On Sunday night Marco Valerio broke the news that despite California not passing an online poker bill, the Iipay Nation (formally known as the Santa Ysabel Band of Diegueño Indians) of California were planning on launching their own real-money online poker room, perhaps as soon as Monday.
The tribe cited an alleged loophole in the 1988 Indian Gaming Regulatory Act that defines poker as Class II gambling (which without going into great detail Class II gambling means bingo and non-house card games such as poker, as opposed to games like Caribbean Stud or blackjack) thus allowing it to be offered on tribal land.
The Iipays are then making the leap that poker and online poker are interchangeable, which is obviously a highly debatable interpretation, and one gaming attorney Ian Imrich spoke to OnlinePokerReport.com’s Chris Grove at length about in this article.
Some in the poker world (some very smart people at that) see this as a positive or potentially positive development, especially as the chances of an online poker bill passing through the California legislature in 2014 continue to dwindle.
I see it as a potentially very noxious development, and here is why.
The Class II argument Part 1
Granted, if the Iipays have discovered a loophole that would allow for sovereign tribes to offer online poker this would be a major, major development, capable of rewriting online poker laws in this country overnight.
However, this type of interpretation also opens its own can of worms. Starting with who is opening the can.
Under this interpretation of online poker the individual tribes would be in charge of regulation and oversight. What this can lead to is precisely what we see with the small Iipay Nation’s proposed online poker site: Partners that have tarnished reputations:
As Martin Shapiro, AKA pokerxanadu on 2+2 stated:
So, to sum up, a 300-member California Indian tribe, that went bust on their b&m casino earlier this year and defaulted on tens of millions of dollars in related loans from the Apache Indian tribe of AZ, is going operational this week for real-money intrastate online poker despite having no clear legal precedent or permission from the CA State or US Federal governments, using the same software platform as one of the current US-facing offshore poker networks that is operating illegally in the eyes of the US DOJ, working in conjunction with the Kahnawakee Gaming Commission who was at a minimum complicit in the AP/UB superuser scandals, and using a payment processor whose web site could have been written by almost any high school student and currently contains no method for customers to sign up for their ewallet and whose owner has been lately embroiled in a couple of multi-million dollar court judgements against one of his financial processing companies for the Indian gaming industry, which judgements he tried to dodge by filing for bankruptcy but was denied by the court.
What could go wrong?
Without any collaboration, Martin’s summary is nearly identical to my own from my Facebook feed:
Explain to me how a tribe that bankrupted their own casino and owes millions and was forced to close, who is being regulated by the Canadian tribe [Kahnawake] that sat by while the worst cheating in online poker history occurred on their watch, and is using a payment processor whose owner was allegedly involved in a previous processing company that declared bankruptcy owing millions and has now just started anew is a good idea?
If Iipay’s Class II argument is upheld (more on this in a moment) we will basically see a lot of self-regulation not dissimilar from unlicensed online poker in the US from 1998-2011 (and extending even to the present) where you have some perfectly fine upstanding companies, and some not so upstanding companies involved.
In my view, this is not progress. This Faustian deal is simply the poker world willing to accept “legal” online poker by any means and in any form.
The players involved with this endeavor becomes even more troubling the further you dig, as John Mehaffey details in this article.
The Class II argument Part 2
Furthermore, the Class II argument isn’t going to be some quick, open and shut case, as Imrich and Grove detail in the OnlinePokerReport.com article linked above.
A real legal challenge to it would likely mean prolonged court appearances and appeals, and a further fracturing among already tenuous coalitions in California and beyond.
I ask you, how is this good? How is instigating a multiyear court battle (akin to the sports-betting fight in New Jersey) and potentially pitting current allies against one another a positive development for US iPoker?
In my opinion, and as I often tell my kids, there is a right way to do things and a fast (half-assed) way, and most of the time the fast way causes a lot of unforeseen problems and ends up taking even longer than if you just went it did right the first time.
Trying to discover a loophole to get around the failure of an online poker bill passing in California could cause the journey to legal iPoker in California to take even longer than simply continuing on the current path.
What’s the worst that could happen Part 1?
Another argument people are making both privately and publicly is, what’s the worst that could happen?
Their thinking is, either other tribes file injunctions and shut down the Iipay site before it gets started and/or it pushes the conversation forward and perhaps forces lawmakers to take action – which is extremely unlikely in my opinion.
Personally I feel the worst that could happen is a lot worse than many people are considering.
For instance, Sheldon Adelson’s current attack ads are hypothetical in nature, but what happens when a self-regulated small California tribe with Mickey Mouse player and geolocation verification systems in place:
Gets caught with 15 year-olds on the site?
Or has numerous out of state players using VPN’s to play?
Or since they allow for player-to-player transfers, gets caught up in a money laundering sting?
I’m not overly concerned that we’re going to be facing a situation where the site runs off with player funds, or super-use its players; these are extreme long shots. What does concern me is that this type of “rogue” operation helps bolster the anti-online gambling arguments we are already having enough trouble defending against without having to deal with real-world examples of these scenarios.
If the abstract and hypothetical becomes the reality, legalizing online poker (or defeating an online poker ban) becomes a much harder sell. Sure, it could be argued that this could help make the case for serious regulation, but I would ask, can we overcome the damage done by a rogue operator?
What’s the worst that could happen Part 2?
Another potentially unforeseen issue would be state legislatures passing anti-online gambling bills to stop tribes from launching online poker sites in this fashion (using the Class II loophole).
As I mentioned above, current coalitions could be fractured, and not just between tribes in California.
Lawmakers who currently support online poker expansion as a way to increase revenue for the state could quickly become opponents if online poker is suddenly considered Class II gambling, as this would mean a lack of new revenue for the state as Class II gambling taxes are already set and very favorable to the tribes:
The laws surrounding the taxability of tribes, tribal members, and related enterprises are complex. Tribes and their members are not subject to several types of taxation due to the lack of authority granted to states for this purpose under federal law. Tribal members living on reservations, for example, are not subject to state income tax, and tribal casinos do not pay the corporate income tax. Regarding the sales and use tax, tribes are generally expected to collect taxes on purchases made by nontribal members for consumption or use off of reservations.
I’ll leave you with this thought: The Class II argument is complex on a number of different levels, and the Pandora’s box the Iipays are fiddling with is one we are better to leave alone at this point in time.
It could all be a bluff (and I think it is)
There is also the not so small chance that this is little more than posturing by the Iipays.
The Iipays could be bluffing about launching an online poker room in an effort to make sure any online poker bill that is passed in California has some amount of revenue sharing for smaller tribes, specifically tribes with little or no gaming.
Under the current revenue sharing model in California these tribes (non-gaming and tribes with less than 350 gaming machines) receive a $1.1 million yearly stipend from the larger gaming tribes, and they are likely looking for a similar revenue sharing system with the tribes that are involved in online gambling.
Revenue sharing is something Morongo Chairman Robert Martin addressed when I spoke to him after the sale of PokerStars to Amaya Gaming when he said the Morongos wanted revenue sharing to be included in an online poker bill – where the proposed $5 million licensing fee is beyond most smaller tribes.
This development could simply be a nudge to get the legislature to act and to make sure that smaller tribes are involved in online poker through a new revenue sharing deal.
Strengthening the possibility that the entire thing is a bluff are recent tweets that have indicated the Iipay online poker site (privatetable.com) will not be launching for real-money on Monday as was first announced, but will be announcing a launch date sometime next week… So stay tuned for an announcement of an announcement where we will announce when we might be launching.
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