California Senate To Hold Special Session On Online Poker

Compromise will be key.

That was the prevailing lesson that came out of Tuesday's historic meeting in a California Senate meeting when approximately 30-35 presenters testified on the merits and obstacles of an intrastate online poker system in California.

There were competing interests and differing viewpoints, to say the least. In attendance were international online poker providers, Native American leaders, anti-gambling advocates, university professors, gaming analysts, government officials, brick-and-mortar casino representatives, and of course members of the Poker Players Alliance.

PPA California State Director Steve Miller took time out of his schedule to explain to Card Playerreaders what exactly went down in the big meeting.

An "Informal Meeting"

"It was sort of an introductory session, a fact-finding session," said Miller. "It was meant to inform the legislators about what the issues are."

Although it was described as being just an "informal meeting," it is evident just how seriously legislators are considering the proposal to regulate the online poker industry. Although there is no specific bill being discussed, the legislature spent an entire day talking about the major issues at play. The online poker session before the California Senate Governmental Organization Committee went from 9:30 a.m. to 5:30 p.m., giving dozens of people a chance to testify and answer questions.

It was a stark contrast to the March meeting in the House Financial Services committee, where Rep. Barney Frank held his federal poker hearing before a sparsely attended committee hearing, and only a handful of experts testified.

PPA Executive Director John Pappas was one of the experts who testified before the California chamber, calling on the committee to respect consumer wishes and to keep an open marketplace in any kind of online poker system.

"A conservative strategy is the favored approach when considering the future of online poker regulation in California," said Pappas. "It would be unwise to push 'all-in' on an intra-state monopoly that favors a consortium of interests when it is the consumers who ultimately hold the best hand."

The system Pappas is referring to — the one that has many poker players concerned that they wouldn't be able to play on their favorite current sites — was a major topic of conversation at the hearing.

A Native American Proposal — And Native American Objections

The Morongo Band of Mission Indians reiterated its desire to launch an online poker system in conjunction with a number of casinos who have joined a consortium in support of the proposal, including Commerce, Hollywood Park, Hawaiian Gardens, and The Bicycle Club.

But the tribe's support of online poker regulation was far from universally accepted. Several Native American groups such as the Pechanga tribe oppose the expansion, fearful of the impact it might have on their land-based casinos.

But it's not just an issue of which tribes do and do not support online poker in the state. It's also a matter of whether or not it's even legal under Indian gaming compacts.

Leslie Lohse, the chairwoman of the Tribal Business Alliance, said she had "no doubt" that an intrastate poker agreement would break those compacts.

"Terms of the compact clearly define gaming devices, which clearly include poker on Internet connected devices… Tribes are (currently) paying the state $1 million a day,” Lohse said. "If non-Indian businesses offer gaming devices, the tribes will stop making payments."

If that warning comes to fruition, the state could lose out on the $350 million it currently receives each year from the Indian gaming industry.

"Your time is better spent looking in other directions to address the budgetary issues of the state of California," Lohse advised.

But not everyone agrees with Lohse's interpretation of the compact. A lawyer for the Morongo tribe said he believed it was completely within California's legal rights to regulate the online poker industry.

"Tribes have no exclusivity with respect poker. It is lawful in California for California and the legislature can offer it," said George Forman. "The constitution allows slot machines and banked/percentage games only on tribal games. Poker is not a banked or percentage game… In online poker there is no gaming device. The only thing that Web site servers do is shuffle and deal the cards. They don't play against the machine or play against the house…I don't think there is an intellectually defensible legal argument that online poker could constitute a breach of the exclusivity laws."

Miller said it was likely this issue will go to the courts to find out if and how, exactly, the state can proceed.

Financial Implications

Money, after all, is at the heart of the matter. In the midst of a budget crunch, it's the major reason why the California government is even considering the regulation of online poker in the state.

"The impetus behind the hearing was the state of the California economy. There is a very clear recognition that there is a potential to collect tax revenue from intrastate poker in California," said Miller. "There's a lot of legislators looking at the issue and seeing that the tax revenue is flowing off shore, and California is looking for ways to tap into that cash pool."

Gaming analysts report that the California government could rake in as much as $650 million over the next five years if it decided to regulate online poker. However, that amount will of course depend on what percentage the government takes, and what percentage the online poker service provider takes — whether that would be a Native American tribe, a current European poker site like PaddyPoker, or a poker site that currently serves Americans, like PokerStars and Full Tilt.

"There's room for the tribes. There's room for the card clubs. There's room for the PokerStars and Full Tilts of the world, there's room for the Betfairs and the PaddyPokers," said Miller, who admitted he'd prefer to see success at the federal level because he believes it would allow more Americans to access and enjoy the games they love.

However, Miller acknowledged that the PPA would support a California intrastate poker system if it had an open architecture that would allow any and all sites that could provide the appropriate safety measures, including those sites that currently allow American players.

"A free market best serves the needs of the player and best serves the needs of the state of California in terms of maximizing the tax potential," said Miller.

In terms of what's next, Miller said he wasn't quite sure how the different groups would proceed, but he expected legislators to actively pursue a clear-cut decision on whether or not pursuing online poker would be a breach of current Indian gaming compacts.

"It seems to me that this would end up in the courts. It didn't appear like the legislature was willing to risk violating the pact and losing the $350 million that California gets now from tribal gaming in the state," said the PPA state director.