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Amendments to California iPoker Bill No Benefit to Players

Posted on by John Lathram

California Poker BillThe latest round of amendments to the California iPoker bill fail to address player concerns and will likely result in higher rake and lower player rewards.

Several rumored amendments to Adam Gray´s “Internet Consumer Protection Act of 2016” were added to the text of AB 2863 yesterday – confirming fears that the author of the bill is more concerned about keeping stakeholders happy than addressing player concerns and offering genuine protection against fraud and theft.

In addition to the failure to address player concerns, Gray has suggested a fee and taxation structure that will likely result in higher rake and lower player rewards, and that will remove millions of dollars from the online poker ecosystem. Ultimately, the California online poker bill still remains “terrible” for players.

Date Set for Bad Actor Cutoff

One of the key amendments to the bill concerns what constitutes a bad actor. Previously this issue had been side-stepped by the insertion of a passage that delayed the enactment of the Internet Consumer Protection Bill until “criteria are established by statute addressing involvement in Internet betting prior to the state´s authorization of Internet poker”.

That passage has now been removed and replaced with a clause prohibiting operators who offered Internet gambling to residents of the United States after December 31, 2011. The date is significant inasmuch as the deadline is now later than the last date that PokerStars provided an online poker service in the United States.

Bad Actor “Compromise” Unlikely to Resolve Suitability Issues

The coalition of tribes opposed to the participation of PokerStars will likely be unhappy with this “compromise”. Representatives of the Pechanga Band of Luiseño Mission Indians and the Agua Caliente Band of Cahuilla Indians have previously said that PokerStars has an unfair market advantage due to continuing to provide a service after the passage of UIGEA in 2006.

Although a clause in §19990.404 stipulates that the California Gambling Control Commission may, at its discretion, “impose limitations and conditions upon the issuance of the service provider license”, and a new clause (§19990.526) prohibits any operator from marketing to an existing customer database, the possibility that PokerStars entry into a regulated market could be delayed as in New Jersey is unlikely to appease stakeholders afraid of the competition.

License Fees No Longer Offset Against Taxes

Further key amendments concern the initial license fee that will be charged to operators ($12.5 million) and the sliding scale of tax rates that will be applied to Gross Gaming Revenues (8.814% to 15%). Although these fees and taxes were within the bands generally anticipated, one key change to the previous version of the bill will have significant implications for online poker players.

Previously, the amount paid for a license fee could be offset against tax liabilities over the next 36 months. This meant that if an operator paid $12.5 million for its license and had a tax liability of less than $12.5 million, no taxes would be due and the money would remain within the operating company to be used for marketing, promotions and other player rewards.

As operators can no longer offset their license fees against their tax liabilities, the money available for marketing promotions and other player rewards will no longer be available. It is also highly likely that operators will have to charge higher levels of rake and tournament entry fees than they might otherwise have had to – removing millions of dollars from the online poker ecosystem.

Still No Protection in Internet Consumer Protection Act

The lack of protection in the Internet Consumer Protection Act remains a paradox. Although the bill stipulates that player deposits must be kept separate from service providers´ funds (§19990.506 (j)), there is no mention within the bill on how player deposits will be safeguarded. Consequently the possibility exists that an online poker operator could disappear with players´ deposits overnight and the players have no recourse against the operator or any regulatory body.

Unfortunately this issue has been largely overlooked due to advocates of regulated online poker implying that the passage of the Internet Consumer Protection Act would provide a safe environment for consumers. Just last month, John Pappas – the Executive Director of the Poker Players Alliance – wrote an Op-Ed for the Sacramento Bee stating that “Assembly Bill 2863 will protect Californian players”. Much of the rest of his article was also “full of holes”.

Online Poker Felony Issue Still Unresolved

One of the biggest concerns expressed by players is that it will become a felony to play on an unregulated poker site from the date on which the Internet Consumer Protection Act is passed. This is despite the likelihood that it will take eighteen months or more for the mechanisms to be put in place to facilitate regulated online poker in California.

As unregulated sites are expected to withdraw from the Californian market when the bill is passed, there will be no options – legal or otherwise – for Californians to play online poker. This issue has raised more comment and more criticism than any other element of the Internet Consumer Protection Act, yet it has been totally ignored by Adam Gray along with the failure to allow for interstate compacts.

As long as the stakeholders (and the horseracing industry) are happy … …

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