California lawmakers Adam Gray and Reggie Jones-Sawyer have put their heads together to sponsor yet another bill that would regulate online poker in the Golden State.
AB 2863 was introduced on February 19, just hours before the deadline to introduce bills. It includes up to $60 million annually to the racing industry from a combination of one time licensing fees and continuous tax revenue. The amount would not be guaranteed, but would be yoked to profits from the industry.
In return, of course, the racetrack industry would not have a place at the table of actually participating as online operators.
As the bill explains it: “The bill would require the first $60,000,000 collected each fiscal year pursuant to the license deposit and quarterly fees provisions to be deposited into the California Horse Racing Internet Poker Account, which the bill would establish in the General Fund. The bill would continuously appropriate 95% of the funds in the account to the California Horse Racing Board for distribution, as specified, and would transfer 5% of those funds to the Fair and Exposition Fund, a continuously appropriated fund.”
Some analysts who have run the numbers have concluded that it would be a very rosy scenario indeed to where this scenario would come close to raising $60 million a year.
As Steve Ruddock of California Online Poker puts it: “For instance, even with a 15 percent tax on gross gaming revenue, the state’s tax revenue cut would be about $32.25 million in Year 1, based on analysts’ estimates of the potential market size in California” and adds, “If an annual payment is how the issue will be solved, I suspect the final annual allotment to racing will likely be a fraction of $60 million.”
There would be two types of license: operators, who would be gaming tribes, card clubs and groups that combine both AND service providers, including groups such as platform providers, software providers, anyone paid a percentage of gaming revenue and market affiliates.
Operator licenses would be issued for seven years and would be renewable without additional fees. The first operator licenses would be temporary and good for two years. Each license would be limited to two authorized websites.
Currently the bill does not provide specific tax or license fee rates or amounts, unlike an earlier draft that included a one-time $15 million licensing fee.
Service providers would be subject to background checks, which they would pay for.
The bill contains a provision aimed at preventing racetracks from serving as proxy operators.
It does not contain a “bad actor” clause, but it does give the California Gaming Control Commission considerable latitude in deciding who shall be licensed.
AB 2863 prohibits house-banked games and third party banking of games and does not allow games of pure chance using a poker format, e.g. auto all in tournaments.
The bill would criminalize non-authorized online poker sites by making it a felony to operate them. In addition, California residents who play at such sites could also be charged with a felony.
The first online poker site would be able to operate one year after the adoption of regulations by the state.
Sacramento lawmakers have been trying for the better part of a decade to pass some form of legalized online poker bill—so far without success. Gaming tribes, who hold the balance of power, have so far been unable to agree on basic approaches.
The Black Friday crackdown by the U.S. Justice Department gave impetus to this effort. But tribal rivalries drained most of the gas from the effort.
A firm sticking point has been the participation by the racetrack industry, which some tribes unwaveringly oppose and the participation by so-called “bad actors,” those who offered online poker to the state before the passage of the bill. This last is widely acknowledge as an attempt to prevent PokerStars from participating as a platform provider.
Support for a “bad actor” clause has softened over the last year, with Caesars Entertainment, and the Rincon, Pala, San Manuel, and United Auburn tribes all withdrawing their insistence on such a clause.
Pechanga and Agua Caliente, on the other hand, still insist that it’s a necessary component and said so in a letter to Assemblyman Gray on February when they wrote, “However, to proceed with the suitability language in your current Draft – which our Coalition would otherwise vigorously oppose from the outset – we could not agree to the process you outlined as it would place us at an unfair disadvantage in the process given your request for neutrality.”
Inclusion of a “bad actor” clause is opposed by the Morongo and San Manuel bands, which have partnered with PokerStars.
Steve Stallings, chairman of California Nations Indian Gaming Association (CNIGA) issued a statement supporting the bill in principle. Noting that CNIGA was established to promote consumer safeguards, protect children and preserve tribal sovereignty, Stallings writes, “It appears that Assemblyman Gray’s AB 2863 meets those stated principles and we are supportive of Assemblyman Adam Gray’s efforts to allow gaming Tribes the option to adapt to the changing technology,” adding, “CNIGA looks forward to working with the Legislature to ensure meaningful legislation is passed.”
One relative newcomer to tribal gaming, The Federated Indians of Graton Rancheria, is “strenuously opposed” to the bill as written, saying it would “unfairly and unconstitutionally” exclude the tribe because it requires that operators have run casinos for five years. The Graton Resort & Casino opened in 2013.
It accuses the bill’s language of singling out Graton, “and would delay our ability to enter the i-gaming market for years after all other gaming tribes in the state. Such a late start would, as a practical matter, bar Graton’s entry permanently since most customers’ market preferences would be firmly established before Graton could begin to compete.”
The tribe asks Gray to remove the requirement.
AB 2863 requires a two-thirds vote by the Assembly to pass, and would then go to the Senate.
Some experts estimate that the California online poker market has the potential to exceed $380 million annually. The state accounts for about 16 percent of iPoker activity in the U.S. and 4 percent of the worldwide market.
