New California poker bill faces old issues

For the 10th straight year, politicians, tribes, regulators, horsemen and global egaming companies will debate the legalization of poker in California.

This year the debate will centre on AB 1677, a bill from Assemblymember Reginald Jones-Sawyer, who also spearheaded a failed poker effort in 2015.

Last year’s bill sponsor Adam Gray has given up on the process, reportedly infuriated at the media backlash and personal attacks made on him in the closing stages of the 2016 legislative session, as the various factions fought to ensure no bill would become law.

It was a typically fractious process but the early signs are that those involved are willing to do it again in 2017.

The bill itself has been described as a “shell” by industry experts, and something designed to start the conversation around legislation rather than something that could be voted on.

It includes many of the same features as last year’s bill which was ultimately held up over suitability issues and whether PokerStars would be eligible to return to the market.

AB1677 skirts this issue and gives the regulator the power to decide on eligibility – the solution PokerStars called for last year.

The bill also calls for a $12.5m upfront fee for a seven-year license, although this payment is credited against future taxes owed on gross gaming revenue.

Taxes would be set on a progressive scale, starting at around 9% if GGR is under $150m, and rising to 15% if GGR tops $350m. The horseracing industry would also be paid off to not participate in the market, with a payment of $57m a year.

Preparing battle lines

So where do interested parties stand on the latest bill? The horsemen are the most straightforward. The industry is happy with its £57m stipend for non-participation in the market, even if there are serious questions about whether a newly established poker industry will actually be able to afford such a major pay off before turning any profit itself.

“We’ve made our bed on that and we’ll take our money,” says Ed Comins, managing director at horseracing betting operator Watch and Wager. “We’re pretty happy. I don’t think they’ll be any objections from the overall horseracing industry.”

The horsemen are also attracted by the ability to act as a service provider for poker sites should a bill be passed. Comins says the ADW providers like Watch and Wager have local expertise on things like player identification, geolocation and payment processing, and could be valuable partners for poker operators should the opportunity arise.

The tribal stance is less well-known – there have been no major pronouncements from the power players on AB1677 yet but the biggest opposition is expected to come from the usual suspects – a coalition of about eight tribes led by the Pechanga Band of Luiseño Indians of Temecula and Agua Caliente Band of Cahuilla Indians of Palm Springs.

Pechanga has suggested it would have a problem with the suitability clause and letting the regulator decide on PokerStars, with the tribe’s vice president of public affairs Jacob Mejia telling Online Poker Report: “That would make it a problem for a number of tribes throughout the state.”

But while the tribes have long centered their objection to online poker on PokerStars, there are some who believe they are using the Amaya-owned brands as a scapegoat for a philosophical opposition to online gaming.

“Some tribes just oppose it. They view it very myopically,” the source says. “They like their brick and mortar facilities with no competition and they can wrap themselves in their sovereign status.”

Warring factions

Of course other tribes embrace the industry, like the Morongo and San Manuel Indians bands which are seeking joint licensing with PokerStars.

But there were rumors after last year’s failed effort that PokerStars could be tired of banging its head against the wall, and prepared to abandon the California market altogether.

The firm spent $9.2m lobbying in the US in the nine months to September 30, 2016, up almost 40% from 2015, and around treble the lobbying spend for all of 2014. A potential ‘exit’ was seen by some as the only way a bill would get passed in California – the politically powerful tribes like Pechanga would perhaps embrace online poker without the competition of a rival like PokerStars with its vast resources and technological expertise.

However a PokerStars spokesperson confirmed to EGR NA it would be back lobbying again in 2017.

“PokerStars is watching the legislation closely as we have over the years,” a spokesperson says. “We remain committed to supporting sensible regulation wherever regulators choose to bring in a licensing structure.

“We continue to be active in California and expect to continue that as long as there’s opportunity for us to bring our expertise and knowledge into the situation.”

Locked horns

Its return could simply mean more deadlock. As California gaming lawyer David Fried puts it: “There is not yet any reason to think the bill will be more likely to succeed than prior efforts except the participation of horseracing is resolved.

“Unless business or political conditions change, I don’t see a solution to the suitability dispute yet other than one side overpowering the other.”

The political condition Fried speaks of is the lack of the kind of budget deficit that is driving online gaming legislation in places like Pennsylvania.

And some observers are skeptical that the political impetus for online poker in 2017 is anything more than self-serving.

“I find it difficult to believe this year will be different to any other year,” says the tribal gaming source who requested anonymity.

“If you’ve been covering this for a while you can see what’s happening. I see this as an opportunity for legislators to generate interest in their re-election. It’s unbelievable. For someone like me who’s been around it for a long time it’s obvious what’s happening here.

“As long as somebody is introducing a bill and it has the support of big monied interests, they’re going to carry and debate that bill and bring attention to themselves and their campaigns. Lobbyists love this as well. That’s another reason this bill exists. They make a fortune out of this.”

Reginald Jones-Sawyer’s office did not respond to a request for comment.

Regardless of the motives behind the bill, the wider industry perspective is negative. Nine versions of this bill have come and gone without success, and the battle lines and warring factions for 2017 look much the same as others.

Whether tribes like Pechanga are opposed to online gaming in general or just PokerStars’ presence in the market, is largely irrelevant while PokerStars continues to be active, and the operator sees no reason to be bullied into submission.

For the optimists of course, the key details of AB1677 have yet to be written and there is some hope for consensus down the line. But based on the cards that have already been dealt, the future is not looking promising.