Online gaming: Horse racing’s role heats up

"Bad Boy" (6), under jockey David Flores, wins a claiming race at Santa Anita Park in Arcadia in October 2014. (Photo: Cheryl Ann Quigley, Shutterstock)

Legalizing internet poker in California could be stopped in its tracks this session because of an intense dispute involving the thoroughbred horse racing industry.

After years of diminishing attendance, declining revenue, and racetrack closures, the struggling industry sees operating Internet poker websites as a golden opportunity to build upon its already existing online presence.

Many gaming tribes and card rooms are staunchly opposed to including the tracks in the Internet poker market.

“This is, in fact, a new form of gaming and horse racing just wants to be treated equal to card rooms and tribal interests,” lobbyist Robyn Black said.

Efforts to establish Internet poker, despite seven years of negotiations, have proven futile, reflecting differences between the casino-owning tribes, the card club industry, the horse racing tracks and outside gaming interests. And 2015 has been particularly intense, according to several people familiar with the private talks.

Many gaming tribes and card rooms are staunchly opposed to including the tracks in the Internet poker market because they believe it could lead to further expanded gambling for horse racing and cut into their market share. Some casino-owning tribes may allow out-of-state gamers into California — but only if it means blocking the horse racing tracks from participating.

“Unfortunately, it’s a dying industry and they have their own struggles,” said Jeff Grubbe, chairman of the Agua Caliente Band of Cahuilla Indians. “They’ve got to come up with their own ways to fix that business. I don’t think they should rely on or open up gaming to find that answer because that negatively impacts what we have going.”

A report by the California Horse Racing Board said the industry’s “handle” – the total amount bet at tracks and online – was about $3 billion in 2013. Tribal casino gaming in California was about $7 billion during 2012 and increasing, according to the Tribal Industry Gaming Report issued by Las Vegas-based Casino City.

In the months since each of these bills were introduced, a shift has occurred at the Internet poker bargaining table,

Pending legislation to regulate Internet poker will go through policy committee hearings over the next month. Of the four bills proposed, two – AB 431 and SB 278 – are identical shell bills authored by the chairs of the Governmental Organization Committee in both houses – Assemblymember Adam Gray, D-Merced, and Sen. Isadore Hall, D-Compton.

Assemblymember Reginald Jones-Sawyer, D-Los Angeles, a GO committee member, introduced a more fleshed-out bill that includes provisions to allow in-state horse racetracks to operate Internet poker websites. His bill also would let companies accused of violating federal gaming regulations in the past – the so-called “bad actors” – into the California market. Operators would pay a $10 million licensing fee every four years and could run up to two websites.

A month after introducing his bill, AB 167, seven tribes wrote the Asm. Jones-Sawyer to announce they would oppose the measure due to its positions on both the racing industry and “bad actors.” That coalition includes powerful gaming tribes like the Pechanga Band of Luiseno Indians and Agua Caliente.

Another bill, the first internet gaming bill to be introduced in the current session, is authored by Assemblymember Mike Gatto, D-Glendale, the chair of the Privacy and Consumer Protection Committee in December.

Under his AB 9, groups seeking to operate a poker website pay a one-time license deposit of $5 million into the state’s general fund. The racing industry is excluded in AB 9 from operating websites and the bill includes a “bad actor” provision. His bill offers gamblers the option to register in person with those running a gaming site – a casino’s officials, for example. Gatto’s original bill required face-to-face registration – a provision that caught many in the gaming industry by surprise – but that language was later modified to make face-to-face registration optional.

But in the months since each of these bills were introduced, a shift has occurred at the Internet poker bargaining table, where players include California’s gaming tribes, card rooms, the horse racing industry and already-established Internet gaming companies.

Until recently, a major sticking point in this regulatory debate was whether or not to allow companies that violated federal gaming rules in the past – or the “bad actors” – into California’s Internet poker market.

“We just feel its completely two different industries.” — Jeff Grubbe, Agua Caliente

One of those companies is PokerStars, the world’s largest Internet poker entity with 50 million subscribers. The company – and several of its competitors – faced a federal money-laundering crackdown in an action on April 15, 2011, known as “Black Friday,” but was never convicted of wrongdoing. The charges were dismissed and, as part of a civil settlement, PokerStars purchased Full Tilt Poker, which had been a competitor, for $731 million. Since then, PokerStars has been sold to the Canadian gaming company Amaya Inc. in a deal worth $4.9 billion that became final last year.

PokerStars is now partnering with two Californian gaming tribes, the Morongo Band of Mission Indians and the San Manuel Band of Mission Indians, to operate in the potential California market. This coalition is advocating for a bill that includes a softened “bad actor” provision in order to allow PokerStars to operate in California.

At a recent National Indian Gaming Association convention in San Diego, the remaining tribal opponents to bringing PokerStars in the market (the same seven-tribe coalition opposing Jones-Sawyer’s bill) announced it would accept a softened “bad-actors” provision if it meant exempting racetracks from being licensed operators.

Morongo Chairman Robert Martin said in an interview with the Online Poker Report, which covers the gaming industry, that the Pechanga Band of Luiseño Indians and the Sycuan Band of the Kumeyaay Nation are suggesting the tribes “get together with PokerStars and overcome opposition from the tracks.”

“We’re not opposed to them receiving a subsidy or the tribes putting something together to help their industry,” Chairman Grubbe said of the horse racing industry. “But as far as allowing them to be an operator, our tribe has strongly opposed that from the beginning. We just feel its completely two different industries.”

Those in the horse racing industry, however, argue they’ve already been online for more than a decade, with wages being placed online for races across the country daily. They see Internet poker as an obvious transition.

“The solution needs to come from the Legislature and from the horse racing industry.” — Steve Stallings, Rincon.

“Other states have slot machines at their tracks. We would never be allowed to have slot machines at the racetracks,” Black said, suggesting that gaming at the tracks would violate California’s Proposition 1A. “For us this is a way to continue to compete for a new market equal to card rooms and tribal interests.” Proposition 1A, which deals with gaming on tribal lands and the governor’s the authority to sign tribal compacts, was approved by voters in 2000.

Horse-racing employs about 50,000 Californians, including labor and operators at racetracks, breeding farms located throughout the state, fair boards, and individual thoroughbred owners. “If you look at the 80 assembly districts and senate districts, horse racing touches most of those districts in some form,” Black added.

Three gaming tribes – Rincon Band of Luiseno Indians, United Auburn Indian Community, and Pala bands of Luiseno Indians – are reexamining their opposition to racetracks as licensed operators. This group points to Gov. Jerry Brown and legislative leadership as repeatedly saying a bill that doesn’t include horse racing won’t pass.

In a February letter to lawmakers these three tribes said, “For the purposes of moving legislation that authorizes Internet poker in California, we support the approach of AB 167 in permitting horse racing associations to be eligible for Internet poker operator licenses on the same terms as eligible tribes or card rooms.”

Rincon Tribal Councilmember Steven Stallings was hesitant to reaffirm his tribes favorable position on licensing racetracks, suggesting revenue in a form other than licensing might better appease other parts of the struggling horse racing industry.

“The solution needs to come from the Legislature and from the horse racing industry,” Stallings said. “Up till now all we’ve really heard from is the owners saying they’re adamant about getting a license, but I hear mixed signals from the bigger industry about this issue.”

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