Online gaming groups licensed in New Jersey, speeding U.S. re-entry

By Joseph Menn

Nov 8 (Reuters) - The state of New Jersey granted its first online gambling licenses to several big international gaming companies on Friday, dramatically speeding their re-entry to the lucrative U.S. market.

New Jersey joins Nevada and Delaware in permitting online poker and it is more populous than those states. New Jersey also will allow its residents to play electronic versions of other casino games.

Bills to legalize online gambling are pending in California, Pennsylvania and Massachusetts and more states are likely to follow, eventually letting residents of those states gamble against people in other regulated states.

New Jersey's action also is a landmark for the issue of suitability, in which regulators weigh the conduct of the online gaming companies before allowing them into an industry with historic corruption.

State gaming authorities gave "transactional waivers," which do not preclude additional regulatory scrutiny, to companies including the parent of PartyPoker, which dominated online cash card games in the United States for years.

PartyPoker pulled out of the U.S. market in 2006, when Congress strengthened federal gambling. It later paid $105 million in a non-prosection agreement with the U.S. Justice Department and admitted violating wire fraud and other statutes before the 2006 law took effect.

Other recipients of waivers on Friday were 888 Holdings , and the online affiliate of Las Vegas' Caesars' Entertainment Corp.

Two controversial PartyPoker co-founders are divesting their stakes in order to get their company back into the United States.

New Jersey did not approve PokerStars, a company that kept going in the United States after Congress' 2006 law on internet gambling.

PokerStars spokesman Eric Hollreiser said the company's New Jersey application "remains under review" and that "we remain committed to working with them to complete the process." Both PokerStars and PartyPoker's parent, Bwin.party Digital (Milan: DIB.MI - news) Entertainment, had focused their licensing efforts on New Jersey.

"We're excited to see the launch of internet gaming in New Jersey," said American Gaming Association Chief Executive Geoff Freeman. "New Jersey will send a strong message to all states."

Even with online casinos outlawed, Americans contribute an estimated $3 billion to a roughly $33 billion world market, Freeman said.

Combined with recent actions in other states, the New Jersey decision suggests it could be hard for PokerStars to reach the American market.

Last year, the Isle-of-Man (Frankfurt: MAN.F - news) -based company forfeited $731 million to settle U.S. government fraud claims and acquire rival Full Tilt poker, which shut down after a similar lawsuit. U.S. authorities also filed criminal charges against the founders of both companies.

Even PartyPoker's re-entry was more difficult than many in the industry had expected. Parent Bwin.party pulled out of many of what it called "gray markets" with uncertain laws and jettisoned several PartyPoker executives, filling its top ranks from the other side of a merger with Bwin.

The most dramatic concession was the agreement by PartyPoker co-founders Ruth Parasol and Russ DeLeon to divest their shares, which combined for 14.3 percent of Bwin.party. As reported last week, they will put their stakes into funds that will sell off the stock to others during the next three years.

Even as the two co-founders leave the stage, they will benefit from any share-price gains from the U.S. return.

Parasol, an American and former phone-sex and Web-porn investor, became a billionaire when Bwin.party predecessor PartyGaming sold stock to the public in London. Advisers said she left her home country long ago to avoid U.S. legal scrutiny.

Bwin.party said it would launch poker and casino games under the land-based casino license of its partner in New Jersey, Borgata Casino, owned by Boyd Gaming Corp's and MGM Resorts, using both Borgata's and its own brands, including www.partypoker.com, beginning Nov. 26.

PokerStars could still be approved but it is very unlikely without at least the same sort of divestiture that Bwin.party agreed to, according to a consultant who spoke on condition he not be named because he works with New Jersey applicants.

"PokerStars will not simply coast into the New Jersey internet gambling market," the consultant said.

He said PokerStars founder Isai Scheinberg, who remains a criminal defendant in a U.S. case, would have to divest, and even then the role of his son, the current chief executive, could be a factor.

CEO Mark Scheinberg personally forfeited $50 million to end a Justice Department inquiry in June, although he did not admit wrongdoing.