Tomorrow – June 15th – the Californian Assembly Appropriations Committee is expected to vote on a “half-cooked” bill to regulate online poker in California.
The Assembly Appropriations Committee is the element within the Californian legislative process that decides which bills go forward from the hundreds of standing committees, budget committees, select committees and joint committees to be heard on the Assembly floor.
The Committee´s role is to discuss the merits of each bill presented to it, make recommendations that would improve the bill, propose amendments where necessary and – once satisfied that the bill is worthy of consideration by the Assembly floor – vote to pass it for a reading.
Tomorrow, Wednesday June 15th, the Committee is expected to discuss the merits and vote on Adam Gray´s “Internet Consumer Protection Act of 2016” – a bill that would regulate online poker in California, despite the bill having several contentious and unresolved issues.
Why is the Bill Still “Half-Cooked”?
Following a series of May meetings with tribal stakeholders, Steve Stallings – Chairman of the California Nations Indian Gaming Association (CNIGA) – said that Assemblyman Gray would have to craft a
fully cooked bill to resolve issues relating to licensing fees, taxes and suitability.
Despite Gray introducing amendments to his bill intending to address these issues, his amendments have failed in their objectives of setting an acceptable licensing fee or tax rate, or appeasing stakeholders opposed to the participation of PokerStars in a regulated Californian market.
Other than removing clauses relating to the resolution of suitability standards by a separate bill, the “Internet Consumer Protection Act of 2016” is no more cooked than it was several months ago; and – as far as offering consumers any protection from theft or fraud goes – it is still soft in the middle.
The Contentious and Unresolved Issues
As far as the stakeholders are concerned, there is major concern over the three issues of fees, taxes and suitability standards. Among last week´s amendments Gray increased the proposed licensing fee from $10 million to $12.5 million and stipulated that operators will no longer be able to offset their first three years tax liabilities against the fee – a move with serious implications for sustainability and liquidity during the market´s formative years.
The sliding scale tax rate of between 8.814% and 15% is still higher than many operators believe is justifiable for a sustainable market. However, some observers are apprehensive that the Appropriations Committee will demand a higher rate still to counter the impact of Adam Gray´s $60 million bribe subsidy to the horseracing industry. The regulated market has been calculated to be worth $300 million in revenues. Consequently only a tax rate higher than 20% will generate any income for the state – a level of taxation that could generate further opposition to the bill.
Finally, the most contentious of the issues relates to suitability standards. Gray´s amendment setting the cutoff date for
bad actors at 31st December 2011 allows PokerStars to apply for a Californian online poker license against the wishes of those concerned about the world´s largest online poker site dominating the market. In an open letter to the Assemblyman last week, a powerful coalition of tribes opposed to PokerStars participation in a regulated Californian market wrote:
In our view, using such a recent date grants a free pass to the most egregious foreign offenders that continued accepting online U.S. bets illegally from offshore tax havens.
Campaign for Player Support Misleading and Misdirected
Unfortunately, over-zealous advocates of regulated online poker have been encouraging players to write to committee members to show their support for the bill. Some mistakenly believe that the “Internet Consumer Protection Act of 2016” has the mechanisms in place to prevent a “Lock Poker” scenario in which an online poker site can disappear overnight with player funds. Unfortunately this is not the case.
There are no safeguards in Adam Gray´s bill to prevent fraud or theft by an online poker site – simply the stipulation that player´s bankrolls must be segregated from the operator´s funds. In theory, an online poker site could steal every cent of a player´s bankroll with the player having no recourse against the operator or any regulatory authority. Furthermore, several measures within the bill are just downright bad:
- The proposals for regulated online poker in California prevent the state from forming compacts with other regulated states – limiting liquidity and the potential for growth.
- The expected high tax rate would result in a colossal level of rake being charged and fewer loyalty rewards and promotions being made available to players.
- If passed, the “Internet Consumer Protection Act of 2016” would immediately make it a felony to play on unregulated poker sites – despite no regulated options available for at least 18 months.
Ultimately it would be good for the progress of regulated online poker in the United States if California was to pass a suitable Act. But not this one. As many commentators on the 2+2 forum have indicated, the players are strongly against the passage of the “Internet Consumer Protection Act of 2016”. Comments such as
no bill is better than this bill and
no regulation >>>> terrible regulation are complimented by
these guys pushing for the government to legislate online poker sure aren´t helping USA players.
Maybe it is time that those supposed to be representing players´ interests actually bothered to find out what the players actually want before asking them to show their support for a