Amaya Gaming is a Canadian gaming and online gambling company traded on the Toronto Stock Exchange (symbol TSE:AYA). In June 2014, Amaya agreed to buy the parent company of PokerStars and Full Tilt Poker for $4.9 billion  The takeover makes Amaya the world’s biggest publicly listed online gambling company. The deal was closed on August 1, 2014.
The company produces gaming products and services including online casino, poker, sportsbook, platform, lotteries and slot machines software. It claims some of the world’s largest gaming operators and casinos are powered by its online, mobile, and land-based products. The company according to its website has offices in North America, Latin America, Europe and Asia.
In September, 2014, Amaya Gaming unilaterally ended contracts with some of its affiliates, citing sections 8.4 and 8.9 of its terms and conditions.
Acquisition of Rational Group
October 15, 2014 Business Acquisition Report
August 1, 2014 Amaya completes acquisition of PokerStars and Full Tilt
July 30, 2014 Amaya Shareholders approve acquisition
July 28, 2014 Gaming regulatory approvals received
July 8, 2014 Management Information Circular for Annual and Special Meeting of Shareholders
July 7, 2014 Closing of Subscription Receipt Offering
June 23, 2014 Upsize of preferred shares offering press release
June 13, 2014 PDF of acquisition announcement presentation
June 13, 2014 Webcast of acquisition announcement presentation
June 12, 2014 Acquisition announcement press release
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
Amaya borrowed $3-billion to do the deal, which closed in August.
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.
PokerStars and Full Tilt together have an estimated 66 per cent of the online poker market outside the U.S.
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.
The first site to offer real-money games was Planet Poker, launched in 1998 by Edmonton engineer Randy Blumer.
(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.
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.
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
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.
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.
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.
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.
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.
Baazov says PokerStars will keep its headquarters on the Isle of Man.
…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.
… 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.”
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.