Donald Trump Teams With Avenue’s Lasry in Online Gaming Venture; Casino And Poker Push - 20th October 2011

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Donald Trump has witnessed too much money side slipping him, and he's hoping that situation changes soon.

The real estate, gaming and entertainment giant, and founder of an Atlantic City casino company says the US should legalize internet gambling. The company that bears his name, Trump Entertainment Resorts, is moving forward with plans to establish an online betting venture... just as soon as it is legal to do so.

The company says it wants to get in on the ground floor of the internet gambling industry, and is close to selecting a joint venture partner to run an online gambling operation. The idea is to be well-placed and ready to go as soon as such activity is legalized in the United States.

"It should be approved here," Trump told news media. "An awful lot of money is leaving the U.S. that should and could stay in this country."

Trump Entertainment, which includes Donald Trump and daughter, Ivanka, and the Avenue Capital hedge fund, would own 10% of the new business venture.

Donald Trump advised the key to success in the online gambling market is having the best brand.

"We think we have the hottest brand there is, the Trump brand, my personal brand," he said. "We think it's going to do phenomenally well."

Donald Trump and New York hedge-fund manager Marc Lasry want a seat at the virtual poker table if online gambling is legalized in the U.S.

The real estate financier, Lasry’s Avenue Capital Group and casino operator Trump Entertainment Resorts Inc. will form an Internet gaming joint venture should U.S. regulators permit such businesses to operate, according to an Oct. 14 regulatory filing. Trump Entertainment, which Avenue Capital took control of last year, would own 10% of the venture, the company said in its filing. It didn’t disclose the stakes to be held by Trump or Lasry’s $12 billion hedge fund.

The agreement coincides with a push to legalize online gambling by states including Iowa and New Jersey, where Trump Entertainment is based and holds casino licenses. The $6 billion that Americans wager each year through offshore sites is tempting state authorities who face budget deficits, as well as casino companies looking for new sources of growth.

"It’s just a matter of time," Ivanka Trump, Donald’s daughter, said in a telephone interview. "It would be a tremendous source of taxable revenue for states or the federal government and an enormous generator of jobs," said Ivanka, executive vice president of development and acquisitions for the Trump Organization, the New York-based parent company of Donald’s real estate operations.

2010 Bankruptcy

Todd Fogarty, a spokesman for Avenue Capital, declined to comment, as did Brian Cahill, a representative for Trump Entertainment. Lasry, 52, is chairman of the company, which operates the Trump Taj Mahal Resort and the Trump Plaza Hotel & Casino in its hometown of Atlantic City, New Jersey. It sold Trump Marina Hotel Casino earlier this year.

The agreement by Trump Entertainment, Donald Trump and Avenue Capital restricts all three parties from going after competing proposals through May, according to the filing with the U.S. Securities and Exchange Commission.

Trump Entertainment, which emerged from bankruptcy in July 2010, said in the filing that the joint venture represented "the most advantageous way" to pursue online gaming "at minimal cost" to the company. "One or more other qualified parties" may also participate in the venture, according to the filing.

Ivanka Trump, 29, said that the joint venture is “positioning itself” to be the largest online gaming company if the industry is legalized in the U.S. She added that Trump Entertainment had the necessary licenses, while Lasry’s firm would provide the capital and her father would contribute his name to the venture.

Expensive Proposition

"In terms of the Internet, brand is essential toward attracting players," Ivanka said. "The Trump brand would be the most powerful one in this space."

Setting up an Internet gaming site can be capital intensive, according to Richard “Skip” Bronson, chairman of U.S. Digital Gaming Inc., a Beverly Hills, California, company that has created a technology platform for Internet wagering. While the cost of creating a site is relatively low, online gaming companies must spend heavily to make themselves known and bring in bettors.

"The question is how will you get people to come to the site," Bronson said in a telephone interview. "It takes unique promotions and significant marketing spend."

Trump Entertainment Reorganization

The online gaming industry received a jolt in April, when the U.S. Justice Department indicted the founders of three Internet poker companies, alleging that they circumvented a 2006 federal law barring banks from processing payments to offshore gambling websites. The companies -- PokerStars, Full Tilt Poker, and Absolute Poker -- ranked as the leading online poker sites doing business with U.S. customers, even though they were all based outside the country.

Following the indictments, Caesars Entertainment Corp. and MGM Resorts International, a pair of Las Vegas-based casino companies, funded an advocacy group called FairPlay USA. The group is pushing for the legalization of online poker and revisions to the 2006 law, known as the Unlawful Internet Gambling Enforcement Act.

At least a half dozen states have bills pending tied to the legalization of online gaming, Bronson said, and another six to 10 are studying the issue. He predicts that online gaming will follow the same pattern as state lotteries, which were first adopted in 1964 by New Hampshire and are now offered in 43 states.

‘Domino Effect’

"There will be a domino effect, the same way lotteries started in the 1960s," Bronson said. Under the 2006 federal law, Internet poker sites established in states that legalize online wagering could only accept bets placed within those states, Bronson added.

Lasry, a billionaire investor who specializes in distressed debt, was part of a bondholder group that won control of Trump Entertainment last year when a bankruptcy judge ruled that their bid for the casino company was better than a competing offer from Carl Icahn. The bondholders offered to reduce the company’s debt by $1.4 billion and invest another $225 million, while Icahn sought to convert some $480 million of bank debt into equity, leaving nothing for Lasry’s group.

Under the winning plan, Avenue Capital acquired about a 22 percent stake in Trump Entertainment by swapping the casino company’s beaten-down bonds for stock and purchasing additional shares through a rights offering. Trump, who joined Lasry and the other bondholders after originally submitting a competing proposal with billionaire Andy Beal, received a 10 percent stake in the company for the right to use his name.

Three’s A Charm

Trump, 65, entered the casino business in 1984 with the Trump Plaza, and in 1990 defaulted on $675 million in junk bonds from his Taj Mahal casino and declared bankruptcy. Following the bankruptcy reorganization, he took the company public in 1995 as Trump Hotels & Casino Resorts Inc.

Trump Hotels & Casino filed for bankruptcy protection in November 2004. When the second bankruptcy proceeding was completed the following year, Trump stepped down as chief executive officer while retaining his role as chairman, and the company was renamed Trump Entertainment Resorts.

Just before the casino company made its third bankruptcy filing, in February 2009, Trump stepped down as chairman and Ivanka also left the board. At the time, he held a 24 percent stake in Trump Entertainment.

Lasry has hosted high-stakes poker games in which the take can be as high as $20,000, according to "Hedge Hunters," a 2007 book by Bloomberg News reporter Katherine Burton. He is one of several hedge-fund managers who are also poker buffs, including David Einhorn, head of Greenlight Capital Inc., Cliff Asness, chief of AQR Capital Management LLC and Kenneth Griffin, founder of Citadel LLC.

Just a few online gaming companies that are understood to be interested in coming to business terms with Trump include Bwin.Party Digital Entertainment, Richard Branson's Virgin Games and PKR. Most experts see Bwin.Party as the best bet, as they don't have any outstanding issues with the US Department of Justice, and have been playing by the rules (law) for many years, while other gambling companies continue to go after U.S players.

Internet gambling is legal in many countries, with the U.S being a glaring exception.

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Bwin.Party Digital Entertainment Nears Finalizing US Deals, by Greg Tingle

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Jim Ryan, the co-chief executive of Bwin.Party Digital Entertainment is a very busy man.

In fact, he's invested three of the past five weeks in the United States pushing a presentation that advertised to investors the strengths of the world’s largest publicly-traded online gambling - gaming firm. Ryan’s presentation included a one-page chart that listed the top online poker brands in the U.S. market. The names of once fierce competitors PokerStars and Full Tilt Poker, were crossed out in red. Is Party the only real game left in town? Time will tell.

“Where you see the red lines, those organizations have been indicted, so although one can’t predict the future, it’s unlikely you will see those brands back in the U.S.,” Ryan said during an interview. “The brand that has the most consumer awareness is in fact the PartyPoker brand.”

Ryan’s company happens to own both PartyPoker and the World Poker Tour, two of the top online poker brands that did not have their U.S. operations shut down by the U.S. Justice Department in April because they were not facilitating for-money online poker play in America—in the case of PartyPoker since 2006. They also own PartyCasino, a top online casino destination website. The fact that Ryan, who is based in Gibraltar, has recently been spending so much time in the U.S. demonstrates he is optimistic and hopeful for a U.S. comeback. “My focus is on the U.S.,” says Ryan, who is in the final stages of negotiating partnerships with two U.S. companies. “Even though there is no guarantee that online gaming will ever regulate in the U.S.”

For years Ryan and his staff at PartyGaming, which merged with Bwin earlier this year, had to sit on the sidelines, watching how much money PokerStars and Full Tilt Poker were snatching. It was a difficult thing to watch for the top brass and workers at PartyGaming, which was the biggest online gambling company in the world thanks to its domination of the U.S. online poker market until Congress passed the Unlawful Internet Gambling Enforcement Act in 2006. PartyGaming exited the U.S. market and saw its stock price take a massive hit, while PokerStars and Full Tilt kept their U.S. facing .com websites on air. Party competitors enjoyed somewhat of an unfair advantage, with the rouges using the U.S. market to expand globally at PartyGaming’s expense. “We were beyond the point of frustration,” says Ryan.

Next PartyGaming struck a non-prosecution agreement with the U.S. Attorney in Manhattan, paying $105 million and admitting its U.S. operations had for years violated U.S. law. Meanwhile, PokerStars and Full Tilt continued to operate in the U.S. and claimed that their U.S. operations did not violate U.S. law, pointing to legal opinions the companies had received from top American legal eagles. To many, it appeared like PartyGaming had given a lucrative business away. Even at the company’s headquarters there were doubts until April 2011, when federal prosecutors in Manhattan closed down the U.S. operations of PokerStars and Full Tilt, naming them illegal gambling businesses, and indicted some of their key execs. "I think Party has been vindicated now in getting out when they did and in dealing with the Department of Justice," says Behnam Dayanim, a partner at Axinn Veltrop & Harkrider, who negotiated PartyGaming’s agreement with federal prosecutors in downtown Manhattan.

With all that said, Bwin.Party Digital Entertainment is not exactly holding a management party quite yet. It's so close, yet so far, from reclaiming online poker’s crown. Operating in highly-regulated and taxed European markets while competing against well-run companies like PokerStars is not for the faint-hearted. Bwin.Party’s stock, which trades on the prestigious London Stock Exchange, has dipped by 50% in 2011. Big corporate mergers can be problematic, but the outfit has also suffered a setback in Germany, where the nation’s top civil court recently decided to uphold an online gambling ban, and been dissed by higher gaming duties across Europe. When the company attempted to take advantage of the April U.S. shutdown of PokerStars and Full Tilt, Bwin.Party found that while some new European players were attracted to its poker brands, revenues remained flat-ish. It wasn’t until Full Tilt’s European regulator suspended Full Tilt’s license in late June that Bwin.Party’s increased advertising and promotional expenditures started to pay dividends. PartyPoker is now the second-biggest online poker room in the world, according to PokerScout, averaging 4,150 cash players during any given time. PokerStars has 22,800.

Ryan, who joined PartyGaming as CEO in 2008, has been waiting for this moment for what seems like forever. He long ago took Bwin’s Norbert Teufelberger to a McDonald’s in La Linea, Spain, and chatted to him at length about the pros of combining Bwin’s strong online sportsbook business with PartyGaming’s poker brands, resulting in the merger that was first announced in 2010. Ryan also fine-tuned his company’s business-to-business capabilities over the last few years with an eye toward finding a U.S. partner with whom he can re-conquer America. "We had to be realistic about where we sat in the food chain," says Ryan. "We figured if the U.S. regulated it would be unlikely that we would secure a license directly, that the laws of the land would be written to allow existing land operators and equipment manufacturers in the U.S. to secure the licenses." Ryan is optimistic about current efforts in Washington, driven by the American Gaming Association and powerful casino companies like Caesars Entertainment and MGM Resorts, to potentially get some sort of online gambling legislation through a divided Congress. Ryan notes he is also preparing for the possibility that online poker gets regulated first on a state-by-state basis.

"We have to be ready for both federal or state," he says. "It feels good to have American taxpaying companies finally driving this.".

If an offshore operator is to succeed in American, Bwin.Party Digital Entertainment looks like the firm to place bets with.

Bwin.Party has identified Australia and New Zealand as places to further expand their business, even sponsoring high profile poker players such as Tony G and Stewart Scott (a former Crown Casino 'Aussie Millions' champion.) PartyPoker is one of a number of rumoured brands set to take over the sponsorship spot at James Packer's Crown Casino that FTP once enjoyed. Party look to have as much chance as anyone, probably more so.

In the meantime, poker and casino game players in regions such as Australia, New Zealand, Canada, Italy, South America, South Africa and beyond can continue to enjoy their gaming.

Poker playing celebs such as Leonardo DiCaprio, Matt Damon and Tobey McGuire are understood to be open to sponsorship approaches from Bwin.Party.

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