During the last week, the Wall Street Journal and the New Jersey blog ‘MeadowlandsMatters’ have both reported that, according to the Atlantic Club Casino and other sources, the agreement between PokerStars and the casino in Atlantic City was terminated by the Atlantic Club when the license to operate a New Jersey brick and mortar casino had not been granted to PokerStars by April 26.
In December, PokerStars confirmed that they had an agreement in place to acquire the struggling casino, and at the same time, save almost 2000 jobs that were in jeopardy. Sources close to the situation confirmed that PokerStars subsidized the casino with payments totaling millions of dollars during the fall and winter months to keep it operating and to help keep those jobs, while the Casino Control Commission and the Division of Gaming Enforcement conducted their due diligence process to review the application to acquire the casino. That approval process could take as long as 120 days from the date the application is considered complete, which the commission confirmed happened on April 10, 2013. Presumably both sides were aware prior to April 26 that the license could not be approved by the April 26 date reportedly in the contract.
Michael Frawley, Chief Operating Officer of the Atlantic Club, offered the following statement dated May 1, via the casino’s public relations firm:
“Our purchase agreement with PokerStars has been terminated in accordance with its terms. The Atlantic Club remains committed to the aggressive pursuit of the opportunities presented by online gaming. The advent of New Jersey’s online gaming legislation has changed Atlantic City’s future for the better and The Atlantic Club is absolutely going to be a part of that future.
In the interim, our intentions are to maintain our year over year market share gains through our unique brand positioning as ‘the best deal in Atlantic City’. The Atlantic Club’s 2013 revenue and net revenue trends are proof positive that customers are rediscovering us and our popularity is higher than ever.”
Frawley has not returned phone calls this week and through his P.R. firm, has declined to take part in an in-person interview.
Eric Hollreiser, Head of Corporate Communications at PokerStars offered the following comment late on May 2:
“In December 2012, The Rational Group (d/b/a PokerStars) entered into a purchase agreement for the acquisition of the Atlantic Club. Several days ago we received a purported notice of termination of this agreement from the current owners of the Atlantic Club. It was the Rational Group’s expectation and understanding, based on the ongoing dealings between the parties, that the closing date would be extended to allow the transaction to be completed. The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey”.
How Important is the Date April 26?
Many questions have arisen about how the “hard date” of April 26, 2013 could be part of a contract that might allow an out for one of the parties to terminate the agreement. The regulations for licensing in New Jersey are public and it is clear in the statute that a person or entity that is attempting to acquire a casino ,in whole or in part, may not “close” on the transaction until such time that an Interim Casino Authorization (ICA) is granted.
It is well known that PokerStars applied for that license, which is now pending before the Casino Control Commission. According to the Commission, although PokerStars submitted their application months ago, it was not deemed a “completed” application until April 10. That is the date in which the clock would begin for the Division of Gaming Enforcement to conduct their investigation (they have a 60 day window from that date to accomplish that and then submit their recommendations to the commission) and then the Commission has up to an additional 30 days to render its decision as to the granting of the license. Therefore the deadline for the license decision would be in August.
What this author has also found in the regulations however, is that a provision date in a contract which stipulates a settlement or closing date that is less than 121 days from the date of a completed application makes that provision void. As taken from Article 6B, 5:12-95.12, a, of the Statute:
“the contract shall not specify a closing or settlement date which is earlier than the 121st day after the submission of a completed application for licensure or qualification, which application shall include a fully executed and approved trust agreement in accordance with section 5 of this 1987 amendatory and supplementary act. Any contract provision which specifies an earlier closing or settlement date shall be void for all purposes”.
Therefore, if, as has been reported, the termination by Atlantic Club was sent based on the fact that the closing had not taken place by April 26, that is not a legally valid reason to terminate the agreement. Furthermore, although the contract terms have not been made public by either side, it is quite common, if not almost mandatory, to include a “severability clause” into any such contract. That would mean that, if the alleged terms that caused the termination letter to be sent were based on a provision that was not in keeping with law, that provision being struck would not stop the rest of the contract from being deemed intact.
This author is not an attorney, but even though the Atlantic Club has said the deal is terminated, it would appear that there could still be a question about whether there is a legal, binding contract between the parties to complete the acquisition. As long as a severability clause is present in the contract, removing the provision that gave a deadline of April 26 would not, nor could not, deem the rest of the contract invalid.
While there has been a lot of speculation as to what may have precipitated this breakdown in the agreement, no one at either the Atlantic Club or PokerStars say that this has anything to do with any issues surrounding PokerStars receiving approval for an Interim Casino Authorization in Atlantic City. Sources within Atlantic City say that there have been no indications made to either side that such a license would not be approved.
Diamond Flush Poker will continue to update as more information becomes available.