Collection of news and updates regarding the status of online poker in California

California Online Poker

Legislature & Online Poker in California

Online poker has been played in one fashion or another in the United States since around the beginning of the Poker Boom in the late ‘90s. In recent years, though, the legality of online poker has been challenged on the federal level and a select few states, including California, are pursuing their own paths to legislation and regulation.

Below is a brief history of online poker in the US starting with the passage of the UIGEA in 2006, tacked to the end of an unrelated Port Security Bill, through to today.

UIGEA and the Uncertainty Period

In 2006 Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), a law that effectively made the processing of online gambling transactions by banks illegal. It did not specifically make online poker illegal but it started a period of uncertainty for many U.S.-facing online poker sites.

Some of the hundreds of poker sites that were already operating in the US chose to pull out of the market rather than challenge the still-somewhat grey laws.

Other sites such as PokerStars and Full Tilt Poker chose to continue operations offering poker to US residents and claimed their legal teams had provided them with assurances that online poker was legal. However, over the next four years many that played online poker soon realized that these sites were using less than legal methods to fund and cash out U.S. online poker accounts.
This would ultimately lead to the largest crackdown on online gambling in U.S. history.

Black Friday

The day when online poker stood still

On April 15, 2011, the United States Department of Justice indicted PokerStars, Full Tilt Poker and Absolute Poker for violations of the UIGEA and for running an unlawful internet gambling business.
The government asserted that the companies used third-party payment processors that recoded gambling transactions to make them appear legitimate. As an example, a deposit may be listed as “golf balls” and withdrawals as “investment dividends.”

After the indictments the three major sites pulled out of the United States and soon the situation became even more upon discovering that Full Tilt Poker had squandered nearly $400 million of player funds and could not repay players.

Absolute Poker went bankrupt and was unable to pay its players. Only PokerStars managed to repay its US customer base in full. PokerStars would settle with the Department of Justice in 2012 for $731 million. As part of the settlement, PokerStars purchased Full Tilt Poker and agreed to pay back its players worldwide. Those payments are still ongoing.

Department of Justice Memo

Opens the Door for Legalized Online Poker

On December 23, 2011, a Department of Justice memo was released that would change the history of online poker in the United States. In the memo the DOJ was asked by Illinois and New York whether the sale of online lottery tickets across state lines violated the Federal Wire Act.

The memo revealed that “interstate transmissions of wire communications that do not relate to a ‘sporting event of contest’ fall outside the reach of the Wire Act.”

This ruling was immediately viewed as a huge win by iPoker supporters as it meant that online poker was not subject to the Wire Act. In the past many lawmakers and legal experts held the belief that the Wire Act banned interstate online poker. With this revelation states quickly began examining the issue of online poker legalization.

Nevada Becomes First State to Offer Legal Online Poker

A day prior to the DOJ memo Nevada became the first state to approve online poker regulation in the U.S. Over the course of the next year the Nevada Gaming Commission began approving licenses for future providers.
Online poker in Nevada was officially legalized in February 2013 with the passage of AB 114. This bill also gave the state’s Governor the ability to forge interstate compacts for online poker.

On April 30, 2013, Ultimate Poker was the first site in the United States to offer legal online poker.

New Jersey and Delaware Follow Suit

New Jersey and Delaware quickly moved to jump onto the online poker bandwagon. While Nevada was the first state to launch an online poker site, Delaware was officially the first to make online poker legal in the United States.
The Delaware Legislature passed HB 333 in June 2012 and became the first state in the United States to legalize the game. However it would be over a year before they would actually launch online poker.

Delaware launched free-play online poker on August 28, 2013 and began real money operations on November 8, 2013.
New Jersey made online poker legal on February 23, 2013 with the signing of SB 1565 into law. This bill actually legalized online poker and general iGaming to include table games and virtual slots.
The state decided to allow all licensed casinos to launch at the same time and the state began a soft launch of iGaming on November 21, 2013. The official launch date of iGaming was November 26, 2013.

California and Online Poker

A History of Obstacles

While Nevada received the praise for being the first state to launch legal online poker, California was the first state to actually examine the issue. While numerous attempts have been made to legalize the game since 2009, none have been successful.

Here is a rough timeline of iPoker legislation in California

  • 2009 – California lawmakers draft the California Online Poker Law Enforcement Compliance and Consumer Protection Act.
  • June 2010 -State Senator Roderick Wright introduces SB 1485, The Internet Gambling Consumer Protection and Public-Private Partnership Act of 2010.
  • December 2011 – Sen. Write refiles SB 1485 as SB 45
  • April 15, 2011 – Black Friday
  • October 2011 – An alliance of California Indian Tribes and state Card Rooms forms the California Online Poker Association (COPA) and floats its own online poker proposal.
  • February 2012 – Sen. Wright refiles SB 45 as SB 1463.
  • October 2012 – COPA is disbanded
  • December 2012 – Sen. Wright refiles SB 1463 as SB 51
  • February 2013 – Senator Lou Correa Files SB 678, Authorization and Regulation of Internet Poker and Consumer Protection Act of 2013.
  • June 2014 – Sen. Correa files SB 1366, Internet Poker and Consumer Protection Act of 2014.
  • Jan 2014 – Assemblyman Reggie Jones-Sawyer files AB 2291 – Internet Poker Consumer Protection Act of 2014
  • April 2014 – Assembly GO Committee holds online poker hearing.

Presently there are four online poker bills floating around the state legislature. The only one to receive any movement is AB 431 filed by Assemblyman Adam Gray. The bill was unanimously voted on by the Assembly Governmental Organization committee and is currently beginning the process towards a vote.
At present, AB 431 is a shell bill with few details on legalization but it is the only bill to move forward in the last six years.

Since Black Friday the primary obstacle in the process has been the coalition of Indian Tribes led by the Pechanga Band of Luiseno Indians.
The Pechanga have held up the process over two issues surrounding online poker in California. Those are bad actors and horse racetrack participation.

The Morongo and San Manuel tribes along with the Bicycle Casino, Commerce Casino and Hawaiian Garden Casino have signed an agreement with PokerStars to provide online poker services in the state.
The Pechanga are against PokerStars participation in the state due to their participation in online poker post-UIGEA. They have repeatedly stated that they will not support any bill that includes PokerStars or any bad actors.
In addition the Pechanga are against the horse racing industry participating in online poker in California. Their position is that online poker is an expansion of gambling for the race tracks and that California citizens have voted against such an expansion.

The Pechanga are viewed to have the political influence to block the matter in the court system if needed. That’s the main reason why a bill has been held up for the last few years.

Passing the Bill

What Benefits Could Passing Online Poker Bring to California

California can benefit greatly from a legalized online poker market. Let’s first look at revenue and taxes.
Looking at various estimate projections online poker in California could bring in anywhere from $217 million to as much as $729 million in Year 1. A more realistic view would be anywhere from $217 million to around $450 million.

Assuming that online poker is taxed at 15%, which has been around the number floated in past bills, that could bring the state government anywhere from $32.55 million to $67.5 million in Year 1. Once the market is mature analysts estimate online poker could bring in anywhere from $263 million to as much as $1.3 billion annually. Assuming a top side of $1 billion annually, that would bring in estimated tax revenues of $39.45 million to $150 million.
Next, one has to consider the number of jobs that will be brought in via online poker. Each casino that participated in online poker must hire staff in order to operate its poker site.
These jobs range anywhere from IT to customer service and support. It is unknown at this time how big of an impact that will make but it is safe to say you can expect around 20 jobs per small casino and up to 50 per larger casino or card room. This also doesn’t consider the ancillary jobs and revenue that online poker will create. Casinos will need to advertise the sites, which will provide extra income and jobs in the areas of print and virtual media, general promotion, merchandising and more.
Lastly, online poker can directly benefit the live casino partners. They will certainly tie in promotions to bring in live traffic to the casino and card rooms and this will result in extra income for those entities.
There is also an entirely new clientele that you can reach via online poker. Some users do not live close enough to a casino or card room to make frequent visits. Online poker gives them a daily outlet that will result in more revenue for the casinos and card rooms.