Study: Stakes high for internet poker

As negotiations intensify over establishing internet poker in California, 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.

The figures stem in part from an analysis of legislation that was considered – and rejected — by lawmakers last year. Similar legislation is the focus of negotiations this year, but so far an agreement has proven elusive. The study is available here.

Three other states – Nevada, Delaware and New Jersey – have authorized internet poker. In California, the nation’s largest online gaming market, attempts led by tribal interests to establish internet poker have been unsuccessful. California’s illegal online gaming market is estimated at $300 million to $400 million annually, according to the Legislative Analyst.

In the first year of legalized online poker, the state revenue from its Gross Gaming Revenue (GGR) Tax would reach $73 million, plus another $48 million from new taxes on corporate profits, personal income on winners’ and other indirect revenues, according to the Matrix study.

“Legalizing Internet poker will increase California’s total economic output by more than $300 million and add more than 1,900 jobs in the first year alone,” said Mike Genest, a former state Finance Department director and a principal of Capitol Matrix Consulting, which released the report. A spokesman for Genest said the study was commissioned by five tribes — Rincon, Pala, San Manuel, United Auburn and Morongo.

Two bills – AB 2291 by Assemblyman Reginald Jones-Sawyer, D-Inglewood, and SB 1366 by Sen. Lou Correa, D-Santa Ana – are backed by different tribal coalitions. The legislation, the latest in a series of online gaming bills over the past five years, would allow internet poker in California. People familiar with the negotiations said the bills have been combined and agreement reached on most of the language.

The measures were introduced on deadline on Feb. 21, but after three months in the Capitol, there are still no official analyses of the bills.

A major sticking point is the desire by one tribe, Morongo, to bring in the world’s largest online gaming firm, PokerStars, to assist the tribe’s gaming operations in the event internet poker is approved. Other tribes have opposed the entrance of PokerStars, which some believe could dominate the California online market.

In the first year of legalized online poker, the state revenue from its Gross Gaming Revenue (GGR) Tax would reach $73 million, plus another $48 million from new taxes on corporate profits, personal income on winners’ and other indirect revenues, according to the Matrix study.

In five years, a legal intrastate online poker market would bring $845 million in state revenue to California and an additional 2,657 jobs.

The firm used previous studies by companies that examined the issue and incorporated new data provided by the industry experts that takes into account recent changes in the illegal Internet poker market.

Internet gambling activity dropped abruptly in 2011 after the U.S. Department of Justice’s indictment against chief executives at the three largest companies in the country offering online poker.

Players on those sites lost $175 million in deposits on that day, known in the industry as “Black Friday.”

No definitive data exists on what Californian players did after the Black Friday crack down, but the study says some may have continued to play on the few remaining real-money poker sites. It’s estimated those sites will earn $38 million in GGR from California players in 2014.

The founders of PokerStars were among those named in the federal action. The case, ultimately resolved, resulted in some $731 million  in payments. PokerStars paid back both U.S. and international players who had gaming accounts on a separate site. The company also purchased Full Tilt Poker, a site targeted in the federal government’s legal action.

“There was no admission of wrongdoing, and there was the explicit right to apply for licensing in the future in the U.S. market. And that’s what we’re doing now,” PokerStars spokesman Eric Hollreiser noted earlier.

The governor’s proposed budget for 2014-15 estimates the General Fund will receive $330 million from tribal-state compacts. Those existing compacts contain provisions that restrict the state from permitting certain kinds of gambling that is considered competition to tribal casinos.

The tribes’ expansion into online poker does not require new compacts, which apply to casino-based gaming.
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Ed’s Note: Includes detail  that PokerStars did not admit wrongdoing and has right to apply for future licensing, 14th-15th grafs. Provides link to study, 2nd graf.