Full Tilt Poker Fiasco Makes UFC Brass Guilty By Association

Posted on | September 22, 2011 | No Comments

By: Rich Bergeron

The raids and government shutdowns and seizures of FullTiltPoker.com, PokerStars.com, and AbsolutePoker.com on April 15 of this year changed more than just the poker landscape in the United States. The FBI named the sites and their principal owners and operators in indictments for bank fraud, illegal gambling, and money laundering. And they did it on tax day. This week the bombshell news dropped that those charges were truly just the tip of the iceberg for Full Tilt Poker. For years these Web-sites persisted in the marketplace despite the illegal nature of online gambling in the U.S., and the justice department simply sat idly by and let them grow into financial juggernauts. It was as if they were just waiting for these piggy banks to fill up before hammering them open for all the loot inside.

Full Tilt Poker also directed a large portion of their profits, which we now know were being mismanaged, to MMA fighters and organizations.

Though nobody is claiming the UFC brass had any unique knowledge of the alleged Ponzi scheme business model of Full Tilt Poker, Zuffa’s on and off relationship with the company seems troubling in hindsight. For one, Zuffa’s majority owners are the Fertittas, the same Fertittas who now own 45 percent of Station Casinos. They used to own all of it, but their luck ran out after they leveraged the company into a $6 billion debt load. Bankruptcy was kind to Lorenzo and Frank III, and the UFC’s explosion in popularity couldn’t have come at a better time. Responding to competing casino baron Steve Wynn’s PokerStars pact in late March, another specialty company created by Lorenzo and Frank Fertitta III called Fertitta Interactive struck their own deal with Full Tilt. Old Fertitta friends and business partners Tim Poster and Tom Breitling make up the other half of Fertitta Interactive.

Breitling told the Las Vegas Review Journal in March, “Our arrangement with FullTilt is confidential, but it is contingent on the passage of federal legislation regulating Internet poker.” In other words, we’re signing a deal to help legalize the activities of a company we’re going to be doing business with once they actually become legal. In reality, it was simply a confirmation that they knew Full Tilt was breaking the law.

Both traditional casino outfits put the cart before the horse on these deals, perhaps helping to inspire the justice department to move faster to take control of the situation. Wynn’s idea to join forces with PokerStars also focused on lobbying for formal federal legalization of online poker. Knowing how much political juice casino owners wield in Nevada, the casino owner must have imagined a regulatory structure could be established fairly quickly. The perfect scenario of this partnership would pave the way for a coordinated website combining the forces of the traditional Wynn physical properties with the convenience, reach and popularity of PokerStars.

The Fertittas, fresh off the purchase of Strikeforce to add to their Zuffa empire, couldn’t let Wynn corner the market and jumped on the bandwagon themselves. The Wall Street Journal picked up the news of their deal almost before the ink on the contract was dry. Full Tilt Poker already had a substantial foothold with the Fertittas due to the Strikeforce deal. Zuffa inherited that organization’s sponsorship deal with Full Tilt upon consummating the buyout. The poker site has a history of sponsoring MMA fighters as well. As far back as 2007, Full Tilt Poker was able to score lucrative sponsorship agreements with fighters as famous as Matt Hughes.

Just about a year before the Fertittas used their insider MMA relationship with Full Tilt Poker to keep pace with their local Las Vegas casino competition, the poker company was actually at odds with Zuffa for unknown reasons. Anytime particular sponsors fall out of favor with company brass or fail to pay Zuffa’s “sponsor tax” they find themselves on the no-fly list, also known as the banned sponsors list (see Condom Depot). A March, 2009 MMANEWS.COM story explained how Full Tilt Poker found a way to anger Zuffa’s principals enough to earn the banned sponsor designation. The news actually came from MMAPAYOUT.COM, a site that is known for analyzing the financial side of the mixed martial arts industry. The same site has an archive of stories tracing the timeline of the MMA industry’s friendly relationship with Full Tilt Poker.

The “black Friday” bust of the most popular and profitable online poker sites immediately caused Zuffa brass to cut all sponsorship ties with Full Tilt Poker once and for all. The Fertittas and their Fertitta Interactive business partners also scrapped their online gambling lobbying deal with Full Tilt in the wake of the bust. Additionally, Steve Wynn stopped associating with PokerStars once the U.S. government moved in to stop the illegal domestic activities of the sites. Casino owners simply cannot risk any connections to shady and illegal behavior due to gaming license regulations.

The money left on the table due to Full Tilt backing away from a huge organizational sponsorship agreement with Zuffa and having to terminate all pending deals with MMA fighters in all other circuits was bad enough news when it broke. The April 15th indictments only told half the story, though. This week details emerged describing how Full Tilt Poker bilked customers out of the money in their accounts and ran the site like a Ponzi scheme. So, there is no telling how long MMA fighters and Zuffa brass have been unknowingly aiding and abetting this fraudulent activity. No other poker site has been as entrenched in MMA as Full Tilt Poker over the years.

The government’s assault on illegal gambling online also hit those who bet on MMA fights hard. Providers of Internet betting services also had their U.S. sites shut down. Some were able to relocate operations to foreign hosts without much interruption. Others were forced to shut down completely. All the individuals and companies caught up in the crackdown will now have to adapt to a completely new climate that’s hostile to U.S. citizens using the Internet to gamble on card games and sports. Hefty fines and jail sentences for the perpetrators could result once the criminal indictments run their course.

Even with all the ongoing drama, states like Nevada and Massachusetts are still exploring Online gambling regulation as another way to generate tax revenue. If the activity at these sites could help pay budget deficits, the government’s problems with the industry would be solved. Senator Harry Reid, a longtime friend to the Fertittas and Zuffa, is spearheading the efforts to legalize online gambling in Nevada. Reid, who was once adamantly opposed to online gambling’s regulation, is flip-flopping at a convenient time. Now that casinos in town seem to actually want online gambling to catch on, Reid is standing with his constituents and campaign donors to try to make it happen.

The collapse of the industry in the wake of these indictments takes a major MMA sponsor out of the loop, but if it’s all dirty money anyway, the principals at Zuffa really don’t want or need any part of it. Still, the fact remains that the MMA industry’s top dog league had a solid connection to online gambling that persisted even while they knew the activities of Full Tilt Poker were not legal. Not only did they know that Full Tilt Poker was operating outside the boundaries of the law, the Fertittas actually made a public announcement that they intended to help create a legal framework for the industry in order to complement the offerings of Station Casinos.

So, whether or not the Zuffa principals ever had any clue about the Ponzi Scheme aspects of Full Tilt Poker, they were still accepting money from a company they had to know was operating in an illegal fashion. Any other MMA league might have an excuse or an out due to a lack of any connection to the casino business. The Fertittas and Zuffa have no such way to explain why they’re not guilty by association in this debacle. They will likely never face any civil or criminal charges as a result of their poor decision to align themselves with Full Tilt, but that doesn’t change the fact that they willfully did business with a criminal enterprise…and wanted to do more.

The sponsorship situation in MMA is already complicated enough without this mess adding more logs of controversy to the fire. Fighters often rely on lucrative sponsorships from large corporations just to get through their training regimens. Younger, more unknown fighters often literally live off their sponsorship income. The only way the Fertittas were able to afford to make PRIDE a piece of Zuffa’s property and expand the business was to provide lenders documented evidence that the organization had strong sponsorships. At the time they secured the hundreds of millions in credit to reconfigure Zuffa and pocket dividends, Xyience was the middle of the mat sponsor of the UFC.

Through the under-the-radar acquisition of their own sponsor under the Fertitta Enterprises banner, Xyience set the standard for organizational sponsorship payments. Soon Harley Davidson and Bud Light would take Xyience’s place. Recently MusclePharm signed a huge agreement to become the official supplement company of the UFC despite Xyience’s current favored status with Zuffa’s majority owners. Rumors are also circulating about Rockstar working to become the UFC’s official energy drink as part of a multi-million dollar sponsor agreement. Rockstar is currently the center of the mat sponsor of Strikeforce.

The UFC is poised to move several big named fighters into Xyience sponsor slots. Inside sources also say that fight bonuses will be branded with the Xyience label in the future as well. Xenergy is currently the official energy drink of the UFC, and it’s a Xyience product that’s proven to be wildly popular. It would be hard for the Fertittas to accept the Rockstar offering and keep Xenergy moving off the shelves at the same time.

Whatever happens in the future, a lot more attention will be focused on Zuffa once the UFC becomes a fixture on the FOX network. The advent of a season of The Ultimate Fighter that is live and interactive might be the most exciting chapter of that story. A whole new audience will be exposed to MMA and the UFC. Fans will flock to spend more money on the sport along with new advertisers who hope to reach those fans.

Bigger and better sponsors will fill any void left by Full Tilt Poker in a heartbeat. Replacing the lost income from the poker site isn’t really the problem this scandal puts a spotlight on. The main issue to pay attention to as the Full Tilt saga unfolds is that the UFC’s principals are shady characters. They’re willing to support law-breaking enterprises they should know not to have any association with. They’re quick to engage in insider dealing. They’re ruthless and shrewd businessmen who will squeeze every last buck out of every deal they make. The question must be asked under these circumstances: are they giving enough to the fighters, or are they pocketing all these proceeds for themselves? Additionally, how much longer will they be able to keep this kind of behavior up before they get named in their own indictments?