Steve Ruddock CA poker bill Adam Gray assembly

On Friday afternoon, a new and far more detailed version of California Assemblyman Adam Gray’s online poker bill, AB 431, emerged. Rumors of the new draft legislation first began to appear on Wednesday.

Formerly a two-page shell bill containing little in the way of specifics, AB 431 is now quite detailed (well over 30 pages), as a compromise between the state’s horse racing industry and key tribal gaming interests is being brokered within its pages.

The full draft can be found here.

The racing concession

A group of tribes led by the Pechanga Band of Luiseno Indians has been unbending in its belief the state’s horse racing industry should not be allowed to apply for online poker licenses. The racing industry, backed by unions, has been just as obstinate, saying nothing short of the capability for full licensure would gain their support.

At a hearing in June of 2015, Pechanga Chairman Mark Macarro said they would be willing to provide the racing industry with an annual subsidy. Racing lobbyists claimed this was a nonstarter at the time, the actual amount of that subsidy seems to have brought them to the table.

The draft legislation that came to light on Friday attempts to solve this dichotomy. An amendment in the new AB 431  limits operator licenses to cardrooms and tribes (those deemed suitable) and calls on these licensed operators to create a California Horse Racing Internet Poker Account, that will direct the first $60 million collected annually to the state’s racing industry.

The fund would begin with a $15 million license deposit by each operator (which could be anywhere from 10-30) and later augmented by a 15% tax on gross gaming revenue imposed by the state.

According to Dave Palermo, a five tribe coalition made up of the Morongo Band of Mission Indians, San Manuel Band of Mission Indians, Rincon Band of Luiseno Indians, Pala Band of Mission Indians, and the United Auburn Indian Community agreed to not oppose Gray’s bill, although they were skeptical the final numbers being offered to racing would be feasible in the California market.

The Pechanga Band of Luiseno Indians, and their coalition that includes Agua Caliente Band of Cahuilla Indians, Barona Band of Mission Indians, Lytton Band of Pomo Indians, Viejas Band of Kumeyaay Indians, and Yocha Dehe Wintun Nation, offered less enthusiastic support in a letter sent to Gray on Friday:

“We appreciate yesterday’s discussion on this difficult issue and agree that we made progress.

“With regard to eligible entities, we believe preserving the status quo as proposed in the Draft is movement in the right direction. We appreciate that on the issue of Operator Fees and Taxation you are leaving blanks in order to engage in thoughtful and timely negotiations about realistic fees and taxes. We look forward to the debate in Assembly Appropriations and reserve the right to oppose the bill should negotiations not bear fruit.”

As the tribes note, the $60 million annual payment seems a hefty price for a market anticipated to be worth around $215 million collectively in Year 1, and in the $300 million – $400 million range when it reaches full maturity.

A smaller, but not insignificant concession

There is also a second compromise item aimed at the racing industry, as the legislation also appears to allow racetracks to act as affiliates, or even perhaps as a skin to a licensed online poker operator:

“An agreement between a licensed operator and a service provider that is a horse racing association operating pursuant to Chapter 4 (commencing with section 19400) shall insure that at least 50% of the gross gaming revenue that the licensed operator derives from the service provided by the service provider is paid to the service provider.”

In addition to the yearly payment, this proposal would allow willing racetracks to have some skin in the game.

Other hurdles remain

Despite the issue being deemed moot earlier this year, and despite the widespread belief that the racing conundrum was the central issue stalling online poker progress in the Golden State, in their letter sent to Gray on Friday, the Pechanga coalition made it clear that they still have concerns over suitability standards, otherwise known as bad actor clauses:

“We also appreciate your commitment to work with us to draft meaningful Suitability Standards for Prospective Applicants. However, to proceed with the suitability language in your current Draft – which our Coalition would otherwise vigorously oppose from the outset – we could not agree to the process you outlined as it would place us at an unfair disadvantage in the process given your request for neutrality. As we agreed to do concerning the operator fees, we believe your bill at introduction should, as a matter of fairness, contain truly impartial language on Suitability Standards for Prospective Applicants so as not to prejudice our position on this very significant – if not pivotal – aspect of the bill. We would be happy to have our staff work with your staff on such language.

“Therefore, if impartial language is inserted into the bill when introduced, we commit to engaging in good-faith negotiations with you on Suitability Standards for Prospective Applicants to resolve this outstanding issue before the bill is brought to the Assembly Floor for a vote.”

In addition to the potential return of the PokerStars bad-actor debate, the ability of the state’s gaming regulators to add online poker to their duties has been called into question by tribal leaders, as well as Assemblyman Jim Cooper during the June 2015 hearing.

Steve Ruddock
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