AB 2863, Assemblyman Adam Gray’s attempt to legalize online poker in California, is close to being dead in this session, although it could still conceivably limp to passage before the legislature ends its session.
August 19 was the last day to amend the bill and August 31 is the last day to pass a bill.
The new amendments that Gray added to the bill recently essentially caused one coalition to change places with the other coalition, with the coalition that had been called “obstructionist” by one group now calling that group by the same sobriquet.
Gray made changes to the bill that brought on board the Pechanga Band of Luiseño Indians and its allies by adding a provision that essentially locks out PokerStars from participating as an online provider for five years, a punishment that compared by the Viejas and Lytton tribes to putting the online provider in a “penalty box.” It would certainly leave the field wide open to other providers given that PokerStars currently dominates the world market.
That didn’t please the PokerStars coalition, of course, but did put them in the strange position of going from the inside looking out, to the outsider looking in. The PokerStars group, which includes the Morongo Band of Mission Indians, the San Manuel Band of Mission Indians, Bicycle Casino, Commerce Casino, Gardens Casino and Amaya/PokerStars, claims that the amended bill is now dead in the water.
In a statement it said: “As now drafted, the bill arbitrarily and unfairly bars one operator from competing with the supporters of these amendments in the iPoker indefinitely.”
A previous iteration had included the five-year language, but would have allowed so-called “bad actors” (a definition meant to include PokerStars) to buy into the game sooner for $20 million.
Other changes to the previous bill were to charge operators a flat tax of 10 percent, instead of between 8.64 percent and 15 percent, the rate in the previous iteration.
At one time the bill’s supporters were called the “Coalition of the Willing.” They included the horseracing industry, labor unions, more than a dozen card rooms and several large gaming tribes. It is unclear how in love they are with the amended version.
It is hard for one group to force a vote over the opposition of another because, being a financial bill, it must be approved by two-thirds of both houses.
In June PokerStars’ allies seemed to be in the driver’s seat—and it was they who were accusing Pechanga and its allies of being obstructionists. At that time Amaya (which owns PokerStars) declared: “It is a shame that obstructionist forces continue to block the passage of a pro-consumer online poker bill in California.”
At that time Mark Macarro, chairman of the Pechanga tribe, defended against the charge. “We have made concessions. Racing has made concessions. It’s time for the other group to make meaningful concessions if they truly want iPoker legalized in California,” he wrote. “If we wanted to stop iPoker we would not be dedicating the time, energy, and resources to shaping good public policy that will protect our rights now and for the decades to come.”
The Poker Players Alliance also became a cheerleader for the bill around that time, and it also used that word “obstructionist.”
However, in response to the new bill PPA Executive Director John Pappas wrote:
“We are deeply disappointed that Chairman Adam Gray has chosen to play politics at the behest of special interests. The proposed amendments threaten to doom the iPoker legislation for which we and our members have advocated for years…”
He added, “A last-minute insertion of so-called “bad actor” amendments would, in reality, just be an anti-competitive measure that would single out Amaya/PokerStars and their California tribal and card room partners from participating in the regulated marketplace.
Last week Eric Hollreiser, vice president of corporate communications for PokerStars’ parent company Amaya issued this statement: “Momentum toward online poker legislation in California has taken a huge step backward with the last-minute introduction of poison pill language that serves the interests of those who have obstructed similar consumer protection legislation for years. The new bill ignores the progress that had been made through public hearings and good faith negotiations and adds language agreed to in backroom deals with those opposed to advancing online poker legislation.”
He added, “Moreover, the bill is not likely pass Constitutional muster as it applies penalties for alleged crimes without any application of due process.”
Matthew Cullen, chief executive officer of San Manuel Digital, said that the new language “directly targets one company,” and was likely unconstitutional.
PPA’s Pappas said that an in-depth look at the bill would reveal that imposed a “lifetime ban” on PokerStars. However, supporters of the bill counter that Nevada imposed a similar ban on PokerStars before it was allowed to enter the market.
Another of PokerStars’ allies, Attorney Keith Sharp, who represents the Bicycle, Commerce, and Gardens card rooms, called the bill “punishment by legislation,” and a “bill of attainder,” which would be unconstitutional, if true. A bill of attainder is directed against a specific person or group, inflicts punishment, and does so without due process.
Supporters of the current bill quote legal scholar and gaming law expert Nelson Rose who in 2014 wrote: “The common law and public policy of every state hold that gambling is an illegal activity. State-licensed gaming is an exception to the general rule. Like any other exception to common law, gaming, including Internet poker, is strictly construed in favor of limiting the activity. This allows the state to deny licenses to applicants who do not comply with the state’s requirements. … Statutes and regulations controlling gaming licenses often expressly go beyond criminal convictions as reasons for denying gaming licenses. … I am not aware of any authority that has questioned or overturned these standards …”
PokerStars made itself a target as a “bad actor,” back in 2006 when it ran afoul of the U.S. Justice Department for allegedly violating the Unlawful Internet Gambling Enforcement Act (UIGEA.) PokerStars paid a hefty settlement without admitting wrongdoing. That settlement didn’t prevent it from entering the New Jersey market last year.
Before October 2006 many online poker operators openly did business with U.S. customers, regardless of state law. That month Congress adopted UIGEA, which forbade financial transactions for gambling if the gambling violated state or federal law.
PokerStars and Full Tilt disregarded this action, something that helped PokerStars seize the global market, growing from 10.6 percent to 55 percent by 2011. Currently its share is 70 percent. In April of that year the federal government filed a complaint against PokerStars and its executives alleging that they violated UIGEA and also conspired to commit money laundering and bank and wire fraud.
In July of 2012 PokerStars settled out of court, agreeing to pay $731 million. It also acquired Full Tilt around the same time.
That payment did not indemnify PokerStars from having to settle with the various states whose laws it may have violated at the same time, such as Washington state, who online poker law it reportedly violated for four years after it was adopted.
Those who oppose PokerStars’ participation do so because they know that it has built up a large database of customers that no other competitor has.
As gaming attorney Gaming Fried said in an op-ed last week: “People can develop assets illegally and sell them for an enormous gain if the ‘buyer’ can be licensed and use the assets in regulated markets. Allowing the use of brand names associated with past illegal activity too would send the message that compliance with gambling laws is optional.
“So the argument, ‘we have not been convicted of anything,’ and ‘our settlement does not admit guilt,’ does not determine suitability. In addition, those companies that continued to take US customers post-UIGEA fall into their own category.”
Interestingly, Gray himself once opposed the “bad actor” clause, but did a dramatic reversal last week. Critics point out that this was about the time that his father-in-law, former U.S. Rep. Gary Condit, became a lobbyist for Pechanga.
The sudden participation of Condit, and Gray’s sudden about face on the issue of a “bad actor,” was cited by the Sacramento Bee as one reason for its editorial calling for the bill’s defeat.
Golden State lawmakers for about ten years have tried to pass a law that would let the state enter the online gaming market— a market estimated at being at least $400 million. Between 2009-2010 the state’s players accounted for 16 percent of the total number playing in the U.S. and 4 percent of the world market—and that takes into account the fact that they were playing illegally. The number of online operators that the state could support is not known, although some estimates put it at between six and ten.
Even if Gray’s bill finds enough support to pass, PokerStars and its allies have threatened litigation, which could add years to its implementation. That might actually help PokerStars, since it is unclear when the clock would begin on the “five year” requirement for it to be allowed into the market.
According to lobbyist David Quintana, who represents the Viejas Band, quoted by Online Poker, “They can jam up the regulatory process to make the penalty box as small as possible. They might throw in some legal challenges, anything they can think of to shrink the five years.”
Last week Gray’s chief of staff, Trent Hager, was still optimistic that the bill might be passed. “There have been numerous discussions between the interested parties, that have gone on for months, that have been expedited in the last couple weeks,” he told the Press Enterprise.
A new player in this game was revealed a few days ago when Online Poker Report reported that 888 is talking to the Pechanga Band of Luiseño and the Agua Caliente Band of Cahuilla Indians and maybe others about a partnership. Pechanga may be talking to other providers as well.
Pechanga has never before revealed whom its online partner might be or if it had one at all.
In October of 2014 Pechanga Chairman Mark Macarro, when asked about it, said “The truth of it is that we haven’t publicized our efforts. When the time comes, we will announce our plans. Pechanga will be ready to effectively compete. But our focus has been and continues to be on the passage of the bill that strictly limits and regulates online poker, not publicizing our internal workings. So rest assured, that’s the primary difference — we haven’t publicized that.”
Some have speculated that the fact that Pechanga didn’t have an online partner accounted for its opposition to participation by PokerStars.
In California 888 previously said it had an agreement with Bay 1010 and is widely considered to be the platform provider for the Rincon Band of Luiseño Indians. Nothing would prevent it from providing such services for more than one tribe. The more tribes it partners with the larger its pool of players could become.
888 is already an online provider in most other states that allow online gaming. It is the market leader in Nevada and the only provider in Delaware. It has partnered with Caesars in New Jersey.
IGT, which supplies slots to most California gaming tribes, is in talks with several tribes to be their online gaming provider—if iPoker becomes legal. It has experience in online gaming and provides several state lotteries with their online services.
The Pala Band of Mission Indians is the only gaming tribe that has created its own homegrown online gaming platform, which it has been testing in New Jersey. If it were able to hammer out a deal with Pechanga and Agua Caliente, that would make it a very tough competitor.
NYX, heretofore only an online casino game provider is also interested in entering the California market, but likely by overhauling its existing OnGame poker platform, which it acquired two years ago from Amaya.
GVC recently purchased PartyPoker and has an agreement with the United Auburn Indian Community.
Churchill Downs Interactive (CDI) has partnered with Crystal Casino and Oceans 11. It is seen as unlikely to partner with any gaming tribes considering how at odds the horseracing industry and tribal gaming remain.
Daily Fantasy Sports
In a separate but related development, the legislature has also failed to act on a daily fantasy sports bill. In fact it is, if anything, even deader than the iPoker bill because nobody knows what the status of the bill is.
In January progress on DFS seemed assured when a bill was passed out of committee before sailing through the Assembly with one vote no.
Now it is languishing in the Senate. The bill was amended in the Senate and sent back to committee but nothing has happened since then.
That bill’s sponsor is also Adam Gray.
The fact that some gaming tribes oppose legalizing DFS is probably the key factor in its Sleeping Beauty status. The opposition of the San Manuel and Morongo bands surfaced in January, after the Assembly voted on it. Some tribes opine that DFS violates the law and would require amending the California constitution to become legal.
Without a bill there is some question whether DFS is legal in the Golden State. Attorney General Kamala Harris has been asked to render an opinion, but she is busy running for U.S. Senate and so hasn’t gotten around to giving one.
Whether it is legal in California, DFS is definitely operating. And since the Attorney General’s office hasn’t targeted it, the status quo may remain in place for the moment.
