 5.17 of the Purchase Agreement addresses the poker room expenses (emphasis added):

Section 5.17. Poker Room. Prior to the Closing, at the request of Buyer, the Company shall cooperate, in all reasonable respects, with respect to the contruction of a poker room at the Property in accordance with the instructions of Buyer; provided, that Buyer shall fund all costs and expenses related to such poker room in advance, and shall obtain and pay for in advance all necessary Permits and insurance coverage related thereto. In no event shall costs or expenses incurred or any amounts otherwise paid by Buyer in connection with this Section 5.17 be deemed an Advance, and in no event, whether or not the transaction contemplated by this Agreement are consummated, shall the Company, the Sellers or any of their Affiliates be liable, directly or by reimbursement of the Buyer or any of its Affiliates, for any such costs or expenses.

Similarly, Section 7.2(b) addresses other fees and expenses:

Section 7.2. Effect of Termination.
....

(b) Fees and Expenses. Except as otherwise expressly provided in this Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Closing is consummated.
....

Based on these contractual provisions, if the Atlantic Club could properly terminate the Purchase Agreement, then PokerStars really has little reason to complain about the financial penalties it will incur. There are sound business reasons behind each of these financial provisions. First, with respect to outside fees and expenses, it is standard to require each side to bear its own fees and expenses associated with a business transaction. In large part, this standard rule is based on the idea that these types of fees and expenses are simply part of the cost of doing business, and each party to the transaction can control the fees and expenses it incurs as it sees reasonably prudent. Next, with respect to the construction of the poker room, this was a condition of the transaction that was specifically requested by PokerStars for its own benefit, most likely to provide live poker play as a cross-marketing tool to complement its online poker operations. Presumably if the Atlantic Club would have wanted a poker room, it would have already opened one. Sure the Atlantic Club will wind up with a "free" poker room, but the room may well end up being a white elephant of little use to the casino's operations.

Turning to the advance payments, again these payments were for the benefit of PokerStars, which wanted to purchase the Atlantic Club as a going concern rather than as a distressed or insolvent business. Keeping the casino afloat had real value to PokerStars, to the extent that the Purchase Agreement contained an express provision (Section 5.20) requiring the Atlantic Club to provide 24 hours notice prior to filing for bankruptcy, and to give PokerStars at least three days to provide sufficient cash to prevent a bankruptcy filing. Of course, the advance payments also directly benefited the Atlantic Club which has been able to operate through the winter and spring "down" periods primarily by using PokerStars' payments to fund its operations. It's also undeniable that the Atlantic Club will continue to benefit from those advances as it enters the more lucrative summer season and as it seeks another buyer. Nonetheless, the Purchase Agreement would likely never have been agreed to by the Atlantic Club if the advance payments by PokerStars were considered a loan or were to be forfeited back to PokerStars in the event the sale fell through; the Atlantic Club could not risk the negative financial impact of such an arrangement which would likely have made the casino immediately insolvent. Thus, the Purchase Agreement provisions related to the retention of advance payments by the Atlantic Club upon termination were likely an essential term of the deal.

Finally, the $4 million Termination Payment provision also makes business sense. By entering into the Purchase Agreement, the Atlantic Club was barred from discussing a better deal with any other potential buyer, potentially locking the casino into a sale below market value. This period of exclusivity was arguably of great benefit to PokerStars. The Termination Payment is a mechanism which encouraged PokerStars to consummate the sale while also providing compensation to the Atlantic Club in the event the deal fell through. A Termination Payment "penalty" of essentially $1 million per month of the Purchase Agreement's exclusivity period is steep, but hardly out of line given the financial scale of the overall transaction.

The financial consequences of a termination of the Purchase Agreement—regardless of cause—were negotiated by the parties and spelled out in great detail in the contract. Assuming the Atlantic Club properly terminated the Purchase Agreement for failure to close the deal prior to the Outside Date, PokerStars should have to live with the bargained-for consequences of its deal. It is neither unjust nor inequitable to require a party to live up to the legal terms of its contract, even if doing so imposes a steep financial price.


IV.  Conclusion

In analyzing the failed PokerStars-Atlantic Club Casino deal, it is important to keep in mind that the parties were sophisticated businesses which negotiated a complex financial transaction. The lengthy and detailed Purchase Agreement memorializing the numerous terms, conditions, and provisions of the deal was presumably reviewed by executives and legal counsel for both parties. Legal counsel for a deal of this magnitude are notorious for parsing every sentence, even every word, of a contract as important as this Purchase Agreement (and are paid handsomely for their expertise).

There is a strong legal presumption that the Purchase Agreement contains the entire contract between the parties (Section 10.7 contains what is known as an "integration clause", which essentially provides that the written contract is the sole and final expression of the parties' agreement). The mere fact that one of the parties—PokerStars—now claims it had a different understanding of the terms of that contract is of little relevance. PokerStars bargained for and agreed to the Purchase Agreement as it was signed by the parties. In fairness to PokerStars, it is entirely possible that making the deal happen required Poker Stars to concede many of the more onerous terms contained in the Purchase Agreement. If so, PokerStars may well have taken a calculated gamble that it could receive ICA approval before the Outside Date, knowing there was a significant downside risk to any delay in the licensing process. On the other hand, PokerStars may well have been simply out-negotiated by the crafty Atlantic Club folks (who had managed the casino to the brink of insolvency). Regardless, if the terms of the Purchase Agreement provide that the Atlantic Club can walk away from the deal and keep the money advanced by PokerStars, it's a little late in the day for PokerStars to start whining about how "unfair" the contract is.

One of the ironies of the PokerStars-Atlantic Club Casino debacle is that PokerStars (and its attorneys) come off looking like fools, which is quite a contrast to the general image of PokerStars as being run by sophisticated businessmen who are at the pinnacle of the online gaming industry. The failure of this deal is certainly an embarrassing setback for PokerStars, but it is not the end of the game by any means. PokerStars still has options available to obtain a license in New Jersey. The Atlantic Club fiasco simply means PokerStars moves forward with egg on its face at best, and mortally wounded at worst.

Tomorrow:  A look at PokerStars' legal options in the wake of the Atlantic Club Casino debacle.

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[FN1] Interestingly, Section 1.2 of the Purchase Agreement indicates that PokerStars was to be given credit against the $15 million purchase price for $6,434,000 in advances paid to the Atlantic Club Casino prior to signing the Purchase Agreement on December 21, 2012. Those prior advances were made pursuant to the preliminary Term Sheet reached between the parties on November 7, 2012. The amount of these prior payments, coupled with the need for roughly $4.5 million in additional advances (see Section 1.3) during the four months the Purchase Agreement was in effect underscores the severity of the financial troubles faced by the Atlantic Club in the Fall of 2012. To be blunt, the Atlantic Club was hemorrhaging nearly $2 million per month during the six months PokerStars was subsidizing the casino. PokerStars' claim to have saved the Atlantic Club from bankruptcy is most likely true.

[FN2]. The Atlantic Club's lawyers did a nifty bit of advocacy on this point by attaching to their Brief a table summarizing six other casino purchase agreements which contained both Outside Dates and Closing Dates, and which had similar provisions for termination of the purchase agreement if Closing did not occur by the Outside Date. Some of these purchase agreements contained provisions for automatic or optional extensions of the Outside Date in the event regulatory approval or certain other specified conditions were the reason for the delay in Closing. Those provisions for extension of the Outside Date are notably absent from the PokerStars-Atlantic Club purchase agreement.

[FN3]. In fairness to PokerStars and its attorneys, one provision of the Purchase Agreement (Section 5.5(c)) does suggest that the parties intended for Closing to occur before the Outside Date (emphasis added):

Section 5.5. Governmental Approvals.
....

(c) Without limiting Section 5.5(a) or Section 5.5(b) hereof, Buyer, its Affiliates and the Sellers shall (i) each use its reasonable best efforts to avoid the entry of, or to have vacated or terminated, any decree, order, or judgment that would restrain, prevent or delay the Closing, on or before the Outside Date, including defending through litigation on the merits any claim asserted in any court by any Person, and (ii) each use its reasonable best efforts to avoid or eliminate each and every impediment under any antitrust, competition or trade regulation Law that may be asserted by any Governmental Entity with respect to the Closing so as to enable the Closing to occur as soon as reasonably possible (and in any event no later than the Outside Date), including implementing, contesting or resisting any litigation before any court or quasi-judicial administrative tribunal seeking to restrain or enjoin the Closing provided that the parties shall not be obliged to take any action which is likely to damage their business or that of any of their Affiliates.

The problem with the Purchase Agreement is that the Closing conditions and Termination provisions noted above do not contain similar limiting language linking the Closing Date to the Outside Date.

[FN4]. In another bit of nifty advocacy, the Atlantic Club's attorneys obtained affidavits from three prominent prior members of the New Jersey DGE stating that the statutory 121-day period before any closing date was merely intended to ensure a reasonable period for review of any ICA application, and did not prohibit the parties from imposing a shorter "Outside Date" or "Drop Dead Date" terminating the purchase agreement prior to the closing date. (See Affidavits of Thomas Auriemma, Frank Catania, Sr., and Steven Perskie). Technically, construction and interpretation of the statute at issue is a matter for the court, and the opinions of these individuals are irrelevant. As a practical matter, these opinions gave the judge some cover for declaring that the statute did not bar the termination of the Purchase Agreement; after all, he was only agreeing with the "experts" in that area of the law.