SB 51 Online Poker Bill Details

Update: California online poker bills for 2014 are SB 1366 and AB 2291

By John Mehaffey

California State Senator Roderick Wright introduced SB 51 on December 19, 2012. The bill could be heard by the California Legislature as soon as January 19, 2013.  SB 51 would legalize online poker within the state lines of California.  No other games besides online poker would be legalized in California through this bill, although online horse racing is already legal in California.

SB 51 is considered an urgency statute.  This is due to the budget crisis in California.  An urgency statute goes into law immediately but requires a two-thirds vote in both the senate and the house to pass.

Tax Revenue

Senator Wright predicts that SB 51, also known as the Internet Gambling Consumer Protection and Public-Private Partnership Act of 2013, would generate $200 million in tax revenue its first year through licensing fees and taxes on gross revenue.  This would be done by requiring licensed operators to post a $30 million deposit on future taxes.  The tax rate would be 10% of gross revenue, which means that 10% of all cash game fees and tournament rake would go towards the state’s general fund in the form of taxes.  There would also be an increase in state income taxes through the new industry and the jobs it creates.

Winning players would also be required to pay income tax on their winnings that would be easily tracked through the site’s software.  Players would be required to provide online poker rooms with their Social Security Number and tournament winners of $600 or more and 300 times the buy-in would receive a tax notification.  A 5% tax would be held on qualified net tournament winnings.  The state would also be aware of all player’s wins and losses, regardless of whether the players received tax forms on winnings.  This would add to the tax revenue in the state.

Player Requirements

In addition to providing their Social Security Number, players would also have to prove that they are 21 years of age or older.  They would also have to prove that they are physically located in California until regulated online poker expands into other states.

Players would enjoy many safeguards that have not been available to them from offshore operators.  Players would enjoy 24 hour phone support 365 days a year.  Operators would also be required to hold funds in segregated accounts.  Some of the biggest online poker rooms that accepted U.S. players in the past failed to do so and players lost all funds in these rooms.

Responsible gambling programs must be made available.  This includes players being shown where to get help for gambling addiction in the software.  Players may also opt out of California online poker by filling out a self exclusion form.

There are more regulations that would help players that do not wish to self exclude but wanted to set limits.  Players could set daily deposit limits and loss limits over a specific period of time.

Players would be reminded how long they had been playing while at the tables.  Once an hour a pop up would tell players the amount won or lost during their session, the amount of time that they had been playing and every six hours a player would have to confirm that they have seen their session statistics.

Players could not be extended credit.  This would prevent players from losing money they did not have.

Players would be protected from collusion, robotic play and other forms of cheating.  California online poker rooms would be required to monitor all play and have safeguards in place to detect cheating.  Players that were caught cheating would be banned from California online poker.  They could also face prosecution as poker rooms would be obligated to report cheaters to the state.

Players that are concerned about privacy would have some regulations on their side.  Operators would not be able to sell player information to a third party, although they would be allowed to use that information to market to the player.  Government agencies would be exempt from this clause.  Operators would be required to notify players annually with information on how their personal information was used over the past year.

In addition to player safeguards, there are other player friendly features in the bill.  Players would be allowed to multi table.  Player to player transfers would also be allowed.  Player pools could also be networked to expand liquidity.  The bill also allows for interstate player pools should the state government decide to enter pacts with other states.  International player pools would be allowed if the federal government approved.

Players would also not have to worry about their local government banning online poker offered by approved California online poker rooms.  Local jurisdictions are preempted from restricting access to regulated online poker rooms.

Players would not be allowed to deposit cash or money orders.  Credit cards and ewallets would be acceptable forms of payment.

Operator Requirements

Operators would be required to either be a commercial card club, tribal casino or horse racing facility that actively accepts live or offtrack wagers.  An “online advanced deposit wagering site regulated by the California Horse Racing Board” would also qualify to offer online poker.  This would seem to apply to a company like TVG that already legally offers online horse racing wagers in California.  Betfair is the parent company of TVG.

Applicants would be required to pay between $1 million and $5 million for a license application.    This process would include background checks on the company and all of the company’s officers.  Employees of the company would be required to pass a similar check.  The fees for employee background checks would likely be $100 or less per person.

Companies that accepted players from the United States after December 31, 2006 would not be able to receive a license in California.  Their software and brand names could also not be used in the state.  These companies that accepted U.S. players after 2006 could not participate in regulated California online poker in any way.  Subcontractors would not even be allowed to be in business with companies that accepted U.S. players after that date.  This means that you will not be seeing PokerStars or Full Tilt Poker in the California online poker market.

All operators, subcontractors and employees would be required to be located within California.  There are some small exceptions that apply to specialized services that may be needed in the case of game security or software updates.  All bank accounts and player funds must be held in California banks.  Accounting companies handling online poker books must also be located in California.

Operators would be licensed for five years.  If a licensee is found to have violated the regulations they risk a suspension or revocation of their license.

Online poker only internet cafes would be banned.  Players must play from their home or other non commercial locations that are not directly profiting from providing an online poker service.

California brick and mortar poker rooms take a charge per hand instead of a percentage of the pot like casinos in most states do.  California online poker rooms would do the same.  Poker rooms may alter their charge depending on the limit of the game.  This may cause issues with networking into other state’s player pools as the rake structure would be incompatible with other states.

Operators would be required to submit monthly reports to the state.  This would include detailed information on what the operator owes the state.  It would also include player data such as the player’s name and their wins and losses.

Affiliates

Affiliates would be allowed in California.  Background checks would be required on affiliates but they would not be required to go through the licensing process.

The full text of the bill can be found here.