The Big One
Richard D Bronson, chairman of US Digital Gaming, considers egaming proposals in California and on a federal level.
On April 18, 1906, a high-magnitude trembling of the inner earth triggered the great San Francisco earthquake and fires. It was a huge natural disaster that ultimately changed the way America structured buildings, created emergency plans for cities and developed transportation. Since then, geologists and planners have been planning for the next ‘big one’ a similarly-large scale earthquake in the Golden State, which could be felt all along the Fault and throughout the State.
There is another ‘big one’ that is starting to rumble in California these days “ an amplified and accelerated attempt to legalise internet gambling. This faultline runs throughout the state’s existing gaming industry, which is among the most diverse in the nation today. Native American casinos, local card rooms, horse racing and lottery are all big business in the state, and critical providers of jobs and state revenue. They are keenly watching (and in some cases, trying to influence) the emergence of an online element to gaming in California.
The stakes are high. Our US Digital Gaming (USDG) analysts have concluded that the California gaming market could generate tax revenues to the state of over US$5bn over a 10 year period. We have concluded that in any given year, California is losing more than $600m in state tax revenue to illegal online gaming “ largely through unlawful offshore operators. This is not an insignificant amount of annual revenue – it could fund UCLA every year, the state’s largest public institution of higher education.
There is also the state’s desperate need for revenue. Governor Jerry Brown’s recently-adopted budget tackled a budget deficit of more than $26bn, a jaw-dropping amount. To put that in perspective, the State of Indiana’s two-year operating budget was about $28bn). Many would align the interests of California’s bricks-and-mortar industries with an online presence, crafting a nearly-seamless operating and marketing system for the Golden State gaming operators of various types. But, no single piece of legislation has crystallized among the fragmented stakeholders or, generated strong support from the Governor or legislative leaders.
If any state should be motivated by the potential in Washington DC to create a national online gaming system that is regulated and taxed at the federal level, it is California. The lost revenue to the feds would be enormous. But so, too, would the prospective impact on its local gaming industries, their investments and their jobs. No federal bill will equitably protect local Native American operations or card rooms. And with no horse racing political stalwarts in Nevada to help nudge Senator Reid and his congressional allies, that industry doesn’t have a voice in the federal process, let alone a seat at the table.
When the dust settles later this summer, both the feds and the state politicos will turn their attention back to the potential epicenter of our new online industry “ California. Who will be able to manage ‘the big one’?The feds who want to make a revenue grab or, the Californians and their divergent interests? Either way, the magnitude is enormous.