Flutter Entertainment, the owner of renowned gaming brands such as Paddy Power, Betfair, Sky Betting & Gaming, PokerStars, FoxBet, and FanDuel, has agreed to settle a decade-long battle with the Commonwealth of Kentucky. Flutter has stated that it now ‘considers the matter closed’ after agreeing to pay $300 million to the state.
The betting and gaming giant agreed to a $200 million settlement to the Commonwealth, on top of an initial $100 million payment for superseded bond in the prolonged legal battle.
How the Kentucky-PokerStars Legal Showdown Began
The Bluegrass State has been pursuing the PokerStars brand for more than 10 years, accusing the gaming operator of allowing its residents to play real-money online poker on its platform between October 2006 and April 2011.
Kentucky moved to sue PokerStars in 2010, citing the ‘Loss Recovery Act’ (LRA), an 18th-century law that gave state courts the mandate to seize revenue collected from illegal gambling activity. This clawback law had been designed to offer protection to the families of destitute gamblers. Moreover, according to Kentucky’s suit, PokerStars’ actions violated the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), and so, the Commonwealth invoked its right for damages.
The Bluegrass State went ahead and sought compensation for the combined losses that its residents allegedly incurred from the site, along with the costs of gambling addictions. On the flip side, since the lawsuit started, PokerStars maintained that under the provisions of the UIGEA, online poker was a ‘grey area’ for the said period of illegal activity. The company ceased its online poker operations in Kentucky after being closed down by The Department of Justice in April 2011.
When The Stars Group (then trading as Amaya Gaming) acquired PokerStars in June 2014 in a $4.9 billion transaction, it inherited the legal troubles that came with its new online poker asset.
First Ruling and Appeal of the Kentucky-PokerStars Legal Battle
The first ruling against PokerStars came in December 2015, when Judge Thomas Wingate ruled in favor of Kentucky, seeking a $290 million compensation. This award later trebled to $870 million after a monthly interest of about $8.7 million and applicable costs were factored in.
The Stars Group, which had now become the parent company of PokerStars, appealed the $870 million fine. In the appeal, The Stars Group argued that the amount that the Commonwealth of Kentucky was demanding was far much more than its residents gambled on the PokerStars websites. Additionally, the plaintiff argued that the Bluegrass State hadn’t even been able to specifically point in the direction of any online gamblers who allegedly lost money while playing on the PokerStars website.
The appellate panel sided with The Stars Group in December 2018, ruling that the LRA had been put to wrong use. The verdict cited that the LRA was:
“…intended to promote natural persons who had knowledge of specific instances of illegal gambling to file suit to assist the Commonwealth in enforcing its anti-gambling regulations. [For the LRA to be used in this way] it would mean that any private person with knowledge of the general nature of Appellants’ electronic gaming format could allege an LRA claim in a wholly conclusory and generic fashion and walk away a billionaire without ever having identified a single gaming transaction with specificity,”
Supreme Court of Kentucky Overturns Appeals Court Ruling
After the December 2018 ruling, the Bluegrass State advanced the matter to the Supreme Court of Kentucky – which sided with the Commonwealth in a December 2020 decision. The Supreme Court judgment opposed the Court of Appeal ruling in every way possible, citing that the first ruling made by Judge Thomas Wingate in December 2015 was right on all counts.
Per the Supreme Court of Kentucky, the term ‘any person’ in the LRA intended the use of the term in the broadest way possible. And so, the Commonwealth also constituted of ’a person’. Additionally, the Supreme Court also disagreed with The Stars Group’s defense which argued that the company was merely a collector of the rake and couldn’t qualify to be considered a ‘winner’ in the suit. The court found a precedent dated more than a century ago where the house counts as a winner in a game of chance as long as it collects a share of the money spent.
In the December 2020 ruling, Kentucky’s Supreme Court added that the $870 million damages had initially been calculated appropriately. According to the court, the loss calculation came from PokerStars’ own records. And due to an annual compounding interest of 12%, the $870 million in damages ended up ballooning to a whopping $1.6 billion.
PokerStars’ efforts to have player earnings offset the said losses were rejected as well. The Kentucky Supreme Court cited another precedent from the 19th century where the house was held liable for the gross losses of its patrons, provided it took a percentage.
When Flutter merged with The Stars Group in a $12.6 billion deal to form the world’s largest online gambling group in May 2020, it inherited the case and its legal implications. The merged company then launched a series of appeals to challenge the Kentucky Supreme Court ruling in the US Supreme Court.
This time Flutter pursued a lighter settlement citing that, for the period it was accused of offering illegal online gambling in the Bluegrass State, PokerStars’ gross gaming revenue stood at only about $18 million. Both parties in the suit finally agreed to the combined 300-million-dollar settlement to bring the legal skirmish to an end.