California Online Poker Bill Approaching Critical Point
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“Fully Cooked” California Online Poker Bill May Go to Assembly Committee June 15

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A California online poker bill with a tax rate acceptable to stakeholders and license suitability language to appease rival American Indian coalitions could go before a June 15 Assembly Appropriations Committee, but it won’t be easy.

Starting with the tax issue

Tribal leaders meeting Monday with Assemblyman Adam Gray, sponsor of the Internet Poker Consumer Protection Act (AB 2863), said a 10 percent tax rate is the realistic maximum for an online poker industry many believe will generate no more than $310 million a year.

“There were many stakeholders at the meeting who said the ceiling can’t be any more than 10 percent,” said a tribal official at the meeting who requested anonymity. “If it’s more than 10 percent it won’t be feasible.”

But committee members may be looking for a heftier tax rate.

“I think the appropriations folks are looking at something twice that,” David Quintana, lobbyist for the Viejas Band of Kumeyaay Indians, said Wednesday.

Suitability language remains a sticking point

Meanwhile, tribal coalitions remain at odds over suitability language one group hopes will limit, if not preclude, industry participation by online gambling giant PokerStars, accused of taking U.S. wagers in violation of the Unlawful Internet Gambling Enforcement Act of 2006.

A coalition of six tribes led by the Pechanga Band of Luiseño Mission Indians of Temecula and Agua Caliente Band of Cahuilla Indians of Palm Springs are seeking strict “bad actor” provisions in iPoker legislation that targets PokerStars.

That won’t sit well with the Morongo and San Manuel bands of Mission Indians, partners with PokerStars (recently purchased by Amaya Inc.) and three Los Angeles area card room casinos.

“[Gray] needs to craft a bill that somehow restricts PokerStars and Amaya but at the same time allows them to apply for a license,” said Steve Stallings, councilman for the Rincon Band of Luiseño Indians and chairman of the California Nations Indian Gaming Association (CNIGA).

“That maybe is what kills the bill or allows it to move forward – some compromise.”

Where the bill goes from here

Gray hopes to first come up with initial fees and a tax rate, which he intends to get to the Appropriations Committee sometime next week.

“High fees and an overbearing tax structure would have a negative impact on launching this industry,” Stallings told a recent Assembly committee.

Meanwhile, draft wording on suitability provisions will go back to the tribes for review in the next “week to 10 days,” according to those at the meeting with Gray.

What Stallings termed a “fully cooked” bill with fees, tax rate and suitability language would then go to a June 15 session of the Appropriations Committee.

The racing industry’s recent agreement to accept a $60 million annual subsidy in lieu of eligibility to operate a poker website eliminated a major obstacle to iPoker legislation. The Pechanga/Agua coalition opposed racing’s involvement in the industry.

But “bad actor” language remains a sticking point with the Pechanga/Agua and Morongo/San Manuel coalitions.

The Rincon band, partners with Caesars Entertainment, owners of the World Series of Poker, United Auburn Indian Community, partners with Bwin Party Ltd., and Pala Band of Mission Indians are neutral on the suitability issue, as they were on involvement by the racing industry.

“Rincon, Pala and Auburn don’t have a dog in the fight on the suitability issue,” Stallings said. “We’re kind of stuck in the middle.”

Threading the constitutional needle

Gray in his meeting this week with the tribes pledged to come up with suitability language that will satisfy the warring factions.

But he must be careful the finished product satisfies the Pechanga/Agua group without unduly targeting PokerStars, creating potential litigation on constitutional grounds.

“You can’t draft suitability language that will create constitutional issues and a lawsuit and the bill never gets implemented,” Stallings said. “Gray sees that.”

Morongo Chairman Robert Martin warned of potential litigation at an Assembly Government Organization Committee meeting earlier this month.

“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,” Martin said, “because then this effort becomes nothing more than a futile exercise.”

Progress brings new problems

Many observers contend iPoker in California rises or falls on suitability language.

“If there’s no agreement on suitability, there’s no iPoker in California,” said a tribal official at the meeting with Gray.

But the fiscal issues may also at least temporarily hang things up.

“I think people who assumed the taxation question was going to be an easy one are just now understanding it is something they’ll have to work with the committee on, to get something acceptable,” Quintana said. “This happens with every bill.”

Gray has a mountain of data on online gambling revenues and tax rates in other jurisdictions, including Nevada, New Jersey, and Delaware.

But some of those states legalized other games beyond just poker, skewing the data and possibly prompting Appropriations Committee members to anticipate a greater volume of revenue than is realistic.

“When folks who aren’t involved in the industry start looking at numbers and they look at states like Pennsylvania … it’s really not an apples-to-apples comparison,” Quintana said. “We need to slow down and look into the numbers first.”

“If the industry is limited to iPoker and does not include other types of casino games, as is the case in other parts of the country, that’s an important distinction,” said a tribal official the meeting with Gray.

One of those at the meeting described Gray as “the most downcast I’ve seen him at these stakeholder meetings.”

The meeting lasted only about a half-hour but lacked participation by many of those who attended. San Manuel was not represented at the meeting and Morongo Chairman Martin did not attend.

“Chairman Gray knows what he has to do. He knew that before the meeting, which is why it was so short,” Stallings said.

“There’s going to be some work to bring them to a middle ground,” Quintana said of Gray’s effort to mediate tribal division on the suitability issue.

“Gray is actually doing a pretty good job trying to work with everybody in putting something together with numbers that work,” Quintana said.

“He’s trying to take care of the battle that’s in front of him. And the battle that’s in front of him is the Appropriations Committee.”

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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.