California Online Poker Bill Amendments

Proposed Amendments Bring California Online Poker Bill Into Focus, But Do Changes Represent Collective Compromise?

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A series of proposed amendments to California’s current online poker initiative offer greater definition for AB 2863 around key issues such as tax rate and the so-called “bad actor” issue.

The amendments were first posted by California gaming attorney David Fried.

Amendments to AB 2863 were expected, as many significant provisions were effectively left TBD by the introduced version of the bill. The expectation is that a fully-formed bill will head for an Assembly hearing sometime in June.

These amendments have yet to be voted on or placed into the bill, per a source close to the process.

View a text-searchable version of the amendments here.

The bad actor clause

The “bad actor” bright-line in the amendments is set at December 31, 2011. To the best of my knowledge, that’s the first time that date has been employed for such a purpose in any online gambling legislation.

Anyone who “accepted a bet or wager on any form of Internet gambling, or engaged in a transaction relating to those bets or wagers, from a person located in the United States” after that date is presumed unsuitable for licensure.

The bad actor clause is also triggered if:

A member of the board of directors or the ultimate parent company of, the chief executive officer of, or a shareholder holding more than 10 percent of the shares of, the applicant, or its corporate or marketing affiliate, was directly involved in an executive decision-making capacity in facilitating a wager or financial transaction relating to Internet gambling in the United States and that person remains affiliated with the applicant at the time of the application.

Interestingly, that second condition does not appear to have a date threshold attached to it.

Limitations on customer lists

A new section would apparently prevent service providers (e.g., platform providers like PokerStars) from using any existing customer lists for marketing purposes:

19990.526. (a) Until January 1, 2019, a licensed service provider shall not, for any purpose, use any list of customers or database containing customer information that was accrued or created prior to the effective date of the regulations described in subdivision (a) of Section 19990.401.

(b) Pursuant to subdivision (b) of Section 19990.303, a violation of subdivision (a) is a felony, punishable pursuant to subdivision (h) of Section 1170 of the Penal Code.

Tax and license

The license fee for offering online poker in California has been set at $12.5mm. It further appears that said fee is no longer a deposit against future taxes owed, but simply a one-time payment.

The amendments also set a tax rate. Instead of a flat rate, we have a formula conditioned on the total revenues for the industry:

(2) The rate percent assessed per year on a licensed operator pursuant to this subdivision shall be based upon the annual cumulative total of gross gaming revenues for all licensed operators during the calendar year as follows:

(A) If annual gross gaming revenues are less than or equal to one hundred fifty million dollars ($150,000,000), the rate percent is 8.847 percent.

(B) If annual gross gaming revenues are more than one hundred fifty million dollars (150,000,000) and less than or equal to two hundred fifty million dollars ($250,000,000), the rate percent is 10 percent.

(C) If annual gross gaming revenues are more than two hundred fifty million dollars ($250,000,000) and less than or equal to three hundred fifty million dollars ($350,000,000), the rate percent is 12.5 percent.

(D) If annual gross gaming revenues are more than three hundred fifty million dollars ($350,000,000), the rate percent is 15 percent.

For some context, here’s our analysis of the likely annual revenue for California’s online poker market.

Emphasis on poker-only

The amendments insert additional language re-emphasizing that poker, and only poker, is meant to be authorized by the bill: “This chapter shall only authorize poker games to be played via the Internet. No other game may be played via the Internet pursuant to this chapter.”

Full amendment text 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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