Flutter facing $1.3bn hit as Kentucky court reverses Stars Group ruling

Flutter Entertainment has been ordered to pay up to $1.3bn after the Kentucky Supreme Court sensationally reinstated a prior 2015 ruling relating to the firm’s The Stars Group subsidiary.

In a hearing at the Supreme Court, judges voted to bring back the prior judgment made by Kentucky’s Franklin Circuit Court in 2015 against The Stars Group (TSG) over historic violations of the Unlawful Internet Gambling Enforcement Act (UIEGA) between 2007-2011.

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 against the operator involved.

If the affected gambler fails to bring legal action against the operator involved 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 damage claim to be trebled.

TSG has said that its gross gambling revenue generated in Kentucky for the period of the claim was just $18m.

Under this lawsuit, Kentucky sued PokerStars initially for $290m, but later elected to treble the claim under the LRA. At a hearing in the Franklin Circuit Court in December 2015, this claim was upheld and TSG, which was trading as Amaya at the time, was ordered to pay $870m.

However, this ruling was overturned in December 2018, following an appeal by TSG against the decision in the Kentucky Court of Appeal.

In this case TSG successfully lobbied that the state was not a “person” as envisioned under the LRA and could not bring action against PokerStars, with the firm arguing that it was merely collecting a rake and did not qualify as a “winner” under the LRA.

PokerStars also argued that if the state could not identify the sums or individuals involved, the claim would be invalidated.

Despite this reversal, the state later launched a final appeal in the Supreme Court, leading to yesterday’s decision in which the court dismissed the prior arguments and confirmed the sums were calculated appropriately.

“Money sent to offshore gambling accounts is lost and the state deprived of the taxes to which it is entitled. The cost to prosecute and incarcerate individuals who resort to crime to support their gambling is a huge cost on Kentucky’s strained and overextended penal system,” the court stated.

“The Commonwealth of Kentucky has losses due to PokerStars’ illegal internet gambling criminal syndicate. The amount recovered in this case may not cover the actual cost suffered by the Commonwealth of Kentucky,” judges in the Supreme Court added.

The Commonwealth of Kentucky has said it will now take “aggressive steps” to reclaim the monies now owed by Flutter.

Flutter has confirmed the original 2015 award of $870m will now apply together with compound interest of 12%, meaning the company will now pay an additional $430m.

The online gambling heavyweight slammed the Supreme Court ruling claiming it relied on a “centuries old statute” and had no basis in today’s laws.

“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 firm said in a statement.

“Flutter is wholly surprised by today’s ruling and strongly disputes the basis of this judgment which, it believes, runs contrary to the modern US legal precedent.

“Together with its legal advisors Flutter is currently reviewing its position. No liability was previously recognised by either TSG or Flutter in relation to this. Flutter’s balance sheet remains robust,” Flutter added.

Flutter generated total group revenue of £1.3bn in Q3 2020 and has recently shelled out $4.2bn to increase its majority stake in US subsidiary FanDuel by 37.2%.

Share in the FTSE 100 operator were down 335p, or 2.1%, in early trading on the London Stock Exchange.