Many of the so-called online poker “legal experts” are beginning to claim that 2015 is “the year” that California will legalize the game. Haven’t we heard this before? Wasn’t that the claim in 2014?
While I’m not going to claim that online poker is a lock for California in 2015, the prospects look better than they did at the start of 2014. The stumbling block holding things up continues to be PokerStars.
This time around, we have a new wrinkle. Amaya Gaming Group Inc has purchased the company and wants to operate the site. While progress is being made, nothing is concrete and this could still drag on months or even years. With that said, today we present some scenarios that could lead to the bill finally being passed and PokerStars being allowed into California.
Revise the Law to a Five-Year Penalty Across the Board
The bad actor clause as it stands in California will prohibit PokerStars from ever entering the legalized marketplace. Regardless of what you think about the company or their role in Black Friday, a lifetime ban is excessive.
Instead, it may be time to revise the bad actor law to provide a straight five-year penalty to any company that violated the UIGEA. This could also apply to companies like Amaya that purchased assets of companies that violated the UIGEA.
A five-year penalty keeps out UIGEA violators out until at least 2020, assuming that a law is passed in 2015. This is more than enough time for tribes and state card rooms to establish themselves.
Eliminate Bad Actor and Give Poker a Two-Year Flat Penalty
New Jersey does not have a bad actor clause in their online gambling laws, but they do consider each applicant on merit. This is what led to PokerStar’s problems in the Garden State. Rather than an arbitrary bad actor clause, axe the clause and let regulators evaluate each site based on their past.
California could take the approach of New Jersey and prevent the company from entering the state for the first two years of legalized online poker. Technically, New Jersey put PokerStar’s licensing application “on-hold,” but it still accomplished the same purpose.
In the case of California, this would be an outright penalty for past discretions and a way to nullify the sites perceived “competitive advantage.” Much like revising the bad actor clause, this would give tribes and card rooms time to get a foothold without the dominant prescience of PokerStars.
Revenue Sharing System With Tribes
Another option that all parties could consider is a revenue sharing system akin to that of Major League Baseball. There are two primary components to the MLB system. First, 31 percent of local revenues are put into a fund and those funds are evenly distributed among teams at the end of the season.
Next, teams with excessively high payrolls are hit with a luxury tax. When a team surpasses a pre-set limit, they pay into this fund. The lower payroll teams are then paid this tax.
I’m not saying that every site should pay 31% of their revenue into a sharing fund, but a smaller percentage could be considered. For example, each online site could put 10% of their internet win into a revenue sharing fund.
To see how this works, let’s assume that the first year there are nine tribal sites operational along with PokerStars. First year’s revenues come in at a modest $100 million of which PokerStars collects $80 million.
The nine tribes contribute $2 million to the fund or roughly $222,222 per site. PokerStars contributes $8 million to the fund. At the end of the year, each site gets $1 million. While PokerStars technically loses $7 million this way, they still finished up $73 million on the year while Tribes gain $777,778 each.
An alternative option would be to impose a luxury tax on PokerStars. If PokerStars market share exceeds a certain percentage, say 70%, they pay a percentage of their win as a luxury tax. That money would be distributed to the tribes.
Using my prior example, PokerStars would have an 80% market share in California. Imposing a 10% luxury tax on the site would send $888,888 to the other sites in the state. A 20% luxury tax would send $1.7 million to each operating tribal site.
Using a revenue sharing system could be a way of making PokerStars pay for the privilege of operating in the state post-UIGEA. They would still be dominant operator, but the sting would be a bit less for tribes.
What About OnGame?
With all of the focus put on the PokerStars brand, it seems that most have forgotten that Amaya owns another poker network that could be modified for the U.S. market. The company purchased the Ongame Network from bwin.Party in 2012, a move that most thought was a precursor to a reentry into the U.S. market.
If PokerStars continues to be a hindrance, why not make a compromise where Amaya enters California with OnGame? They already own the rights to the site that would be a perfect choice to resurrect for the California marketplace, PokerRoom.com.
Some of you may remember that PokerRoom reopened in 2012 and closed its doors for the second time in 2013. The site was a trailblazer for online poker in the early days of the game and could be revived for a new chapter in the American market.
Let Amaya enter with the OnGame brand and evaluate them for two years. After that time, allow PokerStars to come into the market.