Infighting in California Costing the State Online Gambling Revenue

When the issue of online gambling and particularly poker was discussed in the past it was just assumed that California would be the first state to implement it. But a combination of factors almost ensures that a bill will not be passed anytime soon and in the process California will continue to lose potential revenue from online gambling.

When the issue of online gambling and particularly poker was discussed in the past it was just assumed that California would be the first state to implement it. With over 38 million residents making an average of $61,000 a year and with poker rooms lined up throughout the state it was just logical that California would make the step to online poker. The massive debt in the state was also a reason to move forward and state polls indicated that Californians approved of online poker. In the last few years, however, California legislators have introduced several online poker bills only to see them die on the table or not be addressed due to infighting. The two latest bills that still sit on the table are AB 2291 and SB 1366.

AB 2291 was introduced by Assembly member Jones-Sawyer last month and would legalize intrastate poker but would only allow tribes and regulated poker rooms with at least 5 years experience in the state to acquire a license. It requires that servers be located in California and in the case of tribes the servers must be located on tribal land. It has a bad actor clause to exclude licensees they deem not to be fit and requires a $5 million one time licensing fee paid to the state's general revenue fund. The bill requires all players and employees to be California residents and strict geo locating software be implemented. The bill also disallows any municipalities from opting out and this bill would supersede any federal statute if enacted that allows for interstate wagering. In better words, if interstate poker is ever approved at the federal level, California would be bound by the terms of this bill. As an urgency statute it only requires 2/3 approval by the California House and Senate to pass. The bill would provide licenses for 10 years to be renewed for another 10 years on that date and would permit websites to go live on January 1, 2015.

The second bill, SB1366, referred to as "The Internet Poker Consumer Protection Act of 2014", was released in February as well and is almost identical to SB678, a bill introduced by Senator Lou Correa at the end of 2013 which was discussed last year. The poker only bill has many of the same attributes as AB2291 and has a special section that allows tribes to work with other operators like Party Gaming which can manage the site with their own brand but it is understood that those operators are just affiliates of the tribe which actually gets the license. A bad actor clause is in place for this legislation which would exclude any company that operated in the U.S. after the passing of the UIGEA from being affiliated in any way with online poker in the state. There is no fee set out in the legislation but 10% of the revenue is to be paid as a tax to the state.

Concerns that online poker would eat into the revenues of horse racing, tribal land based gaming and poker clubs created an atmosphere with a lot of infighting. The horse racing industry wanted assurances that they would somehow be compensated if online poker indeed resulted in a decline in wagering on their product and the tribes wanted assurances that all online non poker casino gambling would belong exclusively to them, and any shortcomings in their land based revenue as a result of online poker would be made up too. As well, some tribes wanted online gambling banned forever on moral grounds.  Lou Correa tried to overcome this concern with SB678 last year which allowed tribes to strike out areas of the bill they didn't like and by all accounts the majority of tribes are now satisfied with the new drafted bill. After all, they still have exclusive rights to all non-poker gambling, but will now get a bigger share of the poker market,  which currently is a very small percentage of their revenue.  As for the horse racing industry, members of the industry in California have informed me that their goal currently is to entice the state to allow new forms of wagering to increase revenue and that poker really is no longer an issue for them.

While the tribes and racing industry seem to be at more ease now, it seems the same can't be said for all the legislators. In fact several legislators indicated they would not support either bill because they opposed giving the tribes exclusivity to online casino gambling. Many legislators believe that online slot machines, card games and other casino offerings will be a gold mine in the future and they believe it is not in the state's best interest to continue to give the tribes all the money from those forms of gambling. In addition, many believe the current law that gives exclusivity to the tribes for casino gambling is flawed and they see the internet as a way to rectify that mistake. By all accounts the opposition to the poker-only legislation is strong enough that it would not allow for the 2/3 vote that is required to pass. Just as a side note, according to a California tribal website, 62 of the 109 California tribes own 68 casinos including 50 Indian casinos, 15 Indian casino resorts and 3 mini-casinos including 63,835 total slot machines. It's no wonder the tribes want to ensure that their monopoly of non poker online gambling is not infringed on.

One other sticking point is the bad actor clause. While it is included in both bills at the request of the tribes it seems that some tribes are now having second thoughts. The Pala Indians indicated last year that they are planning to introduce their own poker site and have hired Jim Ryan, the former CEO of Party Poker and the chief of Excapsa as the CEO for that website. They even hired Phil Ivey as a spokesman. The concern there is that Jim Ryan may be seen as a bad actor since Excapsa sold flawed software to a Kahnawake chief that resulted in the Absolute Poker and Ultimate Bet scandal and Phil Ivey was a partner at Full Tilt Poker which, according to the bad actor clause, is an excluded company. More interesting than that, however, is that the Morongo Band of Mission Indians in California has indicated that they will not support any bill that has a bad actor clause and rumors are swirling that the band along with 3 Southern California card clubs are  working on a partnership with the Rational Group for online poker in the state. While no specifics were detailed, it is clear that the rumor has validity since it wasn't discounted by their spokespeople. In a press release issued by the California Tribal Alliance, they acknowledged that the deal is in process and have stated that the Tribal Alliance "will strongly oppose any legislation which allows PokerStars to participate." While they acknowledge that the Rational Group paid a $731 million fine to the DoJ and admitted no wrongdoing, in their opinion the fact they continued to operate after passage of the UIGEA is significant enough to exclude them, at least for a time. Moreover it is almost certain that every other tribe and poker club that is not associated with PokerStars or Full Tilt will oppose their inclusion for obvious reasons. Before Black Friday over 80% of the online poker play in the United States was with PokerStars or Full Tilt Poker and since then very few Americans have moved to other sites citing they are waiting for regulated U.S. markets with the expectation of playing with one of those sites in the United States. Even in the rest of the world today according to, PokerStars and Full Tilt Poker have more players than every other online poker site combined. Name recognition is everything, as Caesars found out when shot ahead of the competition in Nevada and New Jersey as soon as they opened up and all parties know full well that they will be eaten alive by, California, if that site is allowed to operate. So it is in their best interest to prevent PokerStars or Full Tilt poker from operating and the best opportunity to do so is to continue try and sell this bad actor clause and suggest that the Rational Group is some sort of rogue company because they didn't withdraw from the U.S. market immediately after passage of the UIGEA. As well, other groups like the AGA will also be opposing the Rational Group operating in any way in California. The AGA was instrumental in quashing PokerStars purchase of the Atlantic Club casino in Atlantic City and while Jim Murren, AGA's new chairman, suggested that the AGA should tone down its opposition of online gambling, he also will ensure that the interests of AGA members such as MGM, Caesars, Wynn etc. aren't compromised. And that entails ensuring that PokerStars and Full Tilt's efforts to operate in the U.S. never materialize. Wynn originally partnered with PokerStars for online poker in Nevada but withdrew and partnered with 888 Gaming following Black Friday.

So, unfortunately for California residents, it seems clear that the infighting among the various tribes, the disagreement among the legislators over whether any bill should be poker-only and the disagreement by outside groups and other interests as to how the Rational Group of companies should be treated will almost ensure that a bill will not be passed anytime soon and in the process California will continue to lose potential revenue from online poker.

As for the two bills on the table, chances are they'll be dead and we'll be discussing other new bills in 2015.

Contact Hartley via email at hartley[at]osga[dot]com.

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