Analysis: Five key points from California's new online poker bill
A joint effort from 13 Native American tribes looks like the state's best bet yet, but what does it mean for operators hoping for a slice of the action?
It has taken years to achieve but this week 13 of California’s most influential Native American Tribes finally reached consensus on single streamlined online poker legislation. Momentum has been building over the past months and weeks, with the Tribes meeting on several occasions to thrash out differences over licence fees, tax rates, and the number of sites a licensed operator could offer.
The new legislation is therefore the greatest chance yet of the state making internet gaming progress. The tribes are keen to submit the Bill in the current legislative session “ pending approval from authors Representative Jones-Sawyer and Senator Correa “ offering a glimmer of hope that legislation may even be signed into law this year.
But with Morongo and PokerStars saying they will fight the Bill under the premise it is anti-competitive, regulated online poker in California is by no means a done deal.
Here are five key points to consider:
1. No rush to market
Under the Bill the California Gambling Control Commission would have 180 days to promulgate regulations following legislation being signed into law. The regulator, operators, suppliers and other interested parties would then have exactly one year to prepare for launch, in stark contrast to New Jersey where they had a matter of months.
The considered approach is designed to level the playing field and effectively voids any first-mover advantage gained by those able to get to market ahead of the curve. This will likely play into the hands of the smaller card rooms and tribes who may not have access to the same resources and funds as the likes of Pechanga and San Manuel.
But is one year long enough to prepare for what will become the largest online poker market in the US? Or is more time needed to make sure things are done properly, especially when it comes to geolocation and the banks and persuading them to process credit card payments “ two major hurdles yet to be fully overcome in New Jersey.
2. Licence fees and tax rates
Online poker licences won’t come cheap in the Golden State. The tribes and card rooms will have to pay three separate fees “ an application fee, a regulatory fee, and a license fee. The regulator will be tasked with setting the cost of application and regulatory fees, while the licence fee has been set at US$5m, to be paid up front. A previous bill authored by California Senator Rod Wright set the licence fee at $30m.
The Bill acknowledges the “substantial value of each licence” with the cost credited against future tax payments, which have been set at 5% of gross gaming revenue. License fees will be paid into a General Fund, while the regulatory fees will be deposited in the Internet Poker Fund, used to cover costs such as consumer protection, state regulation, and problem gambling programmes.
3. What you get for your money
Operators granted a licence would be permitted to offer games of online poker to players located in the state. Licences would be valid for 10 years, and would renew automatically for the same duration. Licensed operators would be allowed to run two sites or ‘skins’ on their licence, unlike New Jersey where the number is five. It effectively prevents the tribes and card rooms renting out their online poker licences to suppliers or other entities.
More than anything, though, a California online poker licence would give operators access to the largest egaming market in the US. Indeed, it it would be something of a golden ticket for the tribes and the card rooms to cash in on what is set to become a billion dollar market. Who is able to claim the largest slice of that pie “ be it the large tribes or the local card rooms “ only time will tell.
4. Protectionist measures
To that end the Bill is intrastate only and explicitly prohibits California from entering compacts with other states and jurisdictions “ to do so would require new legislation. These protectionist measures are hardly surprising given it is highly unlikely California will need to join forces with other states to boost player pools and liquidity.
The impact of this will be felt by the states that saw California as something of a saviour for their barren online poker rooms. By closing the door to other jurisdictions has California killed off internet poker in New Jersey and Delaware? Perhaps it will force Nevada to legalise online casino to make its market more sustainable for online operators. And what influence will it have on states like Pennsylvania still undecided on how to move forward with regulated egaming? Many questions remain.
5. The battle begins
Language in the Bill makes clear that so-called ‘bad actors’ are not welcome in California. Strict provisions would see any operator, service provider or individual who took online bets from US players post Unlawful Internet Gaming Enforcement Act (UIGEA) 2006 deemed unsuitable for licensure.
The Bill states “the termination of a prosecution in a manner other than a conviction does not constitute evidence that the applicant’s conduct was lawful”. This would effectively prevent PokerStars entering the market, who along with its partner Morongo, have said they will fight the Bill under the premise that it is anti-competitive.
But does Morongo really want to be held responsible for delaying internet gaming progress further? And even if ‘bad actor’ language was amended there is no guarantee the regulator would grant the poker giant a licence “ as was the case in New Jersey.
To that end, the tribe is likely to have a ‘Plan B’ to ensure it is able to capitalise on California’s regulated internet poker market if and when it opens up. A plan that would likely not involve PokerStars.