The latest iteration of an online poker bill proposed by California Rep. Adam Gray would amend his original bill to include an inducement to the state’s racetracks to try to get them on board with passing a bill this year.
The newest version of the bill, AB 431, includes a “urgency clause” that would allow it to take effect immediately. This would, however require a two-thirds vote by both chambers of the legislature.
The most powerful gaming tribes have agreed to the bill in principle to the bill. About a dozen gaming tribal leaders met with Gray last week to share their thoughts, without actually committing to support the bill.
That still leaves six tribes, led by the Pechanga Band, entrenched in their insistence on including “Bad Actor” language that would prevent the participation by PokerStars. That group issued a statement that said, “We look forward to the debate in Assembly Appropriations Committee and reserve the right to oppose the bill should negotiations not bear fruit.”
Gray held the meeting with the tribal leaders to meet the February 19 deadline for introducing legislation.
“It’s been a good week for tribal gaming in California,” Steve Stallings, chairman of the California Nations Indian Gaming Association last week told Online Poker Reportafter the meeting. “It seems like Gray has a specific strategy here and we’re going to see a bill and tribes have reached agreement on how to approach things and get it done this session. It’s all doable, given the basic agreements we have.”
The amended bill would pay the racetrack industry as much as $60 million annually, but would not allow the tracks to apply for online poker licenses, which they have previously demanded as a price for their support. The money would be produced by a 15 percent taxes on online poker revenue. To produce the $60 million the online poker activity would need to be about $400 million a year.
The money would be appropriated into three categories: purses would get 95.4 percent of taxes produced by online poker; a retirement fund for jockeys would get 2.3 percent; and the rest, 2.3 percent, would go to pensions for all racetrack employees.
Entities that would be allowed to operate online poker would include card clubs and Indian tribes that have had casinos for at least five years. They would be allowed to form partnerships. Operators would have to pay a $15 million deposit (aka licensing fee) and additional licensing fees to pay for gaming addiction treatment and regulation.
Operators would be licensed for seven years.
No other online form of gaming would be authorized by the bill, which only allows play between players. So, for instance, Pai Gow Poker would not be allowed since it requires a banker. The online “house” would collect a transaction fee per hand, just as brick and mortar card rooms in the Golden State currently do. Tournaments would be allowed.
The online operators would be required to verify that players are at least 21 years old and would be required to check their identities against a national database. Players would be required to provide a photo ID. Players could create accounts at a physical casino, by mail, phone or on the internet. In most cases cash or money order transactions would be allowed.
The bill would make it a felony to operate outside of the law, either through an unlicensed site or by playing at an offshore site.
The operators would be required to operate entirely within the state boundaries, including employees who deal with players, primary servers, facilities and bank accounts.
The California Gambling Control Commission and the Bureau of Gambling Control would be tasked with writing regulations for the law within 270 days of its passage, and would be able to apply standard practices used in the physical casinos. So any operator who is operating within the law would be qualified for a license.
For five years Gray has been involved in trying to get an online poker bill passed, but efforts date back at least five years before that. The rocks on which such bills have always foundered have been the inability of gaming tribes to agree among themselves, with the two issues dividing them being the “bad actor” clause and what to offer racetracks.
Some tribal critics warn that the online poker market won’t support the 15 percent taxes, $15 million license fee and the $60 million set aside for the racetracks. Stallings said, “I think those numbers, honestly have to be rolled back. The fundamental problem now is the total economics of the bill don’t work.”
He doesn’t believe that online poker will be nearly as profitable as many project, and bases his argument on the earnings so far in New Jersey, Nevada and Delaware. He told Online Poker Report , “Our numbers say there probably won’t be any money in the fund until the fourth year of operations. Given the expenses, there’s not going to be any income to tax.”
Others said that the tribal agreement on a subsidy for the racetracks doesn’t translate into support for the bill as a whole. A lobbyist for the Pechanga group commented, “That bad actor language has to be agreed to before [legislation] is brought up on the Assembly floor.”
Meanwhile the racetracks continue to hold out for being allowed a place at the table to participate as online poker operators. A lobbyist for the jockeys, trainers and union track employees did concede that the $60 million subsidy, was “probably a pretty good deal.” He added that they would hold out for at least that much money.
Several online poker industry experts estimate that the Golden State will generate about $215 million in gross revenues its first year and that number could increase to as much as $360 million when the industry matures.
They note that profit margins are likely to range between 10-40 percent. Steve Ruddock, columnist for USPoker.com wrote last week: “I don’t know what racing thinks they’re going to make, but assuming online poker licenses were made available to California’s seven racetracks, the chance they could generate $60 million in revenue on a yearly basis is at best not-trivial, and the chance they could generate $60 million in profit (which is what the $60 million yearly payment would amount to) is a number approaching zero.”
Some players likely to participate in an online poker market includes the Pechanga tribe, the Rincon tribe in partnership with Caesars, the Bicycle, Commerce and Hawaiian Gardens card clubs and the Morongo and San Manuel tribes, who are allied with PokerStars.
Meanwhile some tribes that want to see progress on an online poker bill continue to be frustrated by how quickly the legislature has passed bills allowing daily fantasy sports, which some tribes regard as illegal gambling.
Two weeks ago Robert Martin, chairman of the Morongo Band of Mission Indians in Southern California wrote a letter to Gray, who also wrote the bill that would regulate fantasy sports games, including the giants: FanDuel and DraftKings.
In his letter Martin implied that Gray’s bill rewarded those companies “for violating state law.” He added, “[O]ur members are very concerned that a retroactive approval of a form of gaming that is otherwise illegal, simply because it is popular, is a very dangerous precedent.”
The San Manuel Band of Mission Indians sent a similar letter. Both bands have been pushing steadily for online poker. San Manuel Chairman Lynn R. Valbuena complained that Gray’s AB 1437 received “very little vetting or deliberation.”
Both letters raised the issue that fantasy sports might be folded into the online poker bill.
Gray’s bill passed the Assembly last month and is under consideration in the Senate.
A spokesman for the Fantasy Sports Trade Association issued a statement that implied that it would support combining the issues. “We appreciate the perspective of the tribes, and look forward to working with the author to address their concerns when the legislation is considered in the Senate,” said Steve Maviglio.
