California’s Online Poker Push For 2015 Gets An Early Start With Introduction of New Bill

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A new bill introduced by Assemblyman Mike Gatto  (AB 9) marks the first step for California’s push to regulate online poker in 2015.

Read the full text of the bill here. Tracking info here.

View a PDF of AB 9 compared to the language of the unified tribal bill draft floated last summer.

There has yet to be a companion bill introduced in the California Senate.

What’s the same

As a quick glance at the comparison PDF suggests, the bulk of AB 9 is similar or identical to the language of the unified bill draft we saw in the summer:

  • Both limit operators licenses to tribal casinos and card rooms.
  • Both seek to exclude so-called “bad actors” – entities, individuals and intellectual property involved in US-facing online gambling after December 31st, 2006.
  • Both take parallel approaches to licensing, fees and enforcement.

What’s changed

While the broad strokes are alike, some critical differences between the bills emerge on a closer reading.

A tactical shift on bad actor approach?

One series of edits worth parsing relates to so-called “covered assets.”

The specific term is a new one, but the concept was present in the draft bill. AB 9 defines a covered asset as:

any brand or business name, including any derivative brand name with the same or similar wording, or any trade or service mark, software, technology, operational system, customer information, or other data acquired, derived, or developed directly or indirectly from, or associated with, any operation that has accepted a bet or engaged in a financial transaction related to that bet from any person in the United States on any form of Internet gaming after December 31, 2006, except when permitted under federal law and laws of the state where the player was located

New language in AB 9 seems specifically aimed at preventing Amaya’s purchase of PokerStars from serving as a backdoor into the market. From 19990.406:

(2)(b) The commission shall issue a finding that a license applicant is not suitable to obtain a license if it finds that a person subject to investigation pursuant to this article is described by any of the following: […]

(2)(b)(10) Has purchased or acquired the covered assets of any entity described in paragraph (8) or (9), and will use any of those assets in connection with Internet poker in the state.

But the following, newly-added section appears to offer a way in (or at least the appearance of a way in) for PokerStars under new owners Amaya:

(7) The commission shall waive the application of paragraph(10) of subdivision (b) for an applicant who demonstrates by clear and convincing evidence any of the following: […]

(7)(C)(ii) The applicant’s use of the covered assets in connection with intrastate Internet gaming will not adversely affect the integrity of, or undermine public confidence in, intrastate Internet poker or otherwise pose a threat to the public interest or to the effective regulation and control of intrastate Internet poker.

Exactly how one demonstrates such a thing to the standard of “clear and convincing” is an interesting question.

In-person player registration required

Players will be required to create their accounts in person under AB 9. From 19990.505(c)(1):

A registered player account shall be established in person at the land-based gaming facility operated by the licensed operator or at a satellite service center operated pursuant to paragraph (2)

It appears that satellite service centers are required to be card rooms or tribal casinos. Per 19990.505(c)(2)(C):

A licensed operator shall ensure that a satellite service center meets both of the following:

(i)Is either of the following:

(I)A card room with a land-based gaming facility licensed pursuant to Chapter 5 (commencing with Section 19800).

(II)A tribe that operates a casino pursuant to a tribal-state compact.

It further appears that players will have to make their initial deposit in person. From 19990.501(d)(4)(A):

The licensed operator shall require a registered player to make the initial deposit into his or her registered player account in person at the land-based gaming facility operated by the licensed operator or at a satellite service center operated pursuant to subdivision (c) of Section 19990.505.

And the bill allows the possibility to require some types of withdrawals to be made in person. From 19990.501(d)(4)(B):

The licensed operator shall require a registered player to make a withdrawal from his or her registered player account in person at the land-based gaming facility operated by the licensed operator or at a satellite service center operated pursuant to subdivision (c) of Section 19990.505 if either of the following apply:

(i) The withdrawal is ____ dollars ($____) or more.

(ii) The registered player’s cumulative withdrawals in a seven-day period total ____ dollars ($____) or more.

Clarification on licensing requirements for marketing affiliates

One of the biggest chunks of wholly new text comes in a section covering licensing for marketing affiliates.

The language is contained in 19990.405 (a) through (h).

There’s not so much new here in terms of approach as there is in terms of detail. Both bills set the bar for participating in California online poker as a marketing affiliate incredibly high.

Five years becomes three years

In 19990.201(k)(1)(B), there’s a change that is likely important to someone, but I couldn’t readily guess who:

An entity identified in this paragraph shall have operated its card room or gaming facility for at least three years immediately preceding its application to secure a license to operate an Internet Web site pursuant to this chapter, and shall be in good standing during that time period with the applicable federal, state, and tribal regulatory authorities.

In the draft bill, that threshold was set at five years.

Statement from Assemblyman Gatto

From a presser issued by Gatto’s office: “The status quo is a lost opportunity,” said Gatto.

“California could receive significant revenue for merely regulating and legitimizing an industry that Californians already participate in but send their dollars overseas.”

“California has led the world in computer and internet innovation, and there is no good reason why we can’t continue to lead with a sensible online-poker framework,” said Gatto. “AB 9 borrows from time-tested business practices that will improve our government finances and keep our money in our home state.”

Read the full statement here.

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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