Can California’s Online Poker Roadblocks Be Resolved?

California needs to pass three main roadblocks in order to pass an online gambling bill.

We’re just a few months away from the start of a new legislative session in California, and Assemblyman Reginald Jones-Sawyer has already indicated that one of the first things he will do is introduce a new online poker bill when the legislature reconvenes this December.

2015 will mark the seventh consecutive year California has attempted to pass an online poker bill, and while some progress has been made, there are still a number of obstacles standing in California’s way. Most notably:

1. Racetrack involvement
2. Bad Actor clauses
3. Licensing restrictions

Racetracks

This could very well be the thorniest unresolved issue that is holding up online poker legislation in California.

While racetracks and the racing industry are on the decline in California and across the country, the racing industry still holds quite a bit of sway in Sacramento thanks to its close alignment with organized labor.

If an online poker bill is going to make it out of the legislature in 2015 it will have to deal with this problem in some way, shape or form.

The potential solutions are:

  • Open up the licensing process to racetracks in a manner that appeases them.
  • Continue on without the support of the racing industry and hope a bill gets passed anyway.
  • Offer the racing industry some type of stipend out of the tax money generated from online poker.

The issue with opening up the licensing process is it also allows smaller card rooms and smaller tribes to apply as well, and could create a situation where there are simply too many cooks in the kitchen, with too many choices for consumers, and too many bad cooks disparaging the industry.

Option #2 isn’t much better. Without the support of racing and labor the chances that a bill passes through the legislature are greatly diminished. The two groups control a significant bloc of voters and still have a lot of clout with plenty of politicians.

The logical answer would seem to be to allow for some type of monetary allotment for race tracks, but I still think some tribes and card rooms will try to cut the racing industry out before putting them on the dole.

Bad Actors

This is the issue everyone likes to point as the largest hurdle to clear, but with PokerStars (the reason for the Bad Actor clause and the only company vehemently fighting against it) seemingly about to be licensed in New Jersey this is becoming less and less of an issue.

Depending on what happens to New Jersey’s online poker industry when PokerStars enters the market could determine how hard the opposition fights to keep them out. If Stars comes in like gangbusters I’d expect a brutal fight in California. If they come in strong, but not dominating the opposition might bend a little.

The problem is, it doesn’t seem like a bill can be passed without allowing PokerStars to apply for a license, as their coalition is not only resolute, but is one of the most politically powerful, with the Morongo Band of Mission Indians, The Bicycle Casino, the Commerce Casino, and Hawaiian Gardens Casino.

While certain tribes would love to see PokerStars sitting on the sideline for a couple of years, it just doesn’t seem like a feasible solution if they want to offer online poker themselves.

Fortunately, because of the sale to Amaya Gaming there is an out.

PokerStars could still be allowed to apply for a license and Bad Actor language could still be included in the bill. What would need to go are the overarching parts of the Bad Actor clause, most notably the Tainted Asset aspect.

One potential solution I could envision would be to include a provision that disallows PokerStars’ player database from being used. This might be enough to mollify the opposition, and is a concession I could see PokerStars agreeing to*.

*I have since been informed that disallowing PokerStars database could be viewed as an unconstitutional taking and is not something on the table.

Licensing

After the 13 tribe coalition lined up against PokerStars and their California partners, and introduced their vision for an online poker bill in a letter to the state legislature, everyone was talking about their doubling down on Bad Actor language.

However, lost in the shuffle were other important parts of that bill; parts important enough that they led to a second letter being penned by yet another coalition (that’s three if you’re counting) and delivered to the state house in Sacramento.

This second letter, written by a coalition of 25 “smaller” card rooms in the state, called on the legislature to make the licensing process as inclusive as possible, and in doing see turn the potential online poker market into one where only the “haves” can play.

As noted above, the major players in California are trying to keep competition from getting out of control, and have done so by making the licensing fee hefty (somewhere between $5 million and $10 million up front) and by setting strict parameters that would need to be met by any potential applicant.

These preclusions are designed to keep the smaller card rooms and smaller tribes out of the online poker industry.

The smaller tribes will almost certainly be appeased by some type of revenue sharing deal, such as the one that is currently in place between the large gaming tribes and non-gaming and small gaming tribes for land-based casino revenue.

Card rooms are a different matter.

Even by combining their political capital, the 25 smaller card rooms that signed off on the July letter simply don’t have the political muscle possessed by the tribes and/or racetracks.  If anyone is going to get left out of the bill it’s likely to be the smaller card rooms in the state, although some have suggested allowing these smaller card rooms to launch online poker sites under one of the larger operator’s license – similar to a “skin” of an online poker network in the global market.

The license holder could then take a cut of the skin’s revenue and perhaps everyone would be happy – wishful thinking for sure.

 Author’s note: This article was updated on 9/28 to reflect new information regarding PokerStars database.

Steve Ruddock

About

Steve Ruddock is a longtime member of the online gambling industry. He covers the regulated US online casino and poker industries for variety of publications, including OnlinePokerReport.com, PlayNJ.com, USPoker.com, and USA Today.