Capitol Alert

California gambling interests face off over future of Internet poker

Online poker, seen being played in Las Vegas in 2011, is the focus of a long-running political battle in California and the nation. A Las Vegas casino baron hopes to have it outlawed nationwide, while a bill to legalize it in California has advanced further than it has in years.
Online poker, seen being played in Las Vegas in 2011, is the focus of a long-running political battle in California and the nation. A Las Vegas casino baron hopes to have it outlawed nationwide, while a bill to legalize it in California has advanced further than it has in years. Associated Press file

Is this the year California finally legalizes Internet poker? It’s a long-shot bet.

The issue has been circling the Capitol for more than seven years, and disagreement among the state’s major gambling interests – Indian tribes, card rooms, horse tracks – over who should be permitted to participate has prevented any deal so far.

Supporters were buoyed this month when an Internet poker bill passed out of committee for the first time since 2008, but it still has a long way to go. AB 431, a shell bill meant to keep the process moving, contains temporary language that will be amended if a satisfactory proposal is negotiated this summer.

Given the intense divisions that still exist over two major issues – whether horse tracks will be able to offer Internet poker, and whether to prohibit gambling sites that operated illegally in the U.S. before a federal crackdown in 2011 – most experts are not expecting agreement any time soon.

“There won’t be a bill until all of the lobby money is spent,” former state Sen. Rod Wright, who oversaw several failed attempts to legalize Internet poker as chair of the Senate Governmental Organization Committee, said at a conference last week hosted by Capitol Weekly.

While the big players in California’s gambling industry generally support legalization, they are fighting over how to do it.

A partnership led by the Morongo Band of Mission Indians near Banning and the San Manuel Band of Mission Indians near San Bernardino, which also includes three major Southern California card clubs and the website PokerStars, is pushing hard to pass legislation this year. The growth of social gambling on mobile phones is a looming threat to their brick-and-mortar operations, and they want a piece of the digital action.

Sooner is better than later, they argue, noting that Las Vegas casino magnate Sheldon Adelson has been lobbying for a federal Internet poker ban that could shut the door before the state strikes a deal.

“The tribe is smart enough to know that the world is changing,” said Matt Cullen, CEO of San Manuel Digital. “This is a business opportunity for the tribe to reach the entirety of California.”

Another bloc of tribes, however, is making demands. The group, which includes the Pechanga Band of Luiseño Indians near Temecula and the Agua Caliente Band of Cahuilla Indians in the Coachella Valley, refuses to consider legislation that allows participation by the PokerStars website, which has had trouble with the law.

Now owned by the Canadian gambling company Amaya, PokerStars is the largest Internet poker site in the world. But in 2011, it was one of three major U.S. operators whose founders were indicted by the Department of Justice on charges of circumventing a federal ban on Internet gambling. The case was settled the next year, when PokerStars acquired one of its competitors and paid a fine of $731 million.

The tribes say PokerStars should not be rewarded for its bad behavior, especially because the company would have unfair advantage should it be allowed back into California.

“They profited from that illegal gaming,” said Jeff Grubbe, chairman of the Agua Caliente Band. “They built a database (of players) from that illegal gaming.”

PokerStars maintains that it did nothing wrong. The federal charges were settled with no admission of guilt by the company, allowing PokerStars to still pursue licenses in the U.S., which it is doing in New Jersey, one of three states that has legalized Internet poker.

“We always took the position that poker was not covered” by the 2006 law that outlawed Internet gambling, spokesman Eric Hollreiser said, because it is a game of skill, rather than a game of chance.

He believes the tribes not partnered with PokerStars are worried about the competition.

The Agua Caliente Band and tribes in their camp say they would rather have “no bill than a bad bill” that would give outside interests too much control in the development of online gambling in California.

“It’s not really poker we’re worried about,” Grubbe said. “It’s opening that door and what’s it going to mean for online gaming 10, 15 years from now. Once they get their foot in the door, they’re going to push it and push it.”

Card rooms, which have historically offered poker, are expected to participate in any online expansion, but they have mostly stayed out of the legislative fight.

The majority of card clubs have 10 tables or fewer, so “most of these guys are focused on day-to-day operations,” California Gaming Association President Kyle Kirkland said. His organization, a trade group for card rooms, is taking a “wait and see” approach and has not yet aligned with any legislation.

Whether horse tracks participate, however, remains another fundamental sticking point.

With revenue deeply diminished in recent years, the horse racing industry is eager to get involved with Internet poker. It sees an opportunity to recoup some of the dollars lost, pump up prize money and revive interest in racing, especially among a younger audience.

“We’re the only major racing state in the country that doesn’t have some other kind of gaming at our racetracks,” said Robyn Black, a lobbyist for the California Thoroughbred Breeders Association and the Thoroughbred Owners of California. “So when you’re competing for horses to bring in to California to race ... the Eastern states are more competitive with their purses.”

The faction led by the the Morongo and San Manuel tribes is willing to cut the tracks in, but the Agua Caliente Band and others are not.

“We respect their industry and what they do,” Grubbe said, “but they’re not licensed poker operators, and this would be a crossover into our industry.”

He said the tribes offered horse tracks a subsidy from Internet poker revenue, but “they’ve pretty much thrown that back at us.” He also finds “absurd” the racing industry’s argument that Internet poker is a game distinct from poker that should be regulated as an entirely new entity.

“I don’t know why they’re even in the discussions,” Grubbe said.

Observers both inside and outside the racing industry argue that the tracks have become an easy excuse to block any progress on an Internet poker deal.

“Many of the tribes don’t want the business unless it’s theirs,” said Wright, whose former Senate district includes the now-shuttered Hollywood Park racetrack. “If it wasn’t the horse tracks, it would be six other things.”

There may also be lingering tension over the racing industry’s opposition to Proposition 1A, which legalized Indian gambling in 2000. The two sides also faced off on a pair of high-priced ballot measures that followed.

“In hindsight, that fight was not smart,” thoroughbred lobbyist Black said. “The voters spoke clearly on the issue, and I think there are some people who are still angry over that.”

But even in its diminished state – only four private horse tracks remain in California – the racing industry likely holds enough sway at the Capitol to hold up any Internet poker legislation that does not include it.

“It’s possible there will be a standoff here, which may be the motivation of these tribes that don’t want horse racing to be in it,” said Barry Broad, a lobbyist for the Teamsters and SEIU, who represent track workers.

Former Assemblyman Lloyd Levine, who brought the first Internet poker bill in 2008, suggested that horse racing should be the issue around which California’s gaming interests start building a consensus proposal, given that the only online gambling now allowed in California is Internet wagering on horse races.

“I don’t think the tracks have been very effective advocates for their own points,” he said.

Internet poker isn’t the first issue to get hung up at the Capitol amid political and economic rivalries. But it may turn out that the stakes at this table – a small chunk of an estimated $300 million in annual revenue and protecting California gamblers from unregulated offshore sites – are simply too low to motivate the legislative wrangling necessary for a deal, particularly among lawmakers afraid to cross any of the politically powerful tribes with casinos.

“Internet poker is a problem for a dozen rich people, one way or another,” Broad said. “The common good for California, where’s that being discussed?”

Alexei Koseff: (916) 321-5236, @akoseff

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