Stars had already paid $100 million

Flutter Entertainment, parent company of online poker giant PokerStars, has settled its legal battle with the state of Kentucky, agreeing to pay $300 million in fines. It is a healthy chunk of change, but a far cry from the $1.3 billion Flutter was starting at in case that dates back more than a decade, long before Flutter Entertainment even owned PokerStars.

In a Wednesday statement to the London Stock Exchange, Flutter said that it is paying $200 million to Kentucky and has already given up $100 million in bonds it put into escrow several years ago. The company added that it believes this settlement is in the best interest of its shareholders. The financial markets seem to agree. Despite Flutter losing $300 million, the company’s stock price closed up 4% on Wednesday.

Kentucky dug deep into the state code

In the original case, the state of Kentucky said that PokerStars illegally offered online poker to the state’s residents between 2006 and 2011. These dates are not arbitrary – late 2006 is when the Unlawful Internet Gambling Enforcement Act (UIGEA) passed, making financial transactions to and from online gambling sites illegal, and 2011 (April 15, specifically) was “Black Friday,” the effective end of online gambling in the United States for a couple years.

The state wanted $290 million in damages for PokerStars’ actions during that time, a time when it wasn’t even owned by Flutter Entertainment. It was able to do this because of a rarely-cited law called the 1796 Loss Recovery Act, which stated that a third party could sue for losses incurred by the citizens of the state to an illegal gambling operation. In this case, the third party was Kentucky.

On top of that, the law allowed for treble damages, so the number jumped to $870 million after a 2015 decision by the Franklin County Circuit Court. Amaya Gaming, PokerStars’ owner at the time, decided to appeal, but now interest started accumulating.

In 2018, the decision was actually struck down, but then, this past December, the Kentucky Supreme Court reinstated the ruling. With interest, the fine was up to $1.3 billion.

Fuzzy math

The kicker to the whole thing was that the way the state calculated the losses was entirely ridiculous. It used aggregated gross losses, rather than net losses. This means that every dollar lost in any single bet by a Kentucky player at PokerStars was counted, regardless of how much many that same person might have won on another hand.

Thus, if I played in a $1/$2 cash game at PokerStars (I played even lower, but let’s just pretend) and lost $20 on my first hand, that $20 counted, as did any other money anyone else lost in the hand. But if I won $40 on the next hand, it didn’t matter. The state still considered me to have lost $20. As you can see, this adds up VERY quickly, especially considering only one player wins money and multiple players lose money in most hands. And this doesn’t even take into account tournaments.

But now Flutter and PokerStars are done with the situation and though they are $300 million lighter, it could have been $1 billion worse.

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