PokerStars' ambitions to re-enter the U.S. market suffered a major setback Wednesday when New Jersey gambling regulators, citing the company's legal woes, said that it would not receive a license to operate online poker in the state for at least two years.
Over the past few years, Isle of Man-based PokerStars has spent millions on lobbying, acquisition and partnership deals in anticipation of trying to come back to the U.S., where a handful of states are preparing to allow online gambling. But so far the legal troubles that got PokerStars kicked out of the U.S. in 2011 are proving too much to overcome.
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PokerStars CEO Mark Scheinberg and communications director Eric Hollreiser at Isle of Man base. The site wants back into the U.S. Alexandra Berzon/The Wall Street Journal
PokerStars' application to operate an online site for Resorts Casino Atlantic City is now in an unusual state of "suspension."
New Jersey's Division of Gaming Enforcement said it will reconsider the application if the company demonstrates "significantly changed circumstances."
Based on concerns expressed in a statement by New Jersey regulators explaining their decision, that would appear likely to include resolving a federal indictment against the company's founder, Isai Scheinberg, or curtailing his family's association with the company, according to industry observers.
The state also cited the involvement of some PokerStars executives in operating unregulated online gambling in the U.S. between 2006 and 2011.
People close to the company say the decision may force the company's founding family either to sell what has long been the dominant poker brand in the world or face being shut out of the country at a critical juncture.
PokerStars spokesman Eric Hollreiser declined to comment on that speculation Wednesday. He said the company is "disappointed" in New Jersey's decision.
PokerStars' aggressive bid to return to the U.S. was the subject of a front page Wall Street Journal article earlier this year. It remains the biggest brand in poker despite being forced by the Justice Department to pull out of the U.S. in 2011.
That year the Justice Department filed civil lawsuits against PokerStars and other poker sites and indicted Mr. Scheinberg and another executive on criminal allegations including bank fraud, money laundering and illegal gambling operations. PokerStars and its two indicted executives remain out of the country and haven't been arrested. The company and the executives deny wrongdoing.
The company quickly began to focus on re-entering the U.S. under a new legal system that is starting to emerge in states. As part of that effort, PokerStars in 2012 agreed to pay $730 million to settle its civil suit with the Justice Department and to buy a rival site. Mr. Scheinberg's son, Mark Scheinberg, became the chief executive, while Isai Scheinberg was prevented in the settlement from having a direct management role. He remains an adviser to the company.
Nevada, Delaware and New Jersey have all this year begun allowing people physically in their states to engage in some forms of online gambling. However with the New Jersey decision and previous moves in the other states, PokerStars is now shut out of all three for the time being.
Other states considering legalizing online gambling are unlikely to welcome PokerStars thanks in part to New Jersey's negative decision, the industry observers said.
Meanwhile, other offshore gambling companies, including several that operated gray market services in the U.S. but pulled out earlier than PokerStars, have set up operations in some of the states now allowing online gambling, as have several major U.S. casino companies. Other casino companies, particularly Las Vegas Sands Corp. LVS -0.08% , sharply oppose online gambling altogether.
Write to Alexandra Berzon at alexandra.berzon@wsj.com