The state of Kentucky scored a legal win Thursday in its more than decade-long fight with PokerStars.
According to a report from the Louisville Courier Journal, in a 4-3 decision the Kentucky Supreme Court upheld a lower court ruling from 2015 and ordered PokerStars, which hasn’t provided online poker to people within the state since 2011, to pay a whopping $1.3 billion.
The $1.3 billion includes interest on the earlier judgment of $870 million. The $870 million sum was reached by trebling the nearly $300 million in recorded losses by about 34,000 Kentucky players from 2007 to 2011 on PokerStars. That figure does not include their winnings.
In the ruling, the high court called illegal online gambling in Kentucky an “insidious problem” and going after offshore operators “an extremely difficult problem.” It cited costs to the state from tens of thousands of addicted gamblers, estimating total social costs at a “minimum” of $81 million annually.
A couple of years ago the Kentucky Court of Appeals reversed the judgment and dismissed the case, saying Kentucky lacked standing, but the state’s high court had the final word on the matter this week. PokerStars has changed hands multiple times since 2011, with the company now being owned by Flutter Entertainment, an Irish company that also owns the FanDuel sports betting and DFS brand.
The majority opinion of the court concluded:
“The Commonwealth’s recovery in this case is certainly not a windfall … rather, it is a recoupment of some portion of the countless dollars the criminal syndicate has cost Kentucky collectively and Kentuckians individually. The Commonwealth of Kentucky suffered financial losses along with the tragic damage to its citizens. Mental and physical healthcare systems that care for the citizens harmed by the illegal gambling are supported in part by the state. Money sent to offshore gambling accounts is lost and the state deprived of the taxes to which it is entitled. The cost to prosecute and incarcerate individuals who resort to crime to support their gambling is a huge cost on Kentucky’s strained and overextended penal system. The Commonwealth of Kentucky has losses due to PokerStars’ illegal internet gambling criminal syndicate. The amount recovered in this case may not cover the actual cost suffered by the Commonwealth of Kentucky.”
Past still haunts PokerStars in Bluegrass State
PokerStars operated in the U.S. in an unregulated environment after the passage of the federal 2006 Unlawful Internet Gambling Enforcement Act (also known as UIGEA). The real-money PokerStars platform exited U.S. cyberspace following the infamous online poker Black Friday in April 2011.
“PokerStars ignored a 2008 order from the Franklin Circuit Court ordering it to cease and desist internet gambling operations as to Kentucky-based players,” the Kentucky Supreme Court ruling said. “Instead of obeying that court order, PokerStars continued its criminal enterprise to the detriment of Kentuckians until its assets were frozen by the federal government” in 2011.
It’s unclear what next steps PokerStars has in Kentucky. It might seek to appeal the case to the U.S. Supreme Court, especially given the size of the judgment. Flutter recently projected its gross gaming revenues for the U.S. in 2020 to be $1.1 billion. In other words, it might argue the fine is excessive.
“There are a number of legal processes available to Flutter, ” the company said in a statement. “Flutter is confident that any amount it ultimately becomes liable to pay will be a limited proportion of the reinstated judgment.” According to Flutter, PokerStars generated just $18 million in rake revenue off Kentucky poker players during the period in question.
So far, it doesn’t appear investors are spooked. Flutter is one of the top players in the exploding legal U.S. online gambling sector, though competition in the space is fierce.
Governor responds to the ruling
Kentucky Gov. Andy Beshear, a Democrat who campaigned on legalizing casinos, sports betting, and online poker, praised the ruling in a statement and cited the ongoing COVID-19 pandemic recovery.
“This will never be enough to make up for the damage to Kentucky families and to the state from their years of irresponsible and criminal actions, but this is a good day for Kentucky,” Beshear said. “This better positions us to emerge from this painful pandemic to help Kentuckians, help our businesses, provide quality health care to more Kentuckians, strengthen our public schools, and keep our promise to educators and other public employees — some of whom were on the front lines battling the fallout from their greed.”
He added that the “commonwealth will take aggressive steps to collect the judgment for the benefit of all Kentuckians.” Beshear reiterated that the state has been “seeking to stop the unregulated, untaxed, and illegal offshore gambling operations” operating in Kentucky since way back in 2008.
“From 2007 to 2011, PokerStars, the largest offshore illegal gambling operator, collected almost $300 million in actual cash losses from thousands of Kentuckians,” the statement read. “Under longstanding Kentucky law, the commonwealth brought an action against PokerStars seeking recovery of the $300 million lost by its citizens, and as required by Kentucky law, trebled damages.”
It’s unclear how the ruling this week will impact Kentucky’s long-term plans to legalize online poker.