Is It Time For California To Move Forward With Regulated Online Poker?

May 17 2014, 12:35pm CDT | by

Regulated online poker is a reality in New Jersey, Nevada and Delaware, but such states have a combined population of just 12.54 million compared to California’s population of 38 million.  California’s neighbor, Nevada may be better known for gambling, yet California has a rich gambling history.  In fact, the slot machine was reportedly invented in San Francisco, California years before Las Vegas was founded in 1905.  The California gold rush of 1849 involved people betting they could strike it rich.  Those that found gold often gambled their new-found wealth.

California tribal casinos and card clubs have poker rooms that are second-to-none.  Commerce Casino in the Los Angeles area boasts that it has the world’s largest poker room with more than 200 tables.  It is logical for the state to extend these brick and mortar poker rooms to a regulated framework online.

“California’s size gives it unique advantages,” explained Eric Sprague, co-founder of FlopTurnRiver.com to FORBES.  “It won’t have the liquidity problems that are faced by smaller states.  The size of the state will also be important for other hurdles like deposit issues – California will get the attention of the banks.”

Is there a legitimate chance that California gets regulated online poker?

What Will the New Law Entail?

Bills AB-2291 and SB-1366 came out on February 21, 2014 and they are both only related to peer-to-peer poker.  Unlike New Jersey, this means participants cannot play casino games against the house like blackjack, craps and roulette.

Both bills only affect intrastate commerce.  Currently, Nevada and Delaware have pooling such that participants can play each other across state lines.  California players will not be facing opponents outside the state.  Money laundering is less of an issue in an intrastate model.

The Bad Actor Clause

The Morongo Band of Mission Indians along with the Commerce Club, the Hawaiian Gardens Casino and the Bicycle Casino announced a deal on April 23, 2014.  These four land-based groups agreed to subcontract their online poker platform to PokerStars.  They all support bill SB-1366, which is less restrictive concerning the bad actor situation.

Other tribes like Pechanga support bill AB-2291, which would make it more difficult for companies like PokerStars to enter the market.  The tribes have come together over the last five years, and this is one of the last areas where more compromise is needed.

The April Hearing

The California Assembly Committee held an online poker hearing April 23 in which experts from around the world were called to testify.  Borgata’s Tom Ballance assured tribal leaders that cannibalization has not been a major issue in New Jersey.  He also noted that online poker has brought them additional bonuses like the World Poker Tour moving from Las Vegas to Atlantic City.

Chairman Isadore Hall III ran the hearing.  Near its conclusion he called out Andy Abboud of Las Vegas Sands (Sheldon Adelson’s spokesman) for his hypocrisy concerning cell phones.  Mr. Abboud testified that cell phones are not good for gambling, but then Mr. Hall made him admit that his customers use cell phones to gamble.

Vice-Chairman Brian Nestande represents the 42nd district, which includes Morongo Casino.  Seeing as Morongo has a deal with PokerStars, it was not surprising to hear Mr. Nestande note that PokerStars never admitted any guilt when it settled its Black Friday lawsuit.

Tax Revenue

Looking at the 2014 NJ Quarter 1 Peer to Peer Gross Revenue, it is evident that just under $10 million was earned by the State of New Jersey.  Annualizing this figure puts it at about $40 million per year.  California’s population is over four-times greater than New Jersey’s, but the multiplier should be even higher for a couple of reasons:

  1. The relationship is not linear because of liquidity; and
  2. NJ still has deposit issues with Visa.  Once a larger state like California enters the market, these types of issues may be resolved.

If regulation is done correctly, then California poker sites should generate hundreds of millions of dollars annually in gross revenue.  It is important that the tax rate not be set too high or else the regulated market will have a hard time competing with the unregulated market.

Timing

California may have a limited window in which to choose its own destiny.  Traditionally, gambling has been a state’s right matter, but powerful forces are trying to increase the reach of the federal government in this area.  Casino mogul Sheldon Adelson is spending a lot of money to get a prohibition passed on the federal level.  H. R. 4301 would extend the Wire Act from sports to other forms of gambling.

The Poker Players Alliance (PPA) has fought for the rights of states like California.  The PPA helped keep California Attorney General, Kamala Harris, from signing a letter to Congress calling for an internet gaming prohibition in February.

Recent Developments

Citing GamblingCompliance.com, Pechanga.net reported on May 15 that California tribes reached consensus on draft legislation.  Each licensee is limited to two branded websites.  In New Jersey, most of the peer to peer market goes to Borgata and Caesars.  Given California’s larger population, there can be more winners than in New Jersey, but the odds of there being more than a handful of winners are low.

There are rumors that this draft legislation is expected to pass the session ending in late August.  The tribal consensus is a much needed development as Sheldon Adelson continues his fight.  The Los Angeles Times reported that Former Assembly Speaker Willie Brown said on May 15 that he is joining Sheldon Adelson’s coalition to stop iPoker in California.

Closing Thoughts

Richard Nixon played poker in the Navy and used his winnings to fund his first political campaign.  Haig Kelegian of Ocean’s Eleven Casino in California made the point that disabled veterans in California should be able to play online poker from the comfort of their homes.  It may be time for California to move forward.

Want to learn more about the business of sports? Order my book How to Play the Game and follow me on Twitter.

Follow @DarrenHeitner

 
 

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