Steve Ruddock online poker horseracing deal CA

A draft amendment to Assemblyman Adam Gray’s online poker bill, AB 431, may have just paved the way for California to legalize online poker in 2016.

The debate over bad actor clauses, and the involvement of PokerStars, was rendered moot earlier this year by a number of California gaming industry insiders, and it now seems that the divergent factions may have found a solution to the second issue that has stymied online poker progress in California over the past two years: the role of the horseracing industry.

News of the potential compromise was first noticed not through online poker channels, but through opposition letters to Adam Gray’s DFS bill the state assembly is currently considering.

In letters sent to the assemblyman, the Morongo Band of Mission Indians and the San Manuel Band of Mission Indians expressed their concerns over Gray’s DFS bill that is currently working its way through the legislature. Among the litany of concerns voiced by Morongo Chairman Robert Martin and San Manuel Chairwoman Lynn Valbuena was an interesting tidbit about a previously undisclosed draft amendment to Gray’s online poker bill, AB 431.

The tribal chairs wrote:

“Why are Internet poker operators expected to pay $60 million annually to the Hose Racing Internet Poker Account in the draft amendments to AB 431, yet DFS operators have no such obligation?”

This $60 million annual stipend to the racing industry referenced in the letters was later confirmed by GamblingCompliance.

According to GamblingCompliance, the racing industry would receive the $60 million annual revenue stream (made up of a combination of taxes and the initial licensing fees paid by online poker operators) for giving up online poker operating rights. Furthermore, GamblingCompliance spoke with several people in the racing industry who were happy with the amount of the annual payment, or are at the very least, were considering it.

We should know in relative short order if the proposed annual payment to the racing industry is a potential game changer capable of solving the state’s stalemate, as the amended bill would have to be introduced before next week’s February 19 legislative deadline.

How important is the racing compromise?

Bad actor clauses may have received the bulk of the attention over the course of 2014 and 2015, but the disagreement over the role the horseracing industry would play has always been seen as the real stumbling block, and the proverbial poison pill that has killed online poker bills in California.

Governor Jerry Brown is on record as saying he won’t sign any bill that isn’t supported by the horseracing industry, and by extension the unions that support the racing industry. The racing industry has been adamant that it will accept nothing short of full licensure, something a powerful coalition of tribes just as adamantly opposes.

However, I don’t think the horseracing industry anticipated the potential stipend being $60 million annually. The number is so large as to be fantastical, and despite seeing it with my own eyes in two official letters sent by the Morongo and San Manuel tribes, I didn’t believe it until GamblingCompliance confirmed it this morning.

To put the number in context, the entire New Jersey online poker industry generated less than $24 million in revenue in 2015; California online poker operators will pay racetracks almost three times that amount on an annual basis.

This is an offer that is simply too good to refuse. The racing industry would never come close to making $60 million annually by running online poker sites; in fact, on top of the licensing and startup cost, it would likely lose money, at least at the outset.

Combine this with the progress made on the bad actor front, and California suddenly has a legitimate chance to pass an online poker bill.

On the bad actor front

Opposition to PokerStars began to wane as early as December of 2014, when the San Manuel tribe left the coalition fighting for a bad actor clause and partnered with PokerStars.

Partially spurred on by the sale of PokerStars to Amaya Gaming, over the course of 2015, the Rincon tribe, Pala tribe, and United Auburn Indian Community also left the anti-PokerStars coalition, and Caesars Entertainment dropped its longstanding opposition as well.

The proverbial final nail in the coffin for bad actor clauses came on September 30, 2015, when the New Jersey Division of Gaming Enforcement approved PokerStars for a transactional waiver, allowing the company to operate an online poker site in the Garden State.

Steve Ruddock
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