If you remember, a few months ago, we wrote an article about Mark Scheinberg, the former Poker Stars boss. You are certainly aware of the fact that Scheinberg received 4 billion dollars from selling the famous poker site. Today we will, however, find out the story of the one that made Scheinberg rich and I warn you, this is himself very young and very smart; if not, he wouldn’t have been capable to buy a company worth several times less than his with other people’s money…
In 2014, Baazov was known as the “king of on-line gambling” after the Amaya, a small company in Montreal, Canada purchased Poker Stars. I have to mention the fact that in 2012 or 2013 during one of our magazine’s visits to London for the ICE, we visited the Amaya stand without knowing who they are or who they were to become…
Who is David Baazov?
Doing my research for this article, I have found out many things about Baazov and I’m am sure that I have only found out very little from the public information available about him. I’ll try to focus on the beginning of his business career and the incredible story behind his company’s buying the Rational Group (company which held the Poker Stars brand).
David was born in Israel to a Georgian family and was raised alongside his other 5 siblings as a modern, Jewish, Orthodox family, his father working in construction. At the age of 1, his family moved to Montreal, Canada. He loved math, but didn’t have much interest in school and at he droops out of school at the age of 16. His parents did not agree with his dropping out and so David left home. For several weeks, he slept at friends or in parks, and finally succeeded in renting an apartment with his brother’s help. In time, his relationship with his family improved. He started selling discount coupons for chemical cleaning and clothing shops by mail. Then he started selling hardware, especially computers. For some time, things went really bad, until he managed to obtain a computer sell/re-sell contract with the Montreal public library worth 20 million dollars over 5 years. After having lost a valuable contract, he suddenly sold the company.
In 2005 he entered the software business, particularly casino software and created an electronic poker table, allowing people to play poker without a human dealer. He named this company Amaya. The company registered 6 million dollars in income and as to obtain more money for his future projects, he listed the company on the Toronto Venture Exchange market where one of his shares sold for less than 1 dollar. By selling a minority share pack to the public, he made 5 million dollars which he used to make various cheap acquisitions such as Chartwell Technology and Cryptologic, companies producing software for casino games for on-line operators. He also bought Ongame, an on-line poker software producer. Nobody understood what he was doing or what plans he had for the future, however, the first blow was to take place in 2012.
That is the year he bought Cadillac Jack, a slot machine producer, for 177 million dollars. Now, Baazov had cash-flows of approximatively 36 million dollars per year, which made him highly “liquid”. The evolution of the Amaya shares increased significantly, doubling their value from 3.50 dollars in November 2012 to over 7 dollars at the end of 2013.
However, he did not wish to stop here, he had another target in sight and it was a truly great “prey”: Rational Group (owner of the Poker Stars brand).
How does (sometimes) the little fish swallow the big fish…
Think about the fact that Amaya, at that moment in time, was worth at most 150 million dollars with shares under 7 dollars/share and wanted to buy a giant company – the world leader in on-line poker which had over 1.13 billion in income at that time and about 400 million dollars in profit annually. nobody thought this transaction could ever actually take place, there lacking many millions of dollars.. and besides, Poker Stars had legal issues with the American tax authorities.
Apparently, nothing and no one can stand in the path of Baazov’s ambition to seal the deal. With patience and abnegation, he started to put his plan into action step by step. The first thing he did was to contact the Scheinberg family (Isai – the father and Mark – the son). They were surprised at first and altogether not confident in David Baazov’s proposal. They ignored him for some time. However, they did not wish to rule out any proposals. Poker Stars was in the shadows during that time, in order to make money, they had to enter the American market, but here, only 3 states allowed on-line gambling: New Jersey, Delaware and Nevada. Cash-ins from on-line poker were too small, about 10 million dollars per month.. California seemed blocked and is to this day “at the point of building a sufficiently complex legislation for on-line gambling”, so in one word, a dead end.
And then, the idea of the Scheinberg family making an exit seemed plausible enough.
What did Baazov do? In short, he bought Poker Stars with other people’s money! Brilliant! With an extraordinary ability to persuade and a lot of perseverance, David Baazov gathered 4.1 billion dollars to buy Rational Group (which in the meanwhile bought Fulltilt Poker, its lifetime rival).
Until the end of the summer, he convinced the Blackstone Group (a large financial investment fund headquartered in New York) to pay 1 billion dollars and to buy Amaya shares, while other investors, including BlackRock, one of the greatest hedge fund companies in the world, managing values of over 5.7 trillion dollars! also bought a great deal of shares. For the rest of the amount of 2.9 million, Baazov and Blackstone went to the banks – including Deutsche Bank and Barclays.
Baazov did not only convince them through persuasion, but through numbers as well. The most important numbers from Rational Group or from the audit made by the other large investors found that at that time there were 89 million clients of which 5 million players rolled constantly every month, and 60% of income earned by Poker Stars was due to players registered between 2001-2010, which said a lot about the confidence in the brand.
Done! The deal was sealed! Mark Scheinberg became a very rich man, richer than Steve Wynn (at that time). And think about the fact that no real estate assets were being sold, only digital information and the promise that those 89 million clients of the Poker Stars and Fulltilt Poker sites could become consumers of other things as well, such as on-line casino games or what have you.
In that moment, the prices of Amaya shares sky-rocketed (they were worth 2600% more than at the time of its listing on the exchange), and the only 12.5% of Amaya shares held by Baazov were now worth 800 million dollars!
A true lesson on how to become very rich on other people’s money!
In the meantime, Baazov is the former CEO of Amaya, having sold the larger part of his shares to third parties. However, various issues have arose with the Canadian justice as a result of the Autorité des Marches Financiers (AMF) (Financial Supervisory Authority) in Canada sued David Baazov and some of his associates in March 2016, on grounds of their being implicated in a series of share transactions related to Amaya, including the acquisition of the Rational Group company in 2014. It was actually this month (e.n. – January 2018) when the judge on the case, Salvatore Mascia, rejected Baazov’s request to suspend accusations against the former Amaya CEO.