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Precedents will Hinder Future Online Poker Proposals in California

Posted on by John Lathram

California Poker BillOnline poker legislation in California will not happen in 2016, and possibly not for many more years due to the precedents introduced this year by Adam Gray.

The failure to pass legislation regulating online poker in California for the ninth year in a row has largely been attributed to disagreements over PokerStars´ involvement in a regulated market. However, even before AB 2863 was amended to exclude the world´s largest online poker site, Adam Gray´s “Internet Consumer Protection Act” did not have the support it needed to pass through both chambers of the Californian legislature.

The massive bribe to the horseracing industry, the low tax rate and the lack of consumer protection were issues conveniently forgotten by those claiming to support the best interests of California and its online poker players. Whereas the lack of consumer protection can be addressed in a future bill, the horseracing subsidy and low tax rate are precedents that will likely hinder future proposals for regulated online poker in California.

The Problem with the Precedents

The problem with the horseracing subsidy and low tax rate is that the state will end up with practically no revenue from the regulation of online poker in California. Based on what has been witnessed in Nevada and New Jersey, the online poker market in California is estimated to be worth around $200 million. The proposed 10% tax rate would generate $20 million, of which the horseracing industry would take $17 million.

Few members of the Senate are going to throw their support behind an act of legislation that only generates $3 million for the state, so legislators will either have to reduce the value of the subsidy to the horseracing industry or increase the tax rate substantially. The horseracing industry – initially promised up to $60 million a year – and the tribes who fought a long-running battle to reduce the tax rate, are not going to be happy with either suggestion.

The Lack of Shared Liquidity is Also an Issue

The recently-deceased proposals to regulate online poker in California also failed to take the future of the industry into account. As has been witnessed in European ring-fenced markets, going it alone results in a decline in traffic and a lack of liquidity. This is not only bad for players, stakeholders and the state, but – if California is used as a model for other states proposing the regulation of online poker – bad for the future of online poker in the United States as well.

Individual stakeholders are also likely to suffer from the lack of shared liquidity. It has been suggested that the regulated market in California could support as many as ten operators (Gray was banking on ten sets of licensing fees to prop up the Gambling Control Commission). However, as has been seen in France (population 66 million), Italy (population 59 million) and Spain (population 46 million), there are only enough players to support a small handful of operators. Some operators are undoubtedly going to go bust – testing whatever consumer protection measures (if any) are written into the next set of online poker proposals.

Then there is the Credibility Crisis

The reaction to the last minute amendment of the “Internet Consumer Protection Act” also raised questions over the credibility of several key players. Adam Gray basically capitulated to his father-in-law, the Poker Players Alliance showed their true colors as PokerStars shills, and the alliance supporting PokerStars did not have the cojones to stand up to their paymaster. If there is going to be a tenth attempt to regulate online poker in California, you have to wonder where a credible advocate is going to come from.

A bill to regulate online poker in California could have passed this year. All it needed was for PokerStars to say scrap the tainted assets clause and we´ll take the five-year ban. It would have been a bad bill that failed to generate much in the way of tax revenue, that failed to protect consumers and failed to consider the future of the industry, but it would have been a bill. Now, due to the precedents that were introduced this year, the likelihood is it could be many more years before there is any form of regulated online poker in California.

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