California players gathering, again, for internet poker

Rival interests are rolling the dice to legalize California’s internet gaming market, the most lucrative in the nation. At stake in the Capitol negotiations is a prize worth hundreds of millions of dollars — and maybe more.

It’s not the first time.

No internet poker bill in the Capitol has ever emerged from a major committee or reached the floors of either house for a vote.

Casino-owning tribes, major card clubs, out-of-state gambling interests, horse racing tracks, regulators, lawmakers and others are players in the looming talks. Efforts to legalize internet poker in California – where the revenue may top $1 billion annually over a decade — have failed repeatedly in the past with the various interests failing to reach agreement on turf and financial disputes, most recently last summer.

The sharpest differences arose over the role of the tracks, the role of card clubs and the dispute over whether major, out-of-state online gambling companies should participate in California.

The inability for negotiators to reach agreement on these and other complex issues has spelled doom for internet poker advocates in both the Assembly and Senate since at least 2008.

No internet poker bill in the Capitol has ever emerged from a major committee or reached the floors of either house for a vote.

“For big bills, it’s always a long road. But I’m a middle child and I believe in fairness and I hope that the parties can … come together,” said Assemblyman Mike Gatto, D-Silver Lake, author of new legislation to establish Internet poker in California. “It’s an issue I’ve been tracking for quite some time.”

“We envision this as being modeled after the banking system,” Gatto said.

Gatto’s AB 9 was introduced Dec. 1 on the first day of the new legislative session – a swift move that caught many by surprise.

“I didn’t see that coming. I don’t think anybody saw that coming,” said one lobbyist who closely follows gaming issues, “but he (Gatto) is familiar with the tribes and he originally was supposed to be author of last year’s (Assembly internet poker) bill, so it makes a certain amount of sense.” Gatto also authored legislation earlier to improve protections for Native American historical sites.

Another surprise: The Gatto bill contains an anti-fraud provision requiring online poker players to register in person when they initially sign up with a website and establish an account.

“We envision this as being modeled after the banking system,” Gatto said. “When do I go to a bank in person? When I open my account and, No. 2, when I want to do a major withdrawal.” Under the bill, players with big winnings also would be required to collect in person.

Other provisions of the bill are similar to earlier years. There is a $5 million buy-in for a company to establish an online gaming presence. There is vetting by the state attorney general, among other security requirements. There is no provision for the horseracing industry, at least not yet. Minors are barred, winnings are taxed and the state fund created to help non-gaming tribes also will receive revenue.

The proposal was criticized by a coalition of two major gaming tribes – the Morongo Band of Mission Indians and the San Manuel Band of Mission Indians – and California’s largest card clubs, along with PokerStars, the global internet poker company that wants a foothold in the California market.

Wright, who was ousted from his 35th District Senate seat following his conviction on several felony counts of voter fraud, will have no public role in developing legislation this year.

The coalition called the bill “a rehash of previously unsuccessful proposals. Any bill that seeks to establish artificial competitive advantages for some, while denying Californians the best online poker experiences, will only serve to divide the community and will be opposed by our coalition,” the group said in a Dec. 4 statement.

In past years, there generally have been bills in both houses – at least one in the Senate and one in the Assembly. Another bill is expected in the Assembly next month authored by Assemblyman Reginald Jones-Sawyer, D-Los Angeles, who carried last year’s Assembly online gaming bill. Lawmakers have until Feb. 24 to introduce new bills for the year.

There may be a third bill in the Senate, but that hasn’t been decided. One possibility: The Senate legislation may include provisions backed by the Morongo-San Manuel coalition, although that has not been confirmed.

And the Senate landscape remains uncertain.

Former Sen. Rod Wright, D-Inglewood, was viewed as the Senate’s expert on online gaming. But Wright, who was ousted from his 35th District Senate seat following his conviction on several felony counts of voter fraud, will have no public role in developing legislation this year. Wright also headed the Senate Governmental Organization Committee, which handles gambling bills, a position that put Wright at Ground Zero of gaming negotiations. Wright’s successor as Senate G.O. chairman is Sen. Isadore Hall, D-Inglewood.

Hall, a former Assemblyman who won the 35th Senate District in a special election, headed the Assembly Governmental Organization Committee. Tribal sources say he is familiar with online gaming issues, although it wasn’t clear whether Hall would be the author of a Senate bill. In the Assembly, although he was G.O. chair, he did not author that house’s internet poker bill but wielded influence on the measure.

Internet gambling stakes are high in California, but just how high is open to dispute.

Three other states have approved Internet poker for their residents to play state-regulated gaming – Nevada, New Jersey and Delaware.

By one estimate, an amalgam of several surveys compiled in the Capitol, the regulated California market would generate some $200 million the first year and reach $400 million annually after five years. But the estimates in each survey vary widely.

Morgan Stanley, in a 2013 report, estimated that the California market would generate $435 million the first year and nearly $1.2 billion at maturity. This year, Deutsche Bank put the annual revenue at $373 million at maturity, while Academicon offered a lower estimate of $217 million initially rising eventually to a high of $263 million.

A communications and financial research firm, Capitol Matrix, estimated the market the first year at $729 million, rising to $1.3 billion – which appeared to be the highest estimate of those who surveyed the potential California market in the last four years.

A study commissioned by several casino-owning tribes says online gaming could result in $845 million in revenue and more than 2,600 new jobs by 2020.

Three other states have approved Internet poker for their residents to play state-regulated gaming – Nevada, New Jersey and Delaware.

Most California gaming tribes appear to oppose or are neutral on PokerStars’ entry into California, although Morongo and San Manuel support bringing in PokerStars.

In California, efforts to establish internet poker have shown the differences between the gaming interests, and between the tribes themselves. There also has been opposition from brick-and-mortar casino interests in Nevada, including billionaire Sheldon Adelson.

Provisions of the Gatto bill are likely to be backed by a number of tribes, in part because the business and turf concerns of allowing such a major player as PokerStars into the market.

Language in Gatto’s bill – the so-called “bad-actor” provision — targets PokerStars, blocking them from the California market. PokerStars was one of three companies – Absolute Poker and Full-Tilt Poker were the others – that figured in a 2011 federal crackdown. The companies’ websites were closed amid allegations that they had violated federal gaming law since 2006.

PokerStars, which was later sold to Amaya as part of a $4.9 billion deal, was never convicted of wrongdoing but the allegations have simmered ever since. The company, the largest internet poker company in the world with some 50 million subscribers, has made it clear it would like to enter California’s market. Its application to operate in New Jersey is pending.

Most California gaming tribes appear to oppose or are neutral on PokerStars’ entry into California, although Morongo and San Manuel support bringing in PokerStars. Morongo offered a similar proposal during earlier negotiations – a proposal that played a role in the inability of the tribes to reach a compromise on an internet poker bill.

San Manuel earlier opposed the entry of PokerStars. In March, in response to news reports, a 12-tribe coalition that included San Manuel was “united in our steadfast opposition to the easing of regulatory standards that would accommodate bad actors….”

The larger question is whether agreement can be reached between the interests that have been unable to reach a compromise in the past.

Last month, San Manuel noted that “the landscape has indeed changed and we must be prepared to respond effectively …” noted the new tribal Chair, Lynn Valbuena. “San Manuel has determined that a partnership with Morongo/Amaya Gaming provides us with the best opportunity to achieve our ipoker (internet poker) business goals and objectives and elected to take this path.”

San Manuel’s alliance with Morongo, the major casinos and PokerStars is a major development, one lobbyist said.

“From the PokerStars standpoint, San Manuel deciding to join the business coalition — that’s a very positive step forward. From a business relationship standpoint, that’s a big move forward,” said Sacramento lobbyist John Latimer, who represents PokerStars.

“Some of the folks have raised issues that we would say are anti-competitive,” he added, referring to the “bad actor” language in Gatto’s bill. “PokerStars has never been convicted of any wrong doing. In the settlement, the DoJ (Department of Justice) said PokerStars was eligible to be licensed when and if laws are passed that authorize licensure.”

Perhaps the over-arching issue for the public is security. Are internet poker games safe and are players’ accounts secure? Is there a way to make sure minors don’t play? Can the games be hacked by computer criminals?

Experts say security isn’t a problem, and note that that advances in technology enable such things as accurate tracking of players’ locations, the validity of IP addresses and the encryption of money transfers.

But the larger question is whether agreement can be reached between the interests that have been unable to reach a compromise in the past.

“We are very hopeful and optimistic that 2015 is going to be the year,” said Matthew Cullen, who is in charge of digital programs for San Manuel.