California iPoker Regulation Still Seems Like It’s Going Nowhere After Latest Hearing

June 30, 2015
California iPoker Regulation Still Seems Like It’s Going Nowhere After Latest Hearing

An informational hearing about online poker in the California legislature brought together many of the key stakeholders, but it provided little reason for optimism that an internet gaming regulation could move forward, although proposed compromise on one major issue gave iPoker proponents some hope.

Informational, or more than that?

Wednesday’s hearing in the Assembly Governmental Organization Committee addressed the prospects of iGaming. That included consideration of measures in several bills, including AB 431, sponsored by Assemblyman Adam Gray, chair of the GO committee.

The hearing was called “The Legality of Internet Poker – How Prepared is California to Regulate It?”

While the hearing was presented as “informational” in nature, it was clearly far more important to the future of legislation for regulated online poker in the state, whether it’s for 2015 or future legislative sessions.

Gray set the stage for the hearing by imploring the various interests in the state — legislators, cardrooms, tribal casinos and horse tracks — to get on the same page.

“There is much more to be done before a bill is ready to be sent downstairs requesting the governor’s signature,” Gray said.

“I make no prejudgments about the final outcome of any of the pending bills, but I will say that each year the California legislature and various gaming interests fail to agree on an iPoker bill, not only does it put consumers at risk while gambling on illegal offshore websites that provide few protections and regulations, but the state of California is also losing out on collecting revenue that might be used for essential programs like public safety, health care, social service and education.”

The bad actor debate

The “informational” hearing was the first time anyone really started getting into the sticking points in any California iPoker legislation this year, including the possible inclusion of a “bad actor” clause.

Some interests in the state — namely a coalition of tribes led by the Pechanga Band of Luisefio Indians — want to keep out operators (i.e. PokerStars) that have done business in unregulated markets.

The debate went as expected, and did nothing to ramp down the level of rhetoric from opposing sides on the iPoker debate.

Jeff Grubbe, chairman of the Agua Caliente Band of Cahuilla Indians, set the stage for the debate as the first speaker on the subject. He notes that he does not want to see “foreign interests” and “others that have violated U.S. laws” receiving licenses to offer online poker in the state, with his comments aimed squarely at Amaya, the parent company of PokerStars.

He also referred to an ongoing insider-trading investigation whose disposition has not been settled.

Leland Kinter, chariman of the Yocha Dehe Wintun Nation, aligned with the Pechanga coalition, echoed Grubbe’s sentiments and went even further in trying to characterize PokerStars as undesirable for California.

On the other side of the debate is the coalition that is fully behind iPoker in some form, including Lynn Valbuena, chairwoman of the San Manuel Band of Mission Indians. She said the CGCC should be left to determine who can and can’t offer online poker in California, without a bad actor clause.

Eric Hollreiser, head of corporate communications for Amaya, stated his company’s usual case — saying that his company is licensed in jurisdictions around the world and that it has never been criminally charged with any wrongdoing.

Another PokerStars ally testified as well — Keith Sharp, general counsel to Hawaiian Gardens Casino and iPoker counsel to Commerce Casino and Bicycle Casino. He urged legislators not to change the regulatory framework of the state by “artificially” determining who can and can’t operate in the state.

Assemblyman Cooper makes hard run at PokerStars

The hearing did nothing to help find compromise on this issue, and if anything it seems the positions are as entrenched as ever.

Committee member Jim Cooper was particularly vehement in challenging the PokerStars coalition on its stance that PokerStars is not a bad actor, and appears to be clearly behind a clause that would keep the online poker site out of California.

He said PokerStars and its actions in the past don’t “pass the smell test.” He had a contentious back-and-forth with Hollreiser in a Q&A session.

PokerStars and its coalition recently rolled out a marketing push and website — called Californians for Responsible iPoker — to state its case and attempt to move the iPoker issue forward in the state.

Horse racing and tracks

As much as the bad actor clause, whether horse tracks will be able to offer iPoker in a regulated environment has been a huge sticking point between the two factions. Unlike the previous panel, though, there was actually a bit of new ground laid, and a compromise offered.

Horse tracks in the state currently offer online wagering on races — the only form of internet gaming in California, right now. Tracks want to be able to offer online poker, as well, since they view it as having the possibility to cut into their bottom line.

Mike Pegram, board chairman of the Thoroughbred Owners of California, said that tracks needed to be included in the iPoker model.

If this iPoker will happen and horse racing is not involved in it, it will destroy the game,” Pegram said. “Because when you take the only growth segment that we have in our model and then throw direct competition on it, I don’t think the future would look very good.”

But Mark Macarro, Chairman of the Pechanga Band, noted that he and other other tribes oppose the inclusion of new entities being able to offer poker. But he put forth a proposal that would allow tracks to be involved in the iPoker space, without being operators.

He offered a compromise that would allow for tracks to be involved in revenue sharing from iPoker, or to act as affiliates trying to drive traffic to online poker sites.

It was the one glimmer of hope that the two sides could find a middle ground, at least on this issue. But there was also some pushback. Macarro implored legislators to keep each sector of the California gaming market “in its own lane.”

But in the Q&A session after the Keith Brackpool, west coast chairman of the Stronach Group — representing the horse-racing industry, said the he “would contend that nobody is in the internet poker lane, at the moment.”

Brackpool did not entirely dismiss the idea of revenue sharing, but reiterated that he believes horse tracks should be on a “level playing field” when it comes to being able to offer iPoker.

Setting the stage

The implementation, logistics and prospects of regulated online poker are nowhere the most controversial part of iPoker in California — and it has been covered in past hearings in California — but much of the start of the hearing was dedicated to some of the basics.

Anita Lee, the senior fiscal and policy analyst for the Legislative Analyst’s Office, was the first to speak, offering an overview of the current climate for iPoker, and the impact of legislation, if passed.

Lee, in her comments, was somewhat bearish on the prospect of online poker. While she noted that offshore gaming websites generate “$300 to $400 million” in gross revenue from Californians, she offered that all of this money would not automatically become California revenue, in a regulated scenario.

“It’s not known how many of these individuals would shift to a legal poker website if one was offered,” Lee said. “That shift, however, would generate revenue for the state.”

She also noted that a regulated environment would allow the state to tax the winnings of players, but that may also have a chilling effect on players either playing on legal sites or encourage them to continue to play at or seek out illegal ones.

Lee, however, was either unaware or failed to note that online poker and gaming sites generally discontinue accepting players from states that pass legislation that regulate internet gaming.

She also noted that a high cost of entry — in the form of licensing fees and tax rates — could discourage operators from offering online poker.

Other panelists:

  • Chris Krafcik, research director North America for GamblingCompliance, was more bullish in his comments on the same panel, giving an estimate of $217 million in year one to $366 million annually in a mature market. He also noted that estimates on the online gaming possibilities in California vary wildly — up to $1.3 billion, from one source.
  • Michael Pollock, managing director of Spectrum Gaming Group, followed in the next panel, and he was also optimistic on the future of iGaming in regulated markets. He noted that markets that have rolled out regulated iGaming — Nevada, New Jersey and Delaware — have been successful on the fronts of geolocation, security and age verification, and that online gaming has been complementary to brick-and-mortar facilities.
  • Richard Schuetz, a member of the California Gambling Control Commission, echoed many of Pollock’s sentiments, saying that the technology behind iGaming is sound and that California can successfully regulate iPoker, if the CGCC is called upon to do so, with more resources.

For more on all of the witnesses and testimony in the hearing, check out a live blog here. You can watch the entire hearing here.

What’s next?

After the hearing, California does not seem to be any closer to reaching consensus on the major issues that are holding up iPoker.

A GO Committee hearing to consider two other iPoker bills — Mike Gatto’s AB 9  and  Reggie Jones–Sawyer’s AB 167 — will be held on July 8.

While that committee hearing will also be key in determining the future of iGaming regulation, without some behind-the-scenes compromise between the opposing sides, progress on online poker in California may have to wait another year.

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