Flutter Faces $1.3bn Penalty in Kentucky over PokerStars

The Kentucky Supreme Court has reinstated a case against now Flutter Entertainment-owned PokerStars for facilitating illegal gambling in Kentucky between 2006 and 2011. The court is upholding a previous $1.3 billion penalty against PokerStars. Flutter has reassured investors that it is working on the matter and is expecting to find an outcome in the case to the benefit of everyone involved.

Kentucky Supreme Court Strikes Flutter’s PokerStars with $1.3bn Penalty

Kentucky is looking to cushion the harsh economic consequences of the covid-19 pandemic, with the Kentucky Supreme Court reinstating a $1.3 billion penalty ruling against PokerStars, The Stars Group-created iconic poker brand.  

The decision, which was originally upheld by the Franklin Circuit Court, was settled in 2018 when the Kentucky Court of Appeals vacated the matter in its entirety. If this verdict is upheld, the parent company, Flutter Entertainment, is facing losses estimated at $870 million and interest to settle the case. The interest rate is 12% per annum, explained Flutter in a statement.

Justice Samuel Wright invoked the state’s Loss Recovery Act on Thursday, December 17, and the Supreme Court decided that Kentucky had all grounds to pursue a legal course of action in the matter of collecting gambling losses paid by Kentucky citizens to what the court described as an unlawful gambling operation, referring to PokerStars.com during the period between 2006 and 2011.

Flutter Entertainment is now operating important assets in the United States, including FanDuel, which is available in over 11 states with its retail sportsbooks and in eight with online betting solutions. Responding to the news, Flutter Entertainment had this to state:

“The Kentucky Supreme Court has today ruled on legal proceedings that were originally brought by the Commonwealth of Kentucky in 2010 against certain subsidiaries of The Stars Group (previous sole owner of PokerStars) prior to its combination with the Flutter Group.”

-Flutter Entertainment

Flutter Receives News Calmly, Reassures Investors

Despite the stinging fine, Flutter seems confident it can navigate its way through the situation, and even if required to pay, it doesn’t expect to have to settle the full amount of the ruling. As a reason why Flutter explained that the period covered by the ruling only saw PokerStars collect $18 million in gross gaming revenue.

The company informed that it has taken legal advice and that any amount that it may have to pay would come to a very small fraction of the present penalty and the $18 million GGR together. According to the original case, Kentucky citizens lost $290 million between 2006 and 2011, in what the court stipulated was rake fees.

Another point of contention is the definition of the market. To Kentucky courts, PokerStars was operating illegally whereas the company considered the status as “grey market,” in the lack of regulation and clear regulatory action against companies running poker operations at the time.

However, in 2008, Kentucky began a legal crusade against what it considered wrongdoers and decided to block the access and domain names for any offshore gambling websites. The real trouble for PokerStars came much later in 2011, when the US Department of Justice, acting on the Unlawful Internet Gambling Enforcement Act of 2006, issued indictments against PokerStars and other websites in what is remembered as “Black Friday,” or the event that actually “killed” poker in the country at least temporarily.

This eventually led to a settlement between the US Department of Justice and PokerStars founder Ian Sheinberg who was sentenced to “time served” earlier this year. Before that, in 2018, the case was considered closed, prompting Flutter Entertainment to acquire PokerStars’ parent company, the Stars Group, in a record $6 billion deal, creating the world’s largest gambling operator in terms of sheer revenue.

Kentucky’s Loss Recovery Act

According to Justice Wright, however, Kentucky has the legal basis to pursue action against PokerStars, citing Kentucky’s Loss Recovery Act, explaining that while the phrasing of the legislation states “person,” it applies to companies as well.

Based on a court statement, whether Kentucky citizens won or lost, PokerStars was still claiming a rake fee, allowing the company to “expand its illicit operations,” and making its business more profitable.

While reinstatement of the case against Flutter and specifically PokerStars may have come as a shock, the company is confident that the situation will come to a reasonable conclusion. In its official statement, Flutter argued that the court was looking to collect losses based on a “centuries-old statute.”

Meanwhile, Kentucky Governor Andy Beshear, a known supporter of the legalization of the sports betting industry, welcomed the decision and said that it could help the state recover from the pandemic. Beshear went even further and said:

“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.”

-Kentucky Governor Andy Beshear

Beshear’s career and that of his father, Beshear Sr., has often brought up the legalization of gambling in the state, but the governor seems more than happy to take a few jabs at PokerStars for wrongs that are arguably such.