Hold your Bets: California tries again for Internet poker
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Martin Owens - Contributing Editor
"I've learned from my mistakes. I can repeat them exactly now."
Dudley Moore


Philadelphia, PA (Sports Network) - On the surface, it looks like California might finally pass legislation to license online poker this year. No fewer than four bills - three in the State Assembly, one in the State Senate- are up for consideration.

And there may be a new note of urgency. The idea is spreading among Indian tribes licensed to conduct gambling by the Indian Gaming Regulatory Act (IGRA) that they, too, can offer online gaming, and offer it without first getting permission from their home state. Several moves have been made in this direction, the most recent of which is from the Iipay Nation of Santa Ysabel, located near San Diego. A program of online bingo and online poker was initiated in July 2014, but is currently stalled in court as the state of California attempts to place an injunction. (Full disclosure: the Santa Ysabel have retained me to advise them in this matter).

If it is established that the tribes can set up on their own, they won't need the state of California. That means the loss of both control and money. And the free spending Golden State is always in need of more money.

So the logical thing to do would be for the authorities to hurry up and get some kind of Internet poker in place before they are overtaken by events, right? And in any case, since the various stakeholders - gaming tribes, card rooms, legislators, regulators, and so forth - have been discussing the matter for years, they're fairly close to a common understanding, right? So by this point in the game, six years in, it ought to be a matter of sprucing up a few details. Right?

So sorry, the answer to every question above is "no".

At a symposium for I gaming legislation, held in Sacramento in late February, it was revealed that not only has California's Internet poker not progressed any further, but it has positively taken a backward step.

First of all, money is no longer the issue that it was. Back when California had a budget deficit visible from space (would you believe $26 billion?) new sources of funding were urgent. Today, tax increases and the usual fiscal sleight-of-hand have taken the pressure off. There is always a demand for money, but it isn't a top priority anymore. Furthermore, the promise of big revenue no longer looks like a sure thing. New Jersey projected $180 million in tax revenue from online gambling in 2014. The actual take was $9 million or so - about 5% of the original estimate. Delaware barely broke even. Nevada took in less than $1 million. There were a number of reasons for this; teething troubles, excessive caution on the part of regulators, and a gaming public that still doesn't fully understand it?s legal now. But the point has been made. Internet gambling will not equal an instant flood of money, even in California, one of the few states with a large enough population to support its own network.

Second, faction fighting has not improved or smoothed out. If anything, it has gotten worse. Assemblyman Gatto, sponsor of the earliest Internet poker bill this session, let the cat out of the bag at his keynote speech. Where before there were perhaps three or four major factions contending with each other - combinations of tribes, card rooms, lobbyists, and so on - there are now no fewer than fifteen. That?s right, fifteen. That?s about one faction for every two California State Senators. And each faction has its own list of demands, non-negotiable, no compromise, our way or no way at all.

Efforts persist to pass a bill that essentially locks up Internet poker for a few prosperous and influential tribes and card rooms, mostly from Southern California. There is a good deal of spite behind this, but also simple rules of survival. California now licenses something like 90 card rooms, half a dozen racetracks, and has signed I GRA compacts with about 70 gaming tribes for slots, table games, and other types of gaming which are considered "Class III" under the Federal government's allotment scheme. There is no way that 200 parties can set up online poker webpages, and all of them prosper. This is why about 13 of the biggest operators are pushing bills whose requirements keep out the little fish, such as multi-million-dollar licensing fees, no third-party financing, and the "bad actor" clause, which excludes online gaming operations which took American action after 2006, when the Unlawful Internet Gambling Enforcement Act (UIGEA) took effect. The immediate intent seems to be keeping out Poker Stars, which had a close encounter with the Federal government in 2011, before Amaya Gaming bought them out and changed the management.

Most discouraging of all, perhaps, are the clauses and inserts which demonstrate that even after six years of considering the matter, California?s state lawmakers still don't understand many of the fundamental facts about Internet gambling. One bill proposes to make it a felony for California residents to play poker online, if that poker is not state licensed. How to even begin detecting such a thing is not mentioned. (Not even Stalin had that many cops). Another would only allow players to sign up for Internet poker by personally appearing at existing brick-and-mortar operations, or satellite facilities. Ditto for collecting winnings. (If you have to physically show up at a brick-and-mortar operation, you're defeating the purpose of online gambling in the first place. Which might be what they had in mind). The idea that they are now dealing with a nimble, flexible, real-time gambling program that is part of a worldwide market, and not merely an extension of old-time gambling halls, is one that escapes California legislators for the most part.

Summary

It might be that the vested interests that control California's licensed gaming finally pull together and allow the passage of an Internet poker bill this year. Surprises are always possible. But the current situation seems to indicate conditions just like before, only more so. New problems and concerns have been injected into the mix, faction squabbles are even more pronounced and divisive, and the corporate knowledge of California?s government to deal with this new challenge and opportunity has declined, not increased.

It might happen yet, but that ain? the way to bet.

Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose, (Mary Ann Liebert Publishers, 2nd ed 2009); Associate Editor, Gaming Law Review & Economics; Contributing Editor, TSN. Comments and inquiries welcome at to mowens@trade-attorney.com.

Copyright 2015

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