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Stakes Raised in California Internet Gambling Regulatory Push

The movement to regulate online poker in California — the largest, single online poker market in the country, per Senator Lou Correa — has continued to score huge amounts of media coverage in the Golden State.

Part of that coverage comes from the fact that the state is, as always, it seems, in a deep financial crisis, and the money stood to be made by taxing online poker is badly needed.

New Governor Jerry Brown is already knee-deep in the issue. He’s already addressed expanding land-based casinos in the state, reports the Press-Democrat, and the issue of Internet gambling is “bound to come up.”

“Brown is open to Internet gambling,” the writer claims, quoting Brown as saying, “I don’t think it can be stopped. If it can’t be, then there ought to be some way that the state can derive some tax revenue from that.”

The economy
“According to an economic impact study, an online poker system in California would earn roughly $1 billion in tax revenue and bring in 1,100 new jobs over the next decade,” reports “Though most politicians are in favor of some form of legislation, deciding the specifics of who to include in the carve out is taking longer than initially anticipated.”

And that’s where the other element comes in: The state’s powerful tribal casino interests are being courted as key supporters for the two online gambling bills in California, and most speculation on whether the bills will succeed cites the tribes’ support as a critical element. 

The tribes
The California Nations Indian Gaming Association (CNIGA) is opposing a bill by state Senator Rod Wright seeking for new online poker laws, because, under Wright’s plan, licenses will be awarded by bidding, which means that tribes won’t have automatic rights to the state’s lucrative online poker industry.

On the other hand, the CNIGA has just voted to support California’s other existing online poker bill, supported by Senator Lou Correa of Orange County, the California Online Poker Association, and the powerful Morongo Band of Mission Indians. (Read an editorial by Correa explaining his bill here.)

“This is the first time that the Gaming Association — which is the largest such crew in CA, representing 29 tribes — has endorsed an online gaming bill,” notes the San Francisco Chronicle’s Joe Garofoli.

Under that bill, “all federally recognized California tribal governments and card room clubs would be eligible to apply for a license to operate online poker,” writes Debra Gruszecki for the Desert Sun.

The California Tribal Business Alliance opposes Correa’s bill “because it does not clearly shield tribes from potential state taxes on Internet poker revenue,” California Watch notes.

But CNIGA leaders disagree. “Blockbuster (nearly) went out of business because of Netflix,” Jerome Encinas, director of CNIGA government affairs, recently told the rest of his group, per the Desert Sun article. “Like the chairman said, we need to control our own destiny. If we sit on our hands, we’ll lose control.”

“If we don’t get on top of it, and understand it, we’re going to lose,” added Allen Lawson, chairman of the San Pasqual Band of Mission Indians.

Of interest in the article is a comment by Terry St. Cyr, who traveled to a CNIGA debate on online gambling from Nebraska, and who said that “tribal nations are watching California tribes closely,” per the Desert Sun article. “We think Internet gambling is the future.”

Caution advised
“But the best plan will emerge when lawmakers treat Internet gambling not as a quick economic fix desperately needed, but as a legitimate public activity where general public safety would be promoted by regulation,” writes Betty Yee at the Sacramento Bee

Her point is a good one: If online gambling will be fully legalized in the state to bring in revenue, then that regulation has to be carefully thought out, and some hard questions asked. 

“Can legitimately regulated gaming providers effectively compete with underground offshore operations? How much does simply legalizing the activity motivate consumers to switch to legitimate providers? Are there potential online gaming consumers who will participate only if the activity is legal? How does California ensure the rights of Indian tribes to conduct slot machines and other games protected pursuant to federal law while regulating tribes’ operation of online poker occurring off tribal lands? Will legalizing intrastate online gaming affect existing compacts with Indian tribes?”

“Potential revenue for California ultimately depends on the quality of any online gaming regulatory structure,” Yee concludes. “Its competitiveness with illegitimate operations, consumer protections and a realistic tax base. Taking the time to do it right and not rush to conclusions solely for a small contribution to the state’s budget debate offers the best potential to effectively address these complex policy issues.”