THE FIGHT: California Tribes Coming Around

CaliforniaWith the Rational Group’s fight against Colony Capital dominating the headlines in the early part of the week, and Lock Poker’s downward spiral dominating the headlines late in the week, it was a relatively quiet five days for THE FIGHT to legalize and regulate online poker. The biggest story of the week came out of California.

You may remember that last week, Victor Rocha, the editor of Pechanga.net released a few bullet points summarizing revisions to California’s languishing online poker bill that he said had the support of the tribes. The revisions include allowing only California card clubs and tribes to operate online poker sites and setting the tax rate at 10% of gross gaming revenue.

This week Rocha’s teasing was confirmed by the Press-Enterprise, a daily newspaper published in Riverside, California near the heart of Southern California’s tribal gaming concerns. The Press-Enterprise said that representatives from California tribes with casinos were trying to craft a proposal to legalize online poker with other factions that have a horse in the race.

A lobbyist for one of the tribes, Barry Brokaw, was quoted by the Press-Enterprise as saying, “A lot of those tribes have been working together and we’ve made strides. I think there is a possibility that something may develop pretty soon, and we can have some serious discussions with lawmakers in the building and see what we can come up with.”

As the only group capable of offering Class III gaming in California (which includes slot machines, table games and other house-banked games), the tribes wield outsized influence when it comes to gaming legislative matters. Their power is blunted somewhat on poker-only issues, where market share is concentrated in a few LA-area and Bay-area state-sanctioned card clubs like the Commerce Casino, the Bicycle Casino and Bay 101 Casino.

Many of the California tribes have long feared that any form of online gaming would cut into the bottom line of their brick-and-mortar operations. As other states have legalized various forms of online gaming, however, the tribes have begun to sing a different tune. It’s entirely possible that the tribes have tried to delay as long as possible and now, sensing a wave of momentum about to crash over their heads, want to make sure they float to the top of that wave rather than get drowned by it.

It helps that the proposals currently making the rounds are poker-only proposals. Historically, poker is not a major money-maker for brick-and-mortar casinos. The tribes’ fears of damage to their bottom line isn’t as realistic if only poker is considered for legalization.

Things are less certain for Legal Poker in New Jersey, where The Rational Group, parent company of PokerStars and Full Tilt Poker, filed suit this week to enforce the sale of the Atlantic Club Casino by Colony Capital LLC. Colony sent Rational a surprise notice terminating the agreement two weeks ago, citing Rational’s failure to comply with a contractual deadline to receive regulatory approval for the sale.

Rational’s lawsuit contends that Colony acted in bad faith in the month leading up to the termination notice and that the termination was illegal under the New Jersey Casino Control Act. The company was granted a temporary restraining order preventing Colony from shopping the casino to other purchasers and is seeking to convert that TRO to a permanent restraining order, pending resolution of the case. Arguments on that motion will be heard next Friday.

New Jersey is betting hard on online gaming, both as a salvation measure for Atlantic City and to plug some holes in the state’s budget. Many legislators have long wanted Rational Group to be a part of that bet, but the company has run into numerous roadblocks from entrenched brick-and-mortar casino interests.

It’s unclear why Colony had the sudden change of heart – apart from the obvious fact that the casino is likely worth a bit more with online gambling now a reality than it was in December when the purchase agreement was signed. If Rational gets shut out of New Jersey, the industry will likely be slower to develop than it would if Rational is involved, which certainly won’t help THE FIGHT’s chances in other states.

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Kevin McGrady

Legislative and Politics Beat Writer: Kevin McGrady practiced corporate law in New York City for eight years before moving to Las Vegas in 2008 to join the gaming industry. Kevin is a graduate of New York University and Columbia University School of Law.
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