Bad Actor Issue Is Still Taking Center Stage In California Online Poker Showdown

With Racing Issue Somewhat Settled, California Online Poker Debate Now Pivots On Suitability Divisions

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A coalition of politically powerful American Indian tribes led by the Pechanga Band of Luiseño Indians is apparently winning the lobby war on iPoker legislation in California, scoring major concessions in negotiations on bill language.

Legislation to tax and regulate online poker in California unanimously passed out of a state Assembly committee by an 18-0 vote Wednesday, but with several American Indian leaders vowing to oppose the bill if it is not amended to include strong license suitability language.

The coalition of six tribes has already blocked efforts by the state’s powerful racing industry to be included along with tribes and card rooms as eligible licensees to operate poker websites.

Gray driving efforts to reach consensus

Adam Gray, chairman of the Assembly Government Organization Committee and sponsor of AB 2863, pledged to get consensus among the state’s politically powerful tribes on “bad actor” licensing provisions in the bill.

Gray said he is “committed to put suitability language” in the legislation that goes beyond identical licensing provisions in the state Gambling Control Act and Business and Professions Code.

“We’re sharing and revising what draft suitability language would look like,” Gray said of bi-weekly meetings with tribal leaders, card club operators and other potential stakeholders in an iPoker industry. “We’re making progress.”

Meanwhile, the state’s racing industry is now apparently willing to accept an annual subsidy ($60 million is the figure being discussed) in lieu of eligibility to operate a poker website – an option initially floated by Pechanga Chairman Mark Macarro more than two years ago.

Gray appears optimistic a racing subsidy and tribal consensus on “bad actor” language will lead to legislative approval of iPoker legislation later this year, ending an eight-year struggle to get a bill out of Sacramento.

“The two largest roadblocks have been whether or not horseracing gets a license and suitability of potential applicants,” Gray said. “While we have not yet come to a consensus, through recent meetings with tribal leaders we have made serious progress.

“It is time we pass a sensible iPoker framework in California and allow consumers who want to play to do so in a safe, fair and regulated environment,” Gray said.

“We are closer than ever to accomplishing this goal.”

Will effort surmount entrenched divisions?

Gray’s optimism is not shared by all the stakeholders, including two tribes and three card rooms in partnership with international online gambling giant Amaya/PokerStars, which is caught up in scandals involving alleged insider trading and the acceptance of U.S. wagers in violation of federal law.

Crafting a “bad actor” provision that will satisfy the Pechanga coalition and Amaya’s politically influential tribal partners – the Morongo and San Manuel bands of Mission Indians – won’t be easy.

And there are major concerns that the financial viability of an intrastate online poker industry will accommodate a $60 million subsidy and a reasonable tax and license fee structure.

“We still have a long road,” racing industry lobbyist Robyn Black said following Wednesday’s hearing, “but today was a huge step forward.”

Racing issue may be settled – in theory

Meanwhile, most if not all of a dozen politically powerful tribes involved in bill language negotiations are on board with providing the state’s pari-mutuel racing industry with a $60 million annual subsidy in lieu of eligibility to operate poker websites.

Racing industry officials recently backed off demands that tracks be eligible to operate poker websites, an ultimatum that has drawn opposition from some tribes who felt it would violate public policy and constitutionally guaranteed tribal exclusivity to operate casino-style gambling.

About $600 million – roughly 40 percent of annual track wagers – are conducted online, a segment of the industry that may be threatened by online gambling.

Consensus on bill language among tribes operating the state’s more lucrative Indian casinos is believed crucial in getting iPoker legislation approved in Sacramento, an effort that has thus far taken eight years to accomplish.

Several tribes, card clubs and pari-mutuel race track operators (with the exception of Santa Anita) joined with thoroughbred owners and breeders and union workers in testifying Wednesday in support of Gray’s bill.

The role of Pechanga

The protracted debate over iPoker is casting new light on the Pechanga coalition and particularly Macarro, who has been portrayed by legislators, stakeholders and the gambling industry trade press as being an obstructionist to an online poker bill.

Macarro bristles at the characterization, contending he has been consistent in looking after the long-term sustainability of California’s tribal governments, which are economically dependent on their constitutionally guaranteed exclusivity to operate casino-style gambling.

Tribes need to embrace digital gambling and Internet technology, Macarro said, but indigenous governments also must be “cautious, vigilant and protective” of potential policy shifts created by the expansion of legal gambling.

“They refer to him as an obstructionist, but where would tribes be today if Pechanga and the others hadn’t stepped in and made their voices heard?” said a source close to the chairman who requested anonymity.

“We’d have an online gambling industry with the race tracks and an unscrupulous operator; an explosion of legal gambling well beyond what was intended by the voters and public policy.”

Others remain skeptical. Many observers of the online poker debate contend Pechanga and its coalition tribes have not been inclined to move on legislation because they do not have vendor partners likely to stake out a significant share of an iPoker market.

Morongo, San Manuel and three prominent Los Angeles area card rooms – Hawaiian Gardens Casino, Commerce Club Hotel-Casino and Bicycle Club Hotel-Casino – could be a major player in California with the Amaya/PokerStars-branded software and player database.

The Rincon Band of Luiseño Indians’ casino is managed by Caesars Entertainment, owners of the World Series of Poker (WSOP), which also could grab a significant share of a California online poker market.

Rincon, the United Auburn Indian Community, partners with bwin.party, and Pala Band of Mission Indians, owners of Pala Interactive, are in general agreement on bill language with the tribal/card room/Amaya coalition.

Steve Stallings, chairman of the California Nations Indian Gaming Association and a councilman for the Rincon Band of Luiseño Indians, called the vote a “turning point on the issue.”

“For the first time, we have moved closer to a consensus with tribal governments, card rooms, the horse racing industry and labor groups supporting a safe and secure environment for Californians to use today’s technology to play poker,” Stallings said.

“We know and understand the complexity of this issue and know that more work is needed,” Stallings said. “However, with the momentum established today, an Internet poker bill can and will pass this year.

“We look forward to continued discussions with stakeholders and the Legislature.”

Agreement on bad actor language may not be a good bet 

A lobbyist for some of the Pechanga coalition tribes says the group feels strongly that PokerStars should not benefit from having taken U.S. wagers following passage in 2006 of the Unlawful Internet Gambling Enforcement Act (UIGEA).

The PokerStars and Full Tilt domains were seized by the U.S. Department of Justice in 2011, but bank fraud and money laundering charges were dismissed when PokerStars agreed to a $731 million settlement to buy Full Tilt and reimburse players.

David Baazov, chairman of Amaya Inc., which purchased PokerStars in 2014, was charged earlier this year in connection with an insider trading probe conducted by Canadian securities regulators. He has taken a leave of absence to contest the allegations.

Company officials could not be reached Wednesday for comment.

“All hell and fury”

“We will allow it (AB 2863) to move forward, for the sake of permitting good faith discussions,” lobbyist David Quintana said of the Pechanga coalition tribes.

“But we just want to make it clear that unless the ‘bad actor’ issue is cleared up, we will oppose this bill – with all hell and fury – if it’s not fixed by the time it gets to the Assembly floor.”

Tribal leaders from the coalition who testified Wednesday took no position on the bill draft, but strongly indicated they would not be pleased if AB 2863 goes to the Appropriations Committee or an assembly floor vote with language favorable to Amaya/PokerStars.

“At this time we are neutral … [but] suitability is a main outstanding issue that needs to be addressed,” said Cody Martinez, chairman of the Sycuan Band of the Kumeyaay Nation and a member of the coalition. “We remain confident that mutual understanding and agreement can be reached.”

“Offshore sites that broke the law should not be rewarded with a competitive advantage over law-abiding tribes and card rooms,” Macarro told the committee.

“Agua Caliente is fine with the concept of a revenue stream to the horse racing industry,” said tribal Chairman Jeff Grubbe. “The big sticking point is the bad actor or tainted assets issue.”

Government shouldn’t “arbitrarily” limit competition

Leaders of the five other tribes testified in support of Gray’s legislation, as did card room and race track operators (with the exception of Santa Anita), thoroughbred owners and breeders, union officials and track workers.

Morongo Chairman Robert Martin testified that legislation should not be crafted to stymie competition, hinting that it could lead to litigation on constitutional grounds.

“California should have strong suitability standards, but it shouldn’t be in the business of arbitrarily limiting competition, restricting consumer choice or picking winners and losers in the marketplace,” he said.

“We want to make sure that if we’re going to pass legislation regulating iPoker that it’s done in a way that can withstand legal or constitutional challenges, because then this effort becomes nothing more than a futile exercise,” Martin said.

“I am fully committed to coming up with additional suitability safeguards that apply to all applicants across the board, not just any one company,” Gray said.

California’s bifurcated regulatory system comprised of a Gambling Control Commission under Governor Jerry Brown and a Bureau of Gambling Control under Attorney General Kamala Harris is capable of investigating and licensing operators and vendors, Martin said.

“Our coalition believes that California’s expert regulators … should oversee the suitability of all proposed iPoker licenses,” he said.

“For decades our state regulators have done a great job vetting operators and overseeing California gaming industry and we believe the state should extend that proven model to iPoker.”

Middle path continues to elude stakeholders

Quintana did not rule out the possibility that “bad actor” language could be crafted that would allow Amaya/PokerStars to be found suitable for licensing.

But he noted that prior draft legislation precluded licensing companies that took U.S. internet wagers after UIGEA or before iPoker was authorized by legislation in California.

“I don’t know. We’ll have to see what comes up,” Quintana said. “I’m not going to say it can’t be done. But we haven’t arrived at a solution with the other side.”

John Pappas, executive director of the Poker Players Alliance, urged the committee to put the needs of consumers before special interests.

“There’s really no public policy justification for the status quo,” he said. “Doing nothing is simply not an option. Consumers have waited long enough [for the state] to authorize and regulate online poker in California and 2016 must be the year we get it done.

“This bill should be viewed as an opportunity to protect consumers. They play on foreign sites, none of which are licensed and regulated by this government. We must corral the current, unregulated market place and turn it into a system that is safe for consumers and accountable to regulators.”

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Dave Palermo
- Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law.