Steve Ruddock what's next online poker bill CA

There were plenty of reasons to be optimistic over the course of yesterday’s two hour online poker hearing in front of the California Assembly Governmental Organization Committee.

The most notable reason was the horseracing industry and a contingent of unions giving Assemblyman Adam Gray’s online poker bill, AB 2863, their full-throated support.

However, there were also reasons to be pessimistic. Real progress may have been made on how to deal with the horseracing industry, but two powerful factions are still miles apart on the other key issue that has bogged down online poker progress in California: who should determine suitability – the legislature through so-called bad actor and tainted asset provisions or the regulators.

Upshot #1

California has made a lot of progress, but it still lacks a much-needed consensus.

Statements and letters

There were no shortage of statements and letters issued before, during, and after Wednesday’s hearing.

You can also read a full, blow-by-blow, recap of the hearing here.

Racing subsidy solves two key issues

Earlier this year, Adam Gray made the horseracing industry an offer it simply couldn’t refuse.

His online poker bill earmarks up to $60 million annually for the horseracing industry, a number that is so fantastical that many didn’t believe it was accurate when it was first announced.

At the hearing, there was skepticism expressed by some of the other stakeholders concerning the final number, but by and large, this subsidy seems to have solved one of the two poison pills in previous online poker legislation.

Based on comments at yesterday’s hearing, coupled with a letter of support sent to Assemblyman Gray earlier this week, it’s safe to say that the horseracing industry and the numerous unions it is aligned with are fully behind AB 2863.

More importantly, the horseracing industry’s previous position was, “We’ll support the bill if we get what we want, but not until then.” Now, racing and the unions are not only supporting online poker legislation, they are calling for it.

This is a very important development.

New base of support has some muscle

One of the most common questions I’m asked by people loosely following online poker progress in California is: How does the horseracing industry wield so much political clout? Well, the answer was on full display yesterday.

At the hearing, a parade of union representatives from the Teamsters, the SEIU, the Jockeys’ Guild, and other organizations went before the GO Committee to express their support for the bill.

With racing and the unions now lobbying for the passage of an online poker bill, it will be hard for legislators to simply ignore the issue. Racing and union support has effectively flipped the debate on its head.

Online poker legalization is no longer simply a topic being pushed for by special interests, it’s now something that affects a large, core constituency.

As these real Californians went to the microphone and spoke one-by-one about the issues they are facing, you could see the attack ads being scripted:

Laid off union member: “Assemblyman x voted against AB 2863, which would have protected California consumers from unscrupulous offshore gambling sites, safeguarded pensions, and saved x number of union jobs by providing a much-needed subsidy to the California racing industry…”

Upshot #2

In a solidly blue state like California, this type of union advocacy forces legislators to pay attention to online poker.

Bad actor debate unresolved

The inclusion of a multi-million dollar subsidy for the horseracing industry was a shrewd solution that solved an unsolvable problem, considering both sides held intractable positions on this issue. Quite frankly, before the subsidy was announced, no one was saw it coming.

Unfortunately, lightning will need to strike twice in California to get an online poker bill across the finish line. A similarly bold solution is the only way to overcome the suitability stalemate.

At the center of the debate is PokerStars.

PokerStars and its allies are calling for the state to let regulators determine the suitability of individual companies. On the flip side is a coalition of a half dozen tribes led by Pechanga and Agua Caliente, which is calling for the legislature to prohibit PokerStars and other companies the coalition believes operated in California illegally.

Based on the rhetoric over the past three years, I don’t see a compromise being reached on this issue. Neither side seems willing to give an inch. And if some type of reasonable sanction was proposed, I don’t think either side would agree to it.

I don’t know how it will be solved, but then again, nobody saw a solution for the horseracing debate either.

Upshot #3

Passage of an online poker bill will remain out of reach until this issue is resolved, and presently neither side seems willing to budge.

Small signs of progress

In addition to the two major issues noted above, lawmakers and stakeholders also broached several other topics. In my opinion, this is a good sign. It shows they’re not only looking into the issue, but are also looking down the road, implicitly saying the larger issues can be resolved.

For example:

  • Lawmakers and stakeholders discussed the minutiae of taxation rates and licensing fees.
  • Assemblyman Gray confirmed what I’ve been hearing privately, that he has held regular meetings with stakeholders.
  • There was a subtle shift away from focusing on revenue in favor of the consumer protections argument. It appears these two arguments for regulation have flip-flopped.

Upshot #4

It’s becoming evident that Assemblyman Gray and a majority of the stakeholders are taking this issue seriously and working on solutions; they’re not simply going through the motions.

Ancillary issues

In addition to the small crumbs of progress noted above, there were also several clues that other issues are lying in wait just under the surface.

Assemblyman Jim Cooper put forward a now-familiar inquiry: Are the state’s regulatory agencies in a position to take on the responsibility of regulating online poker? Cooper often cites the extreme case backlog the CBGC is currently dealing with, and the fact that the agency is underfunded.

There is also the issue of what Agua Caliente Chairman Jeff Grubbe called “blank spots” in the bill. Namely, what will the licensing fee and tax rates be? This is a major issue for smaller card rooms, 20 of which sent a letter to Assemblyman Gray calling for alternative means of involvement, specifically, the ability to become an affiliate.

Upshot #5

Even if the stakeholders come to a consensus on suitability, there are several other issues that could spring to the forefront and derail the bill.

Steve Ruddock
Steve Ruddock - Steve is one of the most recognizable names in the online poker media space. He brings his deep knowledge and equally deep well of opinions to his coverage at CaliforniaOnlinePoker.com.