Poker, DFS Initiatives Intersecting in California

Could Daily Fantasy Sports And Online Poker Initiatives Merge In California?

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That’s one of the many questions raised by letters from the San Manuel Band of Mission Indians and the Morongo Band of Mission Indians to California Assemblyman Adam Gray regarding Gray’s bill to regulate daily fantasy sports (AB 1437).

News of the letters was first reported by Jim Miller at the Sacramento Bee.

The letters, authored by San Manuel Chairwoman Lynn R.Valbuena and Morongo Chairman Robert Martin, were dated February 10 and February 5, respectively.

The possibility of a single bill

As Miller noted, both leaders raised the suggestion of a single bill to handle regulation of DFS and online poker in California:

Martin and Valbuena’s letters both reference the possibility that daily fantasy sports and online poker could be combined “into a single i-gaming measure” because the issues share “many of these same questions.”

It’s worth noting that the letters stop short of directly advocating or calling for such an approach.

AB 1437 currently sits in the Senate after sailing through the Assembly in January.

Sources close to the process have suggested to OPR that the bill is likely to receive a hearing in the Senate in relatively short order, but a date has yet to be set.

Would a dual bill solve poker’s problems?

The multi-year effort to bring regulated online poker to California has seemingly stalled, primarily due to a stalemate regarding the role of the state’s horse racing industry.

It’s not immediately clear how combining DFS and poker would surmount that roadblock.

If anything, a merge might increase the incentive for opposing sides to dig into their positions by raising the stakes involved.

The caveat to that analysis: If gaming stakeholders perceive that a DFS bill is likely to get done without them (on the back of the lobbying strength of the various sports and media interests aligned around DFS), then the resulting pressure could drive opposing sides to resolution.

Is DFS a house-banked game?

In Chairman Martin’s letter sits a question that could prove to be a significant conundrum for lawmakers seeking to regulate DFS.

“If DFS operators set the award amount regardless of the number of participants and amounts wagered,” Martin asks, “wouldn’t that constitute a “banked” game which is a violation of the California Constitution and the Penal Code?”

Most DFS operators contend that their prize pools are determined in advance and are not a function of the number of player entries.

That assertion naturally leads to the question of who provides the prize pool if not the players.

If it is in fact considered to be the operators – the “house” – that would pose a significant hurdle for daily fantasy sports regulation in California for the reasons alluded to by Martin.

Simply removing the fiction that player entries do not constitute the prize pool could sidestep the problem. But doing so might cause problems in other states where the disconnection between the player entries and the prize pool is part of the legal scaffolding supporting daily fantasy sports.

Such a disconnection is also effectively mandated by the language of UIGEA, although compliance with the UIGEA is not a prerequisite to legally offering DFS.

Bad actor redux

One interesting emerging parallel between the online poker and DFS debates in California: the so-called “bad actor” issue.

For online poker, the question of how to handle operators – most notably PokerStars – who served the California market prior to regulation was long a flashpoint for opposing sides.

That issue seems to have receded following Amaya’s acquisition of PokerStars and subsequent licensing approval from the New Jersey Division of Gaming Enforcement to participate in NJ’s online poker market.

Martin’s letter suggests the potential for the issue to be raised anew in the debate around DFS.

Assuming DFS currently violates state law (AG Harris has yet to weigh in), Martin notes that AB 1437 would see DFS operators “seemingly rewarded with the adoption of a new regulatory structure, with no repercussions for violating state law.”

“Has there been discussion,” Martin continues, “about sanctioning entities that continue to facilitate transactions prior to the bill taking effect?”

Such sanctions would almost certainly be a non-starter for DFS operators, who would then face the prospect of resonant provisions in other states considering DFS regulation.

Cardrooms yet to weigh in on DFS

While tribes are beginning to stake out public positions on AB 1437, California’s race tracks and card rooms have yet to articulate a formal response to Gray’s legislation.

That may be about to change.

OPR understands that a group of California cardrooms plan to propose a version of AB 1437 that would limit the primary licensing to tribes, tracks, and card rooms. A second tier of licensing would be established for platform providers such as DraftKings and FanDuel.

The envisioned arrangement would in some ways mirror New Jersey’s regulated online gambling structure, where land-based casinos hold the primary licenses and platform suppliers hold ancillary licenses.

- 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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