Internet poker an equity exit at Caesars Entertainment Group?

January 03, 2012 3:09 AM
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Legal Internet poker may provide the private equity owners of Caesars Entertainment with the vehicle for their eventual exit from the company.

This could occur, according to senior gaming industry executives outside Caesars, as the company decides the time is right for another effort at an IPO.

But those offering GamingToday their thoughts (some would call it speculation) on the condition they not be identified, warn there are a number of continually moving parts associated with this thinking.

When and where Internet poker may spring to life in the U.S. as a result of the Justice Department’s revised view of the 1961 Wire Act is anyone’s guess.

"What we have here," one observer confided – very much tongue is cheek – "is a wonderful opportunity for gaming attorneys and other imaginative strategists to earn their big bucks as they search for loopholes in the interpretation of the law as it now appears to exist."

Much of the speculation has to do with what Indian tribes may attempt as they leap at possible opportunities to use the Internet for poker. The busiest casino in the U.S. is said to be the Seminole-owned Hard Rock just east of the Tampa and St. Petersburg area on Florida’s Gulf Coast. It’s a brand with broad market appeal.

The Seminoles have been among the most aggressive of American Indian groups when it comes to utilizing opportunities they argued were open to them because of their status as sovereign entities and the existence of state sanctioned gaming in the states where they are located.

The recent Justice Department letter offered what one attorney termed "a narrow ruling" applying to the interests of state lotteries in Illinois and New York that want to sell tickets via the Internet. But attorneys and other officials who shared their thoughts on the possible impact of the Department’s decision expect there will be energetic efforts to expand the ruling’s application.

That’s not what big gaming companies want to see. The MGMs, Caesars and Penn Nationals of the world cringe at the prospect of a hodge-podge of smaller Internet programs cluttering the business landscape with questionable operations of the kind that might threaten a repeat of action that produced the federal indictments against some Internet operators last spring.

These gaming giants hope the men and women in Congress will get busy writing controls as they view the opportunity for "chaos" created by the Department’s revised view that the Wire Act applies only to illegal sports betting and NOT Internet poker, which has already been legalized in several states, pending federal action.

Caesars officials have not been available for comment on their reaction to recent developments but it is likely there have been behind the scenes conversations even as the distractions of a presidential election year suck up much of the available energy in Washington.

When Apollo and TPG Capital announced their nearly $28 billion buyout of Harrah’s Entertainment in December 2006, the expectation was that the company’s myriad brands and assets would be "rehabbed" and it would eventually go public again.

"The way these things typically work," an executive familiar with such deals told me, "is that the basis of an exit strategy is in place even as a purchase is made."

The company’s World Series of Poker brand has gotten a lot of attention since the purchase. It’s been expanded to Europe where Caesars is already developing Internet programs in countries where it is legal.

But the slow recovery from the unexpected recession that nearly choked off the national appetite for discretionary spending did not do the casino business any favors. An effort to launch a 2010 IPO was pulled back because of uncertainty about the casino business and the company’s continuing heavy debt load.

A gaming veteran familiar with the thinking inside Caesars Entertainment confided, "They want to do what they can to move the needle. They are confident Internet poker will do that."

Legal Internet poker could revitalize things in a hurry, but only if it occurs as a national program that avoids a "crazy quilt" of conflicting state rules and removes the potential for anything resembling a repeat of the 2011 indictments.

Is this asking too much of a Congress that seems to have trouble agreeing on whether the sun is shining?

The good news is that there’s clear momentum toward legalization. But there’s still that question . . . the big unanswered one: Is it enough?