Dan Walters

Internet poker, fantasy sports gambling coming to California?

The discovery of gold in California 168 years ago ignited a fabled rush of gold seekers from every corner of the globe.

Those who sought fortune in California gold usually failed, while the big money was made by those who catered to miners’ needs and desires: tin pans to separate gold from gravel, work pants made of a tough cloth called denim, and pleasures of the flesh.

As mining towns sprung up in the California foothills, they soon attracted saloons, houses (or tents) of ill-repute, and, of course, tables where professional gamblers relieved miners of their hard-earned pokes of gold dust.

After the Gold Rush faded, the state turned to more sedate endeavors, and the Legislature and local governments cracked down on vices of all kinds. For most of the 20th century, legal gambling was largely restricted to horse racing and locally sanctioned poker parlors.

Over the past three decades, however, California has seen an explosion of legal gambling into an industry that generates as much as $20 billion in annual revenues – including a state-operated lottery, more than 70 tribal casinos and a growing poker parlor sector. It’s poised to expand by billions more if the Legislature and Gov. Jerry Brown legalize online poker and fantasy sports wagering.

The Assembly has approved Assemblyman Adam Gray’s fantasy sports bill with just one negative vote, and Gray’s internet poker bill moved to the Assembly floor last week.

Gray, a Merced Democrat who chairs the Assembly Governmental Organization Committee, has spent months in private negotiations over both, particularly with casino-owning tribes, poker parlor operators and horse racing interests, which are leery about having new competitors for gamblers’ dollars.

His chief argument is that Californians are already risking their money on fantasy sports and poker websites, and that legalizing them, with regulation, would be consumer protection. “This is an activity that goes on every day,” Gray said during one hearing. “It’s important we get our arms around this.”

While poker is already legally played in parlors, and efforts to legalize the online version have been underway, without success, for at least a decade, fantasy sports wagering is a very recent development.

It’s a big, high-dollar version of the “hot stove” leagues in which friends compile virtual teams from real-life football, baseball and basketball players, put up a pool of money and win or lose depending on how their players perform in real games.

In the online versions, teams can be assembled day by day. Its advocates claim that it’s not really gambling, but rather a game of skill in choosing players, not unlike playing the stock market.

Mark Levine, the Marin County assemblyman who cast the only negative vote on Gray’s fantasy sports measure, Assembly Bill 1437, contends not only that it’s gambling but that it would take a constitutional amendment to approve it.

Levine asked Attorney General Kamala Harris to engage in the issue, but unlike attorneys general in other states, who have cracked down on the two big fantasy sports sites, branding them as illegal gambling operations, Harris has remained aloof. She’s running for the U.S. Senate this year and has often shunned involvement in controversial issues, even those involving her agency.

With New York’s attorney general, Eric Schneiderman, threatening to prosecute fantasy sports operators, its Legislature this month approved a fantasy sports bill, although it’s uncertain whether Gov. Andrew Cuomo will sign it.

The two big sites, DraftKings and FanDuel, spent millions of dollars on television advertising, mostly during sports broadcasts, before the crackdown by Schneiderman and others attorneys general. They, of course, want legalization in California and have powerful allies in some major professional sports teams, which see the activity as building fan interest that would mean more revenue.

Under Gray’s bill, Harris’ Department of Justice would license operators of “internet fantasy sports games” after being satisfied that they are legitimate.

The Department of Justice would also be involved in vetting applicants for licensure under Gray’s internet poker bill, Assembly Bill 2863. Licenses would be issued by the California Gambling Control Commission, which shares gambling regulatory authority with the Department of Justice, and they wouldn’t come cheap.

Applicants would have to make a one-time $12.5 million deposit, and the state would tax their revenues. The state would keep some of the tax money. Much would be given to the horse racing industry to bolster its declining activity, essentially compensating it for not seeking internet poker licenses, and to fairs.

Internet poker has been, politically, a tougher slog for Gray than fantasy sports because it has a more direct effect, at least theoretically, on the state’s existing gambling industry and because of a decadelong history of failed attempts to legalize it.

AB 2863 was temporarily stalled in the Assembly Appropriations Committee as Gray worked on some kinks, principally involving whether PokerStars and other online poker sites that had been hammered by the federal government for operating illegally would be eligible for California licenses.

Opponents of the bill have described PokerStars et al. as “bad actors” who would enjoy an advantage because they already have massive lists of Californians who want to play from their days of illegal operations.

“This is a highly charged, controversial issue,” Gray told the committee during an initial hearing this month, adding that complete bans on “bad actors” that opponents sought “could create more problems than they solve.”

Gray’s latest language would allow PokerStars and other poker sites in similar circumstances to apply for licenses if they stopped operating in the U.S. after 2011, when the federal prohibition took effect, although they could be forced to delay entry into the California market or pay hefty fines if they operated during a “gray period” between 2006 and 2011.

Major card clubs and horse racing interests are backing the bill. The tribes that own casinos are still sharply divided – largely, it appears, on whether they intend to become involved in online poker licenses themselves. One example: the Sacramento area’s two major casinos, Thunder Valley (for) and Cache Creek (against), are on opposite sides.

In a way, however, both the fantasy sports and online poker operations now seeking legitimacy are emulating what the tribes did to gain their very lucrative monopoly on casino gambling, particularly tens of thousands of slot machines that are calibrated to be profitable and generate most of their gambling revenues.

California’s Indian tribes were mired in abject poverty until a few, claiming sovereignty as separate nations, began opening bingo parlors.

It touched off a legal war, resulting in a 1987 Supreme Court decision that tribes could not be denied the right to offer gambling games that were legal elsewhere in the state.

Tribes began opening very modest casinos and offering games, particularly slot machines, that state authorities said were illegal. But they staved off a crackdown long enough to amass enough money to build even larger casinos – and later elaborate resorts – and buy their way into full legitimacy with a 1998 ballot measure.

Fantasy sports and online poker operators that operated in legal gray areas now crave the same legal status, giving Californians new opportunities to spend – or perhaps waste – their money on new amusements.

However, it’s not yet certain that Gray’s efforts will succeed. His poker bill needs a two-thirds Assembly vote to advance. He acknowledges he still must tweak its “bad actor” provisions even more.

Even if it makes it through the Assembly, both measures could easily be chewed up in the cross-Capitol rivalry between the two houses during the final, hectic days of the session. If they survive, they also need approval by Brown, who’s never easy to predict.