Can California Online Poker Interests Find Compromise?

August 13, 2013
Can California Online Poker Interests Find Compromise?

A California online poker bill has just a few weeks left to pass during this legislative session.  According to Card Player, tribal gaming interests have been unable to come to a consensus on what companies should be able to participate in the California online poker industry.  There is also a debate about whether interstate gaming compacts should be permitted.

California has an estimated population of about 38 million.  It is nearly 50% bigger than Texas, the second largest state in terms of population.  While this population base will one day help create liquidity, it also comes with far more entities that need to agree on how to move forward with interactive gaming.

There have been three California online poker bills released this year.  SB 51 would allow racetracks and advance deposit wagering companies, which process off track betting wagers and payments over the Internet, to participate in California online poker.  This has caused some debate among operators.

Tax rates have become another issue.  SB 51 would place a 10% tax rate on revenue.  Two other bills, including one proposed by 8 California tribes, did not address tax rates at all. 

Another issue has been the licensing process.  SB 51 would require potential operators to post a $5 million fee for a suitability process.  Existing gaming companies are likely to have already passed this process to receive their brick and mortar license.  Another point of contention is that one proposal would require a company to post a $30 million deposit in the form of a prepaid tax.  This deposit would cover the first $300 million in interactive gaming.  Smaller casinos, especially those in rural areas, could have a difficult time affording the fees involved in licensing and upfront taxes.

Tribal gaming holds a monopoly on slot machines in California and enjoys tax-free revenue on games allowed at commercial card clubs.  In addition to tax advantages negotiated through gaming compacts and supported by the IGRA, tribal casinos are also exempt from federal income taxes.     

To show how deep the disagreements run, the California Online Poker Association disbanded in October 2012 as it reportedly could not agree on a common lobbying ground.  The group consisted of commercial card clubs, racetracks and some tribal gaming interests. 

Some tribal casino operators do not support online poker in California.  There is a fear that it may devour the brick and mortar business that many tribes rely on for employment and revenue.  Californians are already playing poker at unlicensed sites, though the number of players is substantially lower since Black Friday.  That number is certain to rise if players are assured their funds are safe at their local card club or casino. 

The biggest problem facing California is the number of interested parties.  According to 500 Nations, there are 90 card clubs and 68 Indian casinos in the state.  This does not include horse racing venues.  That creates many opinions on how to move forward.  It is hard for companies with the same goal to agree.  The varying sizes of potential operators, which range from rural tribal casinos to massive card clubs, may also hinder this process. 

It may be impossible to get so many interested parties to agree on a tax rate, qualified operators, licensing fees and whether California should compact with other states.  This is especially true when some outright oppose expanding gambling to the Internet.

There is not to blame any company or tribe involved in the process.  Each interested party is entitled to their opinion and nobody is going to look after a group’s interest better than the group itself.  The problem lies in the possibility that if a compromise is not reached the legislature may come up with their own law that may not be the right solution for all involved.  A compromise is the only way for every party to know what they are getting and to have an input in the process.  That is far easier said than done, but the groups found a way to do it with their brick and mortar operations so it is not impossible.

In the meantime, California online poker is still just a dream.  Potential taxes and casino revenue are being lost to offshore sites and California online poker players are unable to play at regulated sites owned by familiar local establishments.  California online poker players can only hope that all of the interested parties can come to an agreement sooner rather than later. 


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