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DoJ the key player in Full Tilt fire sale

14th July 2011 8:58 am GMT

The mysterious group of European investors that is in talks about an investment/buyout of Full Tilt Poker (FTP) is likely to be continuing its discussions with numerous parties of which Tilt could be the least important.

The US Department of Justice (DoJ) will come top of its list of priorities. Full Tilt owes the DoJ a civil penalty of “not less than $1bn”, according to the indictment. That means that the buyers will need some fairly intense negotiations with the DoJ before they can start again with a clean bill of health.

The DoJ declined to comment on negotiations but it is understood that any deal will be conditional upon either a settlement or the government absolving the new owners of any liability while it goes about collecting the penalty from the current owners.

This commentator had presumed that this “group of European investors” was fictional but three separate sources have assured me it is real. The complexity of the FTP corporate structure means that a “new investor” could be magicked from any of its corporate entities and quite correctly be described as such.

But apparently not. The unknowns are so many that it is still difficult to quite understand anyone’s motivations for buying Full Tilt in whole or even in part. The potential liabilities are massive and surely outweigh any potential upside.

Let’s have a closer look. Full Tilt was the second largest online poker operator in the US. A conservative estimate would place its revenues for the last year at about $600m. Possible profits could be around $100m.

However, it has run out of cash and can’t pay its players back money that is in their accounts. That much appears clear from the French regulator’s statement. The law firm running the US class action on behalf of the players is working tirelessly to recover what they estimate to be about $150m of players’ funds.

That will have to be part of the purchase price. I think we can presume that current owners Ray Bitar and co are not going to pony up the $1bn that the DoJ are demanding either. Remember PartyGaming settled with the DoJ to the tune of about $300m despite its early withdrawal from the market. So while this is a fire sale, it is not the cheapest one.

And what is left of Full Tilt Poker after this mess? It is arguable whether the Full Tilt brand can be resuscitated by new owners, although certain media reports try to suggest otherwise. Players seem to love the software so that is probably its most valuable asset but they hated its attitude to customer relations even before their cash was seized. Its relationships with affiliates also left something to be desired.

Let’s face it, FTP did technology well but relationships not so well. In fact, any other third party relationships (with vendors, media owners etc) could bring with them another source of liabilities. Who knows how much FTP owes media owners for the realms of advertising and promotional space it has acquired?

The world is closing in on the company. The French regulator’s decision to suspend the company’s licence replicated that of its primary licensor Alderney, which is scheduled to hold a hearing on the subject at the end of July. The likelihood of Full Tilt making it to that hearing in its current guise seems unlikely. But will it be bought or end in bankruptcy and yet more recriminations? My money would be on the latter but it’s far from a safe bet.

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