The Road to Online Poker Legalization in California
Once the push to legalize online poker in the United States began in late 2011, California has been eyed as a primary stake holder in the industry. Lawmakers have been unsuccessful so far in their attempt to legalize the popular card game. However, developments in 2014 has many hopeful soon the Golden State will enter the online poker market.
RIP Online Poker California in 2014. Will Resurrection Come in 2015?
Numerous analysts believed 2014 would be the year for online poker legalization in California.
The most significant development in was the consensus among 13 California Indian tribes. The agreement included the most successful gaming operators in the state.
This group comprises less than 1/3 of the state’s Indian nations but is perceived to hold the majority of the power when it comes to Tribal gaming interests. These groups had long been opposed or indifferent to online poker and this was a monumental step forward for both the tribes and the state’s chances of passing online poker in the future.
- Only acknowledge legalization of poker online, not slots or other table games
- Mention player funds will need to be held in segregated accounts
- Require technology to verify player age and location
- Contain a bad actor clause preventing sites post-UIGEA from participating in CA market
Unfortunately a compromise between lawmakers and tribal interests could not be reached. Both bills are currently shelved.
The good news is that a new champion for online poker has stepped forward. Assemblyman Mike Gatto (D-Glendale) filed AB9 in December 2014 and has become the new face for online poker legalization in California.
What is AB9 and How Does It Differ from Previous Bills?
AB9, the Internet Poker Consumer Protection Act of 2015, legalizes only internet poker in California. It holds similarities to AB 2291 – the bad actor clause has been retained and language was added to prevent companies from operating in the state if they have purchased assets from “bad actors.” A company would not be allowed to offer online poker if they purchased assets of a company that took bets following the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA), such as Amaya. Another change is this bill makes it an option to register for an online poker account at a live card room or Tribal casino.
What Hurdles Remain for Online Poker in California?
Two key issues need to be resolved before a bill will come to a vote in the state. The first, and most important, is the matter of the bad actor clause. Part of the reason a bill failed to come to a vote in 2014 is the clause preventing companies like PokerStars from entering a legal California market.
The Morongo Band of Mission Indians and three of the state’s card rooms have entered into an agreement with PokerStars to have the company serve as their service provider once California passes legislation. The bad actor clause would prevent this from happening.
Another issue revolves around the participation of horse racing tracks in the legal marketplace. Under the bills submitted in 2014, horse-racing tracks would not be permitted to operate online poker rooms. Some horse racing insiders have communicated that if a resolution is not reached, they could also attempt to tie up legislation in the courts.
The Federal Wire Act, on the other hand, is not a hurdle to cross. Many believed it would make online poker illegal because bets would cross state lines via electronic means. A 2011 Memo from the Department of Justice (DOJ) clarified the matter: “Interstate transmissions of wire communications that do not relate to a “sporting event or contest” fall outside the reach of the Wire Act.”
Why is the UIGEA Such a Big Deal?
The UIGEA was passed in 2006 as a way to prohibit U.S. banks from processing transactions from illegal gambling businesses. At the time of its passage, there were no legal online poker sites operating within U.S. borders.
PokerStars, Absolute Poker and Full Tilt Poker continued operating after the passage of the UIGEA. From 2007 through 2011, the DOJ investigated the sites and looked for instances of violation. The DOJ indicted those sites on April 15, 2011, also known as Black Friday.
As part of the indictment, the DOJ seized the US web addresses connected with those sites, causing Full Tilt Poker and PokerStars to pull out of the US immediately, and Absolute Poker some time later.
Should California legalize online poker, the UIGEA would no longer apply to any businesses that secure a license. Online poker sites in New Jersey, Nevada and Delaware all accept payments from U.S. banks without any interruption.
Legalization is the key. Once online poker is legalized and sites are licensed, they are no longer subject to the UIGEA.
Will PokerStars and Other Sites that Violated the UIGEA Be Licensed?
There is a hot debate between lawmakers about this. Because of the “bad actor” clause, all online poker sites participating after 2006 are banned from reentering the U.S. market including PokerStars.
However, the Morongo Tribe along with the Bicycle Casino, Hawaiian Gardens Casino and Commerce Casino has formed a partnership with PokerStars and are lobbying to have the company included in the legal market.
PokerStars and its parent company Rational Group were recently sold to Amaya, Inc. The new company is currently working with New Jersey to have PokerStars licensed and is expected to succeed.
When a new bill is introduced later this year, the inclusion of a bad actor clause and the terms of the clause will go a long way in determining whether PokerStars or another post-UIGEA site will ever become licensed in the state.
Does Legalization of Online Poker Really Matter?
Legalization is needed to protect players. While sounding cliché, the Black Friday saga proved what could happen when sites are not legalized. Full Tilt Poker was proven insolvent and had only $6 million of $150 million of funds due to depositors. Full Tilt players received their bankrolls only after PokerStars purchased the company as part of their deal with the DOJ. Absolute Poker and UltimateBet filed for bankruptcy and players have never been repaid.
When online poker is legalized, sites will be required to go through a licensing process to offer games in the state. This requires a full investigation by the state’s licensing body, much in the same form as the state’s card rooms. Indian tribal sites would fall under tribal government jurisdiction and IGRA, but must also be licensed.
Licensed online card rooms will be required to segregate funds in accounts separate from other casino operations. This keeps player funds safe and available whenever a withdrawal is requested.
Finally, sites will be required to verify the identity and location of every player on their network. Players must be at least 21 years of age and located inside California in order to play. Users will be verified based on legal documents provided and through geolocation software. If a player cannot be verified, they will not play.
What Online Poker Sites Will Open after the Bill is Passed?
Legalization is just the first step. Once a bill is finalized and passed, sites must then file for licenses and begin the development process. Below is a short list of sites you can expect to take advantage of a legal California marketplace.
888 Holdings has been in business since 1997. They have long been observed as one of the top online casino operators in the world, winning TotallyGaming’s Best Online Casino of the Year Award six times.
Following the passage of the UIGEA, 888 pulled out of the U.S. market. This allowed them to reenter the market in Nevada, New Jersey and Delaware without any issues. 888 has been busy both as a provider and as an operator. They serve as the backend for WSOP.com in both Nevada and New Jersey and are the software provider for the Delaware Lottery’s poker network.
888’s versatility makes it a prime candidate for expansion into California. The AAPN seems an ideal fit for tribal interests as it would give them a true network and an advantage over individual card rooms.
WSOP.com (World Series of Poker online) is operated by Caesars Interactive Entertainment and is the number-one legal poker provide in the U.S. Originally opened in 2009 in the United Kingdom, it started offering real money gaming in Nevada and New Jersey in 2013 once poker online was made legal in these states.
Caesars only operates one casino in California, Harrah’s Resort Southern California. Despite the limited casino prescience, there is little doubt that they will attempt to acquire a license once the state legalizes the game.
PartyPoker is one of the oldest brands in online gaming. First established in the Caribbean in 1997, the site first launched PartyPoker.com in 2001 and quickly became one of the most popular online poker sites in the world.
Following the passage of the UIGEA, PartyPoker decided to leave the US market. While causing its stock prices to tumble at the time, the long-term value became evident when a legal US market emerged.
PartyPoker and Bwin merged in March 2011 to form bwin.Party Digital Entertainment. The company reentered the market in November 2013 after launching BorgataPoker.com and PartyPoker NJ.
Due to PartyPoker’s affiliation with the World Poker Tour, it could prove a perfect fit for San Jose’s Bay 101 Casino or Sacramento’s Thunder Valley Casino. Both host WPT events annually.
PokerStars will be at the center of any future discussion revolving around online poker in California. The company began operations in September of 2011 as a play-money poker site and expanded to real money play in December 2011.
PokerStars became infamous following the Black Friday indictments and subsequent evidence that the company knowingly violated the UIGEA. They eventually settled with the DOJ for $731. As part of the deal, they purchased Full Tilt Poker and agreed to repay former Full Tilt customers.
The bad actor clauses in SB 1366 and AB 2291 specifically banned companies such as PokerStars because they took bets in the U.S. after December 31, 2011. The clause would also prohibit any company from operating in the state that owned tainted assets.
Amaya, Inc is now the owner of PokerStars after completing their purchase of the Rational Group on August 1, 2014. Amaya is already licensed in the state of New Jersey and is working with the state to license PokerStars. Should Amaya receive approval to operate PokerStars in New Jersey, this could potentially soften relations with lawmakers in California.
At present, the chances of PokerStars operating in California are about 50-50 but could change depending on what lawmakers can negotiate in the upcoming months.