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New California Online Poker Bill Fails to Resolve Issues

Posted on by John Lathram

California Poker BillA new online poker bill in California sidesteps the suitability debate and fails to resolve other issues that prevented the progress of regulation last year.

The new online poker bill (AB 1677) introduced last week by Assemblyman Reggie Jones-Sawyer has already been described as a Greatest Hits of Failed Attempts compilation by some in the industry. Generally it repeats the mistakes of previous years without offering anything new, and without resolving the biggest issue of them all – “bad actors”.

To be fair, Jones-Sawyer was left with little to work with after precedents introduced by Adam Gray last year. The horseracing industry will not willingly give up its 95% of $60 million bribe, tribal operators will be unhappy with higher taxes, and lawmakers will be unlikely to pass legislation that will be of no benefit to the state or its residents – even if the suitability debate is resolved.

The Internet Poker Consumer Protection Act in a Nutshell

The bones of the Internet Poker Consumer Protection Act are fairly familiar. The bill allows for online poker only in a ring-fenced market for players aged twenty-one years and over. Operators will have to pay $12.5 million for a seven-year license – the cost of which can be written off against tax liabilities. Tax rates are on a sliding scale of 8.847% to 15% depending on the total GGR generated by the industry.

Playing at an unregulated site will be a felony resulting in imprisonment and the forfeiture of assets, while licensed operators will be obliged to report players´ winnings to the Franchise Tax Board. As with previous years, there is no consumer protection for players´ funds – so, if a rogue employee disappears with everybody´s bankrolls, players have no recourse against the operator or the state.

Let´s Not Deal With Suitability Standards

If, in 2012, PokerStars had said Okay – we´ll take a five-year ban for being a bad actor, regulated online poker in California would be alive and well by now – and PokerStars would have just entered the market. Instead the world´s largest online poker site insists it did nothing wrong in the post-UIGEA years and prolongs the agony for proponents of regulation.

Jones-Sawyer could have approached the suitability debate with let´s get this thing cleared up once and for all. Instead he sidesteps the issue by passing the buck to the Gambling Control Commission, who have been given the responsibility to determine what constitutes an eligible entity. It creates a similar scenario to one of Adam Grays´s amendments last year, in which suitability standards were removed from his first bill and placed into a second bill that would have to pass in order to enact the first.

What Could Possibly Go Wrong?

It is unlikely that either coalition will support this bill without knowing whether PokerStars is in or out. The horseracing industry will not support the bill unless it receives an undertaking that any shortfall in its bribe is made good the following year, and smaller operators will not be happy about being hit with higher tax rates if the industry as a whole generates GGR in excess of $350 million.

The likelihood is that GGR will get nowhere near that figure. Using ring-fenced countries with similar populations in Europe as a guide, the market will be able to support a maximum of four operators which will generate $50 million in licensing fees and somewhere between $15 million and $25 million per year in tax revenues. Once the licensing fees are refunded as operator tax credits, there is going to be no money for the horseracing industry for a minimum of two years, and none for the state for a lot longer!

Not a Lot to Get Excited About. Will the Next Bill be Better?

Reggie Jones-Sawyer´s bill may not be the last attempt at regulating online poker in California this year. In previous years there has been as many as five different bills introduced, and the likelihood is that several more legislators will introduce proposals as the year progresses. Hopefully other legislators will have the cojones to tackle some of the unresolved issues and not try to sidestep them in the hope that nobody will notice.

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