The right way to build an Internet poker system for California

State governments have had the power to legalize and regulate Internet gaming within their respective borders since at least 2006, when Congress passed the Unlawful Internet Gambling Enforcement Act(UIGEA).  Internet poker, which is popular, profitable and socially acceptable, is the leading candidate for any such regulatory effort.  

 Legalizing online poker here is not an issue of gambling expansion. California has allowed licensed online companies  to take horseracing bets since 2001.  For Internet poker, it’s a matter of properly regulating a gambling phenomenon  that is already well established, like it or not. Internet poker sites have been accessing the California market since  2005. But this online  industry  is exclusively in the hands of operators located offshore, unlicensed and unregulated in this state.  Today this “ gray market” is worth almost $1 billion per year in California alone.  But that revenue goes only to these offshore operators, who have registered nearly two million Californians  to play on their  foreign sites. That means more than $2 million a day is leaving the state. The offshore sites reap hundreds of million in profits from California, but don’t pay  a penny in taxes.

This cash outflow robs not only the public treasury but also California’s land-based gaming operators — both tribal and non-tribal.  They’re the ones who follow the rules, pay their fair share and employ thousands of our residents, but find themselves shut out,  barred from competing with this  de facto online monopoly. And  California’s gaming public is at risk, too. Because these foreign operators don’t answer to State or Federal  law,  California’s online poker players remain vulnerable to  fraud, collusion and cheating.

As February legislative hearings on this matter commence  in Sacramento, California’s lawmakers are faced with the question of how to actually establish this industry.  What form should the regulated system take? Like the bicycle under the Christmas tree, state-run Internet poker has a tag attached: “ Some Assembly Required.”  Fortunately there are successful regulatory models for Internet poker systems that are working well in a number of European countries. California would do well to examine the experience and expertise offered by those successful models.

Gambling is controversial, and so public trust must be established early and maintained constantly. That means that the actual Internet poker system needs to be state-owned, for maximum transparency, and run by an experienced, proven and financially sound operator in a public-private partnership that can protect the players, stakeholders and the state.    Since many countries already license and regulate Internet poker successfully, California’s best course would be to invite bids from firms that offer and  operate the most successful regulated systems. Fortunately, these include not only offshore operators, but also a number of  California software providers.

Choosing the in-state online poker  Main Licensee should only  be done through a competitive bid process, open to all experienced companies who are a) qualified to provide the secure services the state needs for this system and b) thoroughly vetted by the Attorney General’s office.  Most importantly, legislation should require that the system operator provide operational transparency,  24/7 access to all relevant State oversight agencies, while insuring California is reimbursed for all regulatory costs.  The successful candidate would be one that can show a track record of profitability, honesty, flexibility and long-term financial strength, and then be ready to quickly roll out a custom product, tailored to California’s needs.

Internet poker is a fact of life. Today, unlicensed operators access the California market at will, taking the profit and shouldering none of the responsibility.  There is every reason to deploy a licensed, supervised and regulated Internet poker system here, for the benefit and protection of California’s people,  and no reason not to.  

This is a rare opportunity, and our elected representatives need to use it wisely.

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