Flutter slams “monstrous” $1.3bn Kentucky damages settlement

Flutter Entertainment has blasted Kentucky officials after being hit with a $1.3bn “Frankenstein’s monster” of a regulatory settlement relating to unlawful online gambling in the US state.

The FTSE 100 heavyweight made the assessment through its The Stars Group (TSG) subsidiary in a petition to the US Supreme Court to obtain a review of the multi-billion-dollar settlement.

In December 2020, the Kentucky Supreme Court reinstated a prior 2015 ruling against TSG over the operation of the PokerStars brand.

The ruling, made in the Franklin Circuit Court, charged TSG with historic violations of the Unlawful Internet Gambling Enforcement Act (UIEGA) between 2007 and 2011 and ordered the firm to pay $870m in damages.

The Franklin Circuit Court ruling had previously been overturned in December 2018 following an appeal by TSG against the decision in the Kentucky Court of Appeal.

However, by reinstating the ruling, Kentucky’s Supreme Court ordered the operator to pay additional compound interest accrued following the initial dismissal, bringing the total payable punishment to a whopping $1.3bn.

At the time, Flutter questioned the “centuries old statute”, suggesting it could only pay a limited proportion of the damages.

A petition for a local rehearing of the case was denied in March, leading the firm to apply to the US Supreme Court, the highest court in the US.

“These monstrous damages cry out for this court’s review,” wrote Flutter in its petition. “Even in matters of state concern, this court applies constitutional brakes to ‘damages that run wild’.

“In cases involving punitive damages, this court has repeatedly admonished that awards exceeding actual harm by more than a single-digit ratio likely violate the Constitution.

“Here, the Kentucky Supreme Court upheld a billion-dollar judgment that is utterly disconnected from any rational measure of real-world harm,” Flutter added.

Officials in Kentucky originally sued TSG subsidiary PokerStars in 2010 under the auspices of the state’s Loss Recovery Act (LRA), which allows losing gamblers to reclaim losses by direct legal action.

If the affected gambler fails to bring legal action against the operator within a six-month period, a third party, which in this case is the state of Kentucky itself, can file a civil lawsuit which allows for the initial claim to be trebled.

TSG argued its gross gambling revenue generated in Kentucky for the period of the claim was just $26m, a figure dwarfed by Kentucky State Lottery ticket sales for 2020 of $1.2bn.

The operator also questioned the motives in targeting what the state had previously called the “evils of gaming”, while also allowing pari-mutuel betting on horseracing in the Kentucky Derby.

“The PokerStars platform accounted for only a tiny fraction of the gaming occurring in Kentucky, much of which takes place in the state’s own lottery,” Flutter wrote.

“Yet the Kentucky Supreme Court blessed a damages award that exceeded the actual losses of Kentucky players by a factor of 34 and petitioners’ revenue by a factor of 50.

“This case is the poster child for a grossly excessive punishment prohibited by the Due Process Clause of the Fourteenth Amendment and the Excessive Fines Clause of the Eighth Amendment,” the operator added.

The Due Process Clause of the US Constitution entitles each individual to due legal process, while the Excessive Fines Clause prohibits excessive fines or cruel and unusual punishments from being imposed.

Under the US Constitution, parties not satisfied with the decision of a lower court can petition the Supreme Court to ask it to grant a writ of certiorari, which engenders the court to request records on the case.

The court is not under any obligation to hear these cases, and usually only does so if the case could have national significance, might harmonise conflicting decisions in the federal circuit courts, or could have precedential value.

In fact, the court accepts only 100 to 150 of the more than 7,000 cases it is asked to review each year.

It was a review by the Supreme Court that led to the repeal of PASPA, the 25-year federal ban on sports betting.

Summarising its reasons for requesting the review, TSG added: “The Kentucky Supreme Court allowed the state to bring a novel claim under an antediluvian state law that resulted in a staggering judgment far out of proportion to any real-world injuries.

“Along the way, the Kentucky court felled every possible barrier that might have slowed the runaway damages. It allowed Kentucky to aggregate all lost wagers by Kentucky citizens into a single action.

“It calculated the state’s damages solely by reference to losing hands without factoring in the winning hands or petitioners’ revenue. On its own, that award surpassed any previous civil judgment in the state’s history.

“But the Kentucky court then trebled the damages to create a Frankenstein’s monster of an award,” the firm concluded.