The Lederer Files Part Four – The Summary

Howard LedererPokernews’ fourth installment of The Lederer Files focuses on the events surrounding Black Friday and how they communicated to the members just how perilous the company’s situation was.

✖ When he got to Dublin on Sunday night (April 17) for a Monday morning meeting it was Howard’s plan to get to the bottom of the cash shortfall situation. He explained there were some “very short term things” that had to be dealt with first. This included blocking US players and figuring out how to get international players back online after the URL had been blocked. As he put it “there were fires that had to be put out” before anything else happened. Although these things had to be sorted first, he knew he had to get to the bottom of the “financial state of the company”.

✖ Chris Ferguson arrived at 12pm on the April 18. Lederer and Ferguson started to develop a strategy that laid out the questions they needed answers to in order to answer the “simple question – what is the financial state of the company”.

✖ Lederer “wasn’t thrilled” and was “worried” on April 20 when he started to realize how bad the situation was. The following day (April 21) everything was put together and a number was produced that Lederer admitted wasn’t an “exact number” but that it was “horrific”. The difference between the amount owed to players and cash in hand was “$250 million”.

When asked whether he thought the number was a mistake he explained they “were really thorough” and he “never thought it was a mistake”. The only surprise was the negative net effect the Backlog had on their cash coverage when they found that out of a Backlog of $134million only $10million was still in the accounts of players. This “amazed” Lederer and he said “it’s the best argument for skill in poker. Players that had made Backlog deposits were losing players and the money didn’t stay in their accounts”.

The CFO, CEO, Chris and Howard knew about the shortfall on April 21. That day was “more of a shock” to Lederer than April 15. The 15th was “terrible but something the company will deal with and work through and it’s a solvable problem”.

“The idea that customers might not be able to their money was not on my mindscape. It was such a shock to me,” Lederer said.

✖ In terms of dealing with it, there was “no thought of trying hide it” and it was all about “trying to fix it”. A board meeting was immediately called and all company counsels were invited to take part. Former chief of marketing was also invited as a “seasoned cool headed executive and his experience was going to be really important in helping”. At this early stage all they did was share the numbers.

Shareholders first found out at some point between April 25-27. On the first call Howard “did a lot of the talking”. This was in no small part down to Ray not being able to talk as “members were really hostile to him”. Early calls were “difficult” and “weren’t as productive” as Howard had hoped. Issues with people being represented by their lawyers meant that by the second call “nine or ten attorneys” were speaking on behalf of members.

✖ By this stage “membership was a problem” and Howard admitted they were “their own worst enemy”. There was a “lot of anger” from owners and it became difficult for anyone to accept responsibility.

Two groups had developed. One was trying to do “everything to make sure customers got paid”. The other “was trying to figure out who was at fault”. The latter “won’t get anyone paid”.

Some owners didn’t have player payment as their first priority, or so it felt to Lederer. They thought any deal struck must be profitable to owners and wanted as little dilution as possible.

✖ Early on a deal with Jack Binion was on the table that called for “40 percent dilution” of shares. While Lederer was reading it he was “booed off the phone” and “couldn’t continue reading due to the interruptions”. The terms of the deal were 40 percent dilution for $150m.

✖ Whenever they talked to potential investors they said a full $250million was needed – and they wanted as much as $300million to make sure there was “operating capital”.

✖ Howard thought “if someone was to cut a cheque for $150m we’ll deal with the rest later. You get skilled businessmen in there’s no chance out customers wont get paid.”

✖ There were a “wide variety of offers” (term sheets) over the first few months and Lederer felt “the first group with cheque book and pen in hand” should see their offer accepted.

✖ When asked why it took 15 months for a deal to be cut, Lederer explained, “members never stopped deals happening”. He was one of the loudest voices on most of the calls with members and eventually said that if a deal was done by the end of May it might end up the company value dips below the amount they owe customers’ It “didn’t go down well with members and they didn’t want us to panic and take the first deal”.

✖ Argument from members was that they were making money and no one need panic. This was true. Lederer, however, was “particularly concerned about the World Series of Poker” and the “echo chamber of negative publicity” this could cause.

You can read part one here, part two here and part three here as we go through the interview part by part here on