Last-Ditch Effort To Legalize Online Poker In California Materializes

Steve Ruddock August 18, 2016 1168 Reads
California last ditch online poker

California Assemblymember Adam Gray revealed the latest tweaks to his online poker bill on Wednesday. The latest batch of amendments are designed to bring the two dueling coalitions together, and cross the t’s and dot the i’s of some of the other, less controversial parts of the bill.

Trent Hager, Adam Gray’s chief of staff, does see a path forward, as he told the Los Angeles Times, “This deal should secure two-thirds [vote] in the Assembly.” Hager also told the Times he believes, “it will be fairly well received in the Senate.”

Hager’s optimism aside, the bill still faces a number of hurdles, and its future is uncertain.

Time is growing short (the legislature is set to adjourn on August 31) for the bill to move through the California legislature, and it’s unlikely the new compromise on suitability will do much to bridge the gap between the two rival coalitions.

How we got here

Before members adjourned for their summer recess, the California Assembly was mulling over a vote on Assemblyman Adam Gray’s online poker bill.

That vote never occurred. The rumored reason was a shortfall that would have left AB 2863 about 12 votes shy of the two-thirds majority threshold it requires.

When the Assembly returned in August, AB 2863 was once again rumored to be on the agenda (it appeared on the Assembly calendar all of last week), but as was the case in June, the bill was passed over, ostensibly for the same reason it wasn’t brought to the floor in June; a lack of votes.

And now, here we are, with a new version of AB 2863.

Key amendments to AB 2863

The new amendment package is 23 pages long with 184 total amendments. Most are simple language changes and strikethroughs with little material impact on the bill.

The key points addressed in the amendments are:

  1. A simplification of the taxation rate.
  2. An expansion of the state’s regulatory oversight of affiliate marketers.
  3. A last-ditch effort to bring the two sides together on the very prickly suitability issue.

Tax rate

A previous version of AB 2863 contained a progressive taxation rate based on the total gross gaming revenue of California’s online poker industry. The scale began at 8.64 percent and rose to 15 percent, with the most likely tax rates being, 10 to 12.5 percent when the market was in its infancy, and 12.5 to 15 percent once it matured.

The new version simply calls for a flat 10 percent tax rate.

Affiliates

The newly amended version of AB 2863 imposes much stricter licensing and regulatory requirements on affiliate marketers. Much like they have in New Jersey, the requirements will likely keep a number of affiliates out of the market.

Prospective affiliates will need to apply for and receive a license before they can market for a licensed online poker operator. Affiliates will also have to provide regulators with annual reports detailing its affiliate marketing activity.

The cost of the vetting process will fall on the affiliate.

Suitability

The impetus for the current amendments is the ongoing, and far from solved, debate over suitability.

The previous version of AB 2863 called for any operator that had accepted wagers from California post December 31, 2006, to sit out for a period of five years. The bill also allowed companies (provided they were deemed suitable by regulators) to avoid this “penalty box” by paying a one-time fee of $20 million.

A coalition of tribes led by the Pechanga Band of Luiseno Indians opposed this language, calling the fee a “get-out-of-jail-free card” that PokerStars would be happy to pay to gain access to the California market.

The tribal coalition later countered with an offer of a 10-year sit-out period, in addition to a $60 million fee.

The current version of AB 2863 meets somewhere in the middle, as it requires PokerStars to sit out for a period of five years and imposes no fee once that period comes to an end. Unlike the PokerStars-friendly version, the five-year period is non-negotiable and cannot be offset by paying a fee.

This suitability “compromise” is unlikely to sit well with PokerStars and its California allies.

Being prohibited from the market may not be a death sentence, but it’s pretty close to it.

New support or shifting support?

The five-year penalty box that AB 2863 would impose on PokerStars is widely believed to be a non-starter for PokerStars’ California allies, which includes the Morongo Band of Mission Indians, San Manuel Band of Mission Indians, Bicycle Casino, Commerce Casino and Gardens Casino.

Even though it appeases the Pechanga coalition, the amended version of AB 2863 doesn’t really add support, it simply flip flops which groups support the bill.

If we think of the situation in California as a see-saw that needs to be in perfect balance, the “coalition of the willing” (as defined in this column) is the fulcrum, and the Pechanga and PokerStars coalitions rest on opposite sides of the beam.

The fulcrum is constant, as the coalition of the willing will support either version of AB 2863. But the previous version of the bill tipped the balance too far in the favor of the PokerStars coalition, while the current version simply tips the balance the other way.

What it doesn’t do is balance the see-saw.

More questions remain

There is scant time to solve the suitability issue, and even if a miracle compromise is reached, the bill still faces several other challenges.

  • What is its fate in the Senate? The legislative body has been rather pessimistic about online poker.
  • Have the concerns several tribes have raised over the size of the subsidy the horse racing industry will receive been quelled?
  • Will tribes and card rooms be on board with the current taxation rate and licensing fees?
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