Online poker likely not in the cards for California gamblers

Will California Ever Get Its Act Together And Legalize Online Poker?

This article may be outdated. Get the latest news on California here.

Efforts to legalize online poker and casino gambling have been shoved to the side as sports betting fever sweeps through legislatures across the nation.

California is no exception. The most populous state in the US has all but given up on online poker legislation, shifting whatever interest it has for expanded gambling toward sports betting.

The Golden State remains on the iPoker radar, though, and rightly so.

The unique opportunity California presents

California’s population of roughly 40 million residents exceeds that of many nations, including Canada. And the state’s financial prosperity further enhances its massive population base. If it was a country, California’s economy of nearly $3 trillion would rank fifth in the world between Germany and the UK.

So, how big of an opportunity does the state present?

H2 Gambling Capital estimates Californians send some $200 million to offshore casinos and poker sites annually, plus a similar amount to offshore sportsbooks. That means they’re wagering billions of dollars via unregulated operators every year, putting some $400 million in potential revenue out of play.

That’s money California casinos and cardrooms are missing out on, and offshore sites don’t remit state taxes either. The total number would likely climb much higher if state lawmakers legalized online gambling.

Legal gambling markets > illegal markets

Before internet gambling legalization in New Jersey, H2 estimated the state’s annual black market for gambling at $86 million.

  • Sports: $38 million
  • Casino: $39 million
  • Poker: $4 million
  • Bingo, etc.: $5 million

Less than six years into existence, NJ online gambling is on pace to reach $525 million in 2019 revenue. And H2’s data indicates that regulated operations have whittled the black market down under $50 million. The state’s legal market in 2019 is six times as large as the estimated size of the illegal one in 2012.

If California followed a similar path, its legal online poker industry could be worth as much as $100 million per year.

More evidence can be found in 2005 and 2006 estimates, a period in which online gambling was largely unregulated in the US. During those fruitful years, H2 estimated the ceiling for California online poker revenue at $313 million annually.

That seems overly optimistic for even the largest US market, but $100 million wouldn’t be out of the question.

Secondary economic benefits

In addition to direct tax revenue, California could generate hundreds of millions of dollars through up-front licensing fees. Other economic opportunities include:

  • Job creation
  • Ancillary impact from marketing and advertising
  • Bolstering existing land-based gambling

To the underlying point, a June 2017 white paper from iDEA Growth estimated online casino’s total economic impact in New Jersey was nearly $1 billion — almost double the direct revenue the state received up to that time.

California’s second Gold Rush never happened

Before the PASPA decision — and before Pennsylvania even considered online gambling — California was a leading candidate to legalize online poker. Those decadelong efforts all failed.

Year after year, California lawmakers introduce legislation, hold hearings, and work to bring the state’s gambling stakeholders together. Progress is made. Expectations grow. But at the end of the day, the state consistently drops out well short of the finish line.

Online poker was billed as a second gold rush of sorts, and it was to some extent.

The actual 1800s-era rush made only a few miners rich, while mercantile and tavern businesses reaped the broadest rewards. The only groups that saw their bank accounts swell during the online poker battles in California were lawyers and lobbyists representing the factions fighting on both sides of the issue. The state has yet to make a dime from online gambling.

In hindsight, California was never close to legalizing online poker at all. If online gambling is Captain Ahab, California is its white whale.

Is California simply too big to succeed?

The size and prosperity of California’s gambling industry works against online gambling. It has:

  • Tribal casinos, large and small, that generate revenue of $9 billion annually.
  • Licensed cardrooms are overseen by two separate branches of government.
  • A racing industry closely aligned with the state’s politically powerful unions.
  • A state lottery.

These varied interests have their own visions of how a California online poker industry should look, and each has contributed to the longstanding tensions at the negotiating table. As such, it’s not surprising to see the efforts come up short.

Michigan is having similar difficulties navigating a landscape that includes a lottery, three commercial casinos and two dozen tribal casinos. Multiply that by several factors, and you have the mess that is California.

As former regulator Richard Schuetz recently explained on Twitter, the money California could make from online poker is simply not the worth the hassle for the state or its many potential online poker stakeholders unless the opportunity is better than perfect.

Per Schuetz:

“People don’t understand how much legal gambling takes place in CA and how big the state is. During the iPoker debates, they would promise millions in tax revenues. It was what we called ‘budget dust.'”

- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
Privacy Policy