THE FIGHT: Now Batting: California

Poker is set for another huge leap forward

It’s been four months since New Jersey legalized online gaming, joining Nevada and Delaware as states to permit some form of online gaming. In that time not a single other state has stepped up to the plate, but several started taking some serious warm-up cuts in the on-deck circle last month.

Now Batting: CaliforniaTops among them is the MVP of the nation, the cleanup hitter for online poker liquidity — the state of California. Efforts to regulate online poker in California long have been stymied by warring factions within the state’s gaming industry. The interests of the tracks, the card clubs, the lottery and the tribes aren’t exactly aligned. Each has been fighting fiercely to protect what it perceives as its piece of the gaming turf.

The tribes have been especially problematic. They have a monopoly on Class III gaming in California — essentially, slots and table games — and don’t relish the idea of having to compete online against other industry players. The tribes have thrown up several obstacles to online gaming over the last few years, digging in to fiercely protect their monopoly.

This month the tribes reversed course and accepted that they need to get ahead of the issue rather than wind up behind it. A tribal governance council released a letter for distribution to all tribal leaders that included a draft of proposed intrastate online poker legislation.

“Fundamentally, we felt it was important for elected leaders of tribal governments to come together and identify both challenges and solutions presented by Internet poker,” the letter reads. “Indian County simply cannot afford to get this policy wrong.”

The legislation proposed by the tribal leaders hasn’t been introduced in the California state legislature yet and is likely to be revised based on input from other tribes before that happens. Still, it represents the first unified proposal put forth by the tribes to legalize any form of online gaming. The tribes seem to believe that they can protect their California monopoly on brick-and-mortar Class III gaming by restricting the bill to online poker and requiring the legislature to reaffirm the tribal monopoly on the other Class III games.

It’s a crafty strategy by the tribes. They don’t have a monopoly on poker as it is right now. Tribal poker rooms at remote tribal casinos pale in comparison to the massive poker-only card barns players can find in places like Los Angeles and the Bay Area. In effect, the tribes aren’t giving up much of anything by acquiescing to an online poker-only bill. What they would retain — a monopoly on slots and table games — is infinitely more valuable.

Still, tribal acquiescence has plenty of value to the state-licensed card rooms that hope to cash in on online poker. The tribes have enough political leverage to have successfully blocked previous efforts to legalize any form of online gaming in California. The state is being closely watched by everyone in the industry for one important reason: its population of 38 million residents could provide instant liquidity for the rest of the nation by virtue of player-pooling agreements among states that legalize online poker.

There’s bad news for California fans of PokerStars, though. The tribal proposal includes “bad actor” language that would prohibit sites like PokerStars — sites that took bets in the U.S. after 2006 — from being licensed.

Overall it looks less and less likely that PokerStars will have any part of Online Poker 2.0 in the United States. More and more states are including bad actor language in online gaming legislative proposals. Even if the language is ultimately stricken from the laws as enacted, it’s going to be an uphill battle for the market leader.

Things are even going wrong in states that don’t have bad actor language, like New Jersey. PokerStars’ parent company, The Rational Group, had been in contract since December to purchase the Atlantic Club Casino in New Jersey. The company intended to use the Atlantic Club to secure an online gaming license in New Jersey and re-establish a beachhead in the U.S. market.

That deal collapsed in late April when the casino’s current owner, Colony Capital LLC, exercised a termination provision and called everything off. The two sides wound up in court, with Rational Group alleging that the termination was improper and invalid. A New Jersey judge made a preliminary ruling in favor of Colony, basically upholding the termination as valid and putting the final nail in the coffin of the proposed deal.

Things are no more hopeful for PokerStars in Massachusetts, where legislation continues to move in fits and starts. In April, the state House of Representatives included an online poker proposal in a state budget bill, but the proposal was removed before the bill was finalized. It recently reappeared in a state Senate budget bill — with bad actor language included.

Massachusetts has been wrestling with gambling expansion proposals — both brick-and-mortar and online — for several months now. Even if the Senate version of the budget bill is passed, the bill will have to be reconciled with the House version, which does not have the online poker proposal. Nobody’s sure what the chances of success would be if things get that stage.

All of these machinations and wranglings would be irrelevant if the federal government would act. Unfortunately, that appears less and less likely with each passing day. A spokesman for Rep. Peter King (R-NY) told in late April that King “intends to introduce [federal online gambling legislation] shortly.” King believes that the window to get a federal bill in place is closing. Once too many states enact online gaming laws, the genie will be out of the bottle.

To date, however, King’s legislation has not materialized. Even if it does, and if it somehow makes it through the House, the bill would face a tough battle in the Senate (where almost nothing gets accomplished these days). Senate Majority Leader Harry Reid (D-NV) tried to get an online poker bill passed in 2010 and 2012, but neither bill was ever even introduced.

No, THE FIGHT to legalize online poker is likely to be a state-by-state battle at this point. Let’s all hope that California smashes one out of the park.

July 2013