The Mouthpiece

By Martin Owens
Contributing Editor

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    Martin Owens

    California breakout:

    One tribe revolts against the status quo quagmire. Will there be others?

    "The best way to escape from your problem is to solve it."
    Robert Anthony

    The Santa Ysabel tribe of San Diego has opened a poker website on its own authority, soon to accept real money play from California residents. One way or the other, this is a definite game changer for the expansion of Internet gambling in the USA. Here's how we got here.


    As we last remember, California's state legislature was once again fooling around with the idea of legalizing online poker. As usual, competing vested interests, principally the Golden State gaming tribes, were blocking their rivals and each other. Two bills were before the legislature, each one slightly unrealistic, but each one containing something the competing factions wanted. One limited the licensing process not only to previous holders of a California land-based gambling license, but to those license holders who were able to finance their own efforts- that is, no forming a strategic partnership with an outside operator to fund and develop an online site serving California. The other contained an outright prohibition on so-called "bad actors" - Internet gambling businesses which had accepted American customers after October 2006, when the Unlawful Internet Gambling Enforcement Act (UIGEA) supposedly made such things illegal.

    Of course, the law actually did no such thing: it merely penalized people offering unlawful Internet gambling to the US, using United States banking instruments. Which bothered the people in the gray area not at all. The real thrust of the bill, of course was leaning on the banks, who were handed yet another vague, ominous, and unintelligible guideline to "prevent unlawful Internet gambling." The result was to steer all American banks and credit card companies away from anything that had the slightest relation to online gaming, legal or illegal, which of course was the object of the exercise in the first place.

    Nevertheless, a safe harbor provision in the UIGEA made it clear that Internet gambling which was state sponsored and properly state supervised, offered only to the residents of a particular state, was not to be regarded as "unlawful". Which put the ball squarely in the court of the state legislatures. This is nothing new, as control of gambling law and gambling policy has been a state prerogative ever since the nation was founded..

    How Not to Get There

    At first glance, California seemed to be a natural shoo-in for Internet gambling. Its population of 38 million is enough to provide liquidity. It is one of the most tech savvy states in the Union, with excellent infrastructure. And in addition to a liberal, tolerant attitude toward adult pastimes, the Golden State has a chronic need for more money. Such as the tax revenues from licensing online gambling. How could it miss?

    Well, it has. California has been hanging fire on licensing Internet poker and other games since 2007 (horseracing bets have been online for about 10 years now). Powerful vested interests have been fighting either to keep expanded I gaming out altogether, or to take it over. You see, unlike most other states, California has literally scores of potential Internet licensees. There are 91 private card rooms. There are 110 recognized Indian tribes, of whom 72 now have signed gambling compacts with the state government. There are around half a dozen big horse tracks still left, not including county fairs. Though they already have Internet wagering, they would love to set up I gaming facilities in their grandstands to draw more people.

    The first big problem was convincing all these vested interests that Internet gambling was not a threat, that it wouldn't "cannibalize" their existing clientele. But as demographics change and new, media friendly generations come on the scene, it's become apparent to most players that the future is online. The second problem was much more intractable. The problem of sheer numbers. Even the most populous state in the USA doesn't have enough gamblers to support 150 -odd Internet gaming businesses. At the same time, it was a political necessity to allow the holders of existing land-based licenses to try their luck online.

    Behind the scenes lobbying and maneuvering has produced two bills in California's legislature (this being an election year, odds are quite slim that either will even come to a committee vote, let alone pass). Each contains a "poison pill" to limit competition. One approach is to limit Internet licensing only to those tribes or companies who can finance the whole deal by themselves. In other words, the standard approach for a smaller tribe or card room, bringing in an outside operator as a strategic ally/investor, was to be ruled off. The other contains the Constitutionally dubious "bad actor" clause, which would forbid participation by any online gaming operator who took American bets after the passage of the UIGEA in 2006. This is specifically designed to scupper the proposed participation of PokerStars, which was in the process of partnering with the powerful Morongo tribe. The move is opposed by a group led by the equally influential Pechanga and Aguascalientes. So while it's announced as a move to "protect the consumer", the "bad actor" clause seems to be much more a case of one faction kicking its rivals in the shins under color of law.

    The Tipping Point

    But shenanigans of that kind have been standard operating procedure in Sacramento for years. What precipitated the independent breakout of the Santa Ysabel (and there are several more tribes considering similar moves) was the announcement that about 13 of the more prosperous California gaming tribes, together with the top few card rooms in LA, had reached a consensus to put both of the strictures discussed above, into one bill, which they would then support with their considerable resources.

    The practical effect of such a law would be to exclude most of the existing land-based licensees from California's Internet poker market. On the one hand, most of them can't raise the money for such a substantial project by themselves; on the other, they wouldn't be able to get any help from outside. Clearly, it was time for the little guys to make a move while there was still a move left to make.

    The current state of the California and Federal law does not forbid a Federally recognized tribe from opening up poker, which is a class II game under the Indian Gaming Regulatory Act of 1988. (I.e. state input not required). In addition, recognized tribes possess a measure of sovereignty, meaning that in certain circumstances they are immune from state governmental interference in their affairs. To be sure, there are gray and murky areas in the legal landscape, not least because California, like many states, has not updated its gambling laws in generations. But the Santa Ysabel concluded that they had sufficient elbow room to legally and lawfully launch on their own, without the need of further approval from the state government in Sacramento. [Full disclosure: the tribe relies, at least in part, on a legal opinion written by me].

    So in a situation that made it possible, legally, and boiled down to "use it or lose it" practically, the Santa Ysabel launched their poker site, called "Private Table" on Monday, July 14. Check it out at Full-blown play for money is scheduled to commence within days.

    The Future?

    Official reaction has been muted, at least in the first few days. It may be that a liberal Democratic administration is reluctant to move against a tribe of Indians, very sympathetic defendants. It may be a wait and see attitude. Or again, it may be a complete surprise to the state powers that be to find out they don't hold the last card, and the Indian tribes, at least, can take independent action, with or without Sacramento's approval.

    In any case, we can be sure that these developments will be closely watched. If a gaming tribe can open an online poker room on its own authority, then there are many more small tribes with little to lose and much to gain by doing likewise. And not just in California. This might be the beginning of a national phenomenon.

    This would change the face of online gambling in America permanently. Or, at the very least , force the states to update their gambling laws at last.
    Copyright 2014

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