Analysis: The blame game

With online poker off the cards for another year in California, Martyn Hannah asks if the racetracks were to blame for a lack of progress

The writing had been on the wall for some time in California. The slew of online poker bills tabled at the start of the year soon began to fall by the wayside; first Assemblyman Mike Gatto withdrew AB 9 back in June saying it was “the right thing to do” while the tribes, card rooms and racetracks continued to bicker over what a regulated internet poker market should look like in the Golden State. Then, just a few weeks later, Assemblyman Reggie Jones-Sawyer postponed the hearing due to take place on his AB 167 bill to a date in August that never actually materialized. [private]

That left just two bills standing; SB 278 and companion legislation AB 431 tabled by Senator Isadore Hall and Assemblyman Adam Gray respectively. And while no hearing was scheduled on SB 278 during this year’s legislative session, AB 431 made unprecedented progress becoming the first internet poker bill to pass out of Committee and onto the Assembly floor. But there was a catch. AB 431 was a skeleton bill, meaning it had no specific language on license fees, tax rates and, crucially, which stakeholders would be eligible to apply for an online poker permit.

So while on the face of it significant progress was made in recent months, by the time the 2015 California legislative session closed on Friday 11 September the status quo very much remained. The key issues? Should so-called ‘bad actors’ (read PokerStars) be blocked from applying for a license by law (instead of allowing the regulator to decide suitability), and whether the racetracks should be allowed to expand their game offering to include online poker. But where once it was the ‘bad actor’ quandary holding back progress, it now appears to be the racetracks causing the stalemate.

Time to wake up

“We have been a little bit sleepy on the issue over the past few years, but this year we woke up,” says Ed Comins, president of WatchandWager, which operates the Cal Expo racetrack in Sacramento. “We upped our game because we were nervous the bills making progress in 2014 were not representing the racetracks, and the feeling was they were close to getting through. We came to the process late, but have achieved our initial objective to ensure legislation doesn’t move forwards without the inclusion of the tracks. So yes, I think we may be the cause of a bill failing to get across the line this year,” he adds.

Opposition to the racetracks has come solely from the tribes and in particular the Pechanga Band of Luiseño Indians and its coalition partner Agua Caliente. The tribe’s argument is a purely principled one; that allowing the racetracks to expand their offering into online poker would breach public policy for limited gambling in California. They also believe allowing the tracks to enter the fray could erode their state-wide exclusivity to offer casino-style gambling.

But tribal opposition towards the tracks is starting to frustrate. The racetracks would be little more than bit-players in the California online poker market, and certainly wouldn’t trouble the likes of Pechanga and Agua Caliente. Refusing to compromise on the grounds of principal therefore raises questions over whether the tribes really want to see the state open its digital doors to online poker. If they did, surely they would allow the tracks to be eligible licensees simply as a way of expediting what has become an unnecessarily protracted process.

“The Rincon Band of Luiseño Indians does not believe they [the racetracks] are being unreasonable, per se, in their request,” says Councilman Steve Stallings. “After the many, many years of discussion, meetings, and brainstorming, the legislature has made it clear that online intrastate poker is a state asset. Thus, we would hope that the legislature would make the determination as specifically to the eligibility of the racetracks.

“Gaming entities that are wanting the eligibility to apply for a license have spent countless hours working to ensure their interests are included. We look forward to the legislature making this determination in the next legislative session. It is time to get this done for California,” he adds.

The various stakeholders are aware that compromise will need to be reached if the state is ever going to move forward with online poker. Indeed, a half-hearted attempt to compensate the racetracks through a revenue share structure if they agreed to step down as eligible licensees was muted and loosely discussed during this year’s legislative session. But Comins says the talks fizzled into nothing more than hot air and no formal offer was made, while the percentage share figure being thrown around simply didn’t cut the mustard from the track’s perspective.

“I have never had anything submitted to me on paper, but the number banded around in discussion was around a quarter of a percent of gross gaming revenue,” he says. “If that figure was higher, then yes, WatchandWager would consider a revenue share agreement. But that figure would have to be much higher, more like 5%. But we would be open to negotiation,” Comins adds.

In a foreboding sense of déjà vu, the question remains over whether the tribes, card rooms and tracks can finally put aside their differences and get this done. While some think they can, it’s not hard to forget this is the seventh year in a row that discussions have rumbled on without a solution being reached. But that’s not to say 2016 won’t provide the breakthrough moment, especially with the tracks willing to compromise via a revenue share agreement.

But another potential hurdle is emerging. Operators, lobbyists and lawmakers are starting to lose patience when it comes to online poker, and are exploring other avenues of internet gaming. On the last day of the legislative session Assemblyman Gray tabled a bill seeking to regulate and license daily fantasy sports operators in the state, and re-introduced a bill which, if passed into law, would legalize online sports betting. While the former has legs, the latter is undoubtedly a long-shot, but shows lawmakers understand the importance of taking the lead when it comes to online gaming. What impact that will have on internet poker remains to be seen.