Court Decision Rocks TVG Parent Company Flutter

The parent company of TVG, Flutter Entertainment, could face a loss approaching $1 billion following a Kentucky Supreme Court decision that found its online poker brand, PokerStars, liable for hundreds of millions of dollars to the state.

In a decision rendered Dec. 17 and written by Justice Samuel Wright, the court reversed a Court of Appeals ruling involving the state's Loss Recovery Act. The Kentucky Supreme Course ruled that the Commonwealth of Kentucky did not lack standing to bring the lawsuit seeking to collect gambling losses paid by Kentucky citizens to what it found to be an unlawful Internet gambling website, namely PokerStars.com.

Flutter Entertainment, best known in the United States as owner of sports betting and daily fantasy platforms operator FanDuel and in racing circles as the owner of racing channel and advance-deposit wagering site TVG, said Thursday's court decision, as written, would cost the company $870 million plus interest. 

"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 said in a Thursday release. "The Kentucky Supreme Court judgment has reinstated an award of damages against (The Stars Group) made in 2015 by a Kentucky trial court judge. That 2015 ruling had subsequently been vacated in its entirety by the Kentucky Court of Appeals in 2018. The outcome of today's Kentucky Supreme Court ruling is that the $870 million judgment against (The Stars Group) has been reinstated with compounding interest of 12% per annum."

Despite the finding, Flutter reassured investors that it does not expect to be required to pay the full amount of that judgment, claiming that the gross gaming revenues generated by the poker site in the relevant five years of the case were approximately $18 million. 

"There are a number of legal processes available to Flutter, and having taken legal advice, Flutter is confident that any amount it ultimately becomes liable to pay will be a limited proportion of the reinstated judgment," the company said Thursday.

That $18 million total differs greatly from the losses of Kentucky citizens listed in the background of the case outlined in Wright's decision. That case background says that PokerStars collected a rake on the poker games and Kentuckians lost more than $290 million in the five years prior to the 2010 filing of the lawsuit and that number represents only a fraction of the amount of real dollars lost by Kentuckians over the entirety of PokerStars' operating history in the state.

The decision goes back to the years that a number of poker sites operated throughout the United States under gray areas of the law.

Kentucky believes there was no gray—that these sites were operating illegally under its state laws. In 2008 Kentucky filed a legal action to block access to the internet domain names owned and registered by operators of offshore internet gaming. At the national level, in April 2011 the U.S. Department of Justice unsealed indictments against PokerStars and others for criminal violations under the Unlawful Internet Gambling Enforcement Act and deposits of gambling funds at the site were frozen. 

In October 2019 Flutter Entertainment agreed to buy the company behind PokerStars, the Stars Group, in a $6 billion share deal that Reuters said created the world's largest online betting and gambling company by revenue.

Judge Wright ruled that the state's Loss Recovery Act, which uses the term "person" doesn't only apply to individuals—allowing the state standing in the lawsuit aiming to recover gambling losses paid by Kentucky citizens to PokerStars. It also agreed with a trial court's (Franklin Circuit Court)  decision for partial summary judgment that determined the site was a "winner" in the case.

Judge Wright said the Franklin Circuit Court properly ruled that, "While part of the defendants' profit came at the expense of Kentucky players' calculable losses incurred while playing the defendants' illegal online games, another part of their profits came at the incalculable expense of the violation of Kentucky's laws," the Franklin Circuit Court ruled. "For even when Kentucky players won, the defendants still took a rake. And with the money that the defendants took from Kentucky's players, it was able to invest and expand its illicit operations making themselves all the more profitable."

Thursday's ruling shocked Flutter but the company reassured investors.

"Flutter is wholly surprised by today's ruling and strongly disputes the basis of this judgment which, it believes, runs contrary to the modern U.S. legal precedent," the company said in its Thursday release. "This litigation had sought recovery of alleged losses by Kentucky residents during a period between 2006 and 2011 relying on a centuries-old statute.

"Together with its legal advisers, Flutter is currently reviewing its position. No liability was previously recognized by either TSG or Flutter in relation to this. Flutter's balance sheet remains robust."

Kentucky Gov. Andy Beshear praised the decision and said an estimated $1.3 billion could come the state's way, which certainly would help it emerge from the COVID-19 pandemic. 

"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," Beshear said in a release. "This better positions us to emerge from this painful pandemic to help Kentuckians, help our businesses, provide quality health care to more Kentuckians, strengthen our public schools, and keep our promise to educators and other public employees—some of whom were on the front lines battling the fallout from their greed."