John Mehaffey California Poker Flag

California online poker has been stalled for years.  PokerStars feels that it is entitled to enter the market.  Many others outside of its coalition disagree.  This is just one of several issues facing the stakeholders in the California online poker debate.  It is time to find a way to break the gridlock and make regulated California online poker a reality.

Bad Actor Compromise

The bad actor clause appears to be the biggest sticking point.  A majority of tribes and many card clubs do not feel that PokerStars and other unlicensed sites that accepted U.S. players after 2006 are suitable.  PokerStars answered by restructuring its company through a sale to Amaya Gaming.  Some California gaming interests do not think that addressed the issue appropriately.

The solution may be to shorten the bad actor clause time period.  A good compromise is 18 months.  This gives the companies that had to sit on the sidelines a chance to establish a business and catch up with the branding of sites that operated in the state while unlicensed.

The argument here may be that a head start did not help Ultimate Poker.  That was a unique situation where a company brought a poor product to market that was rejected by players.  By the time California could have online poker live, there will be at least four years of regulated poker experience under the belts of operators.  An 18-month head start should be sufficient for any product that is of acceptable quality.

The PokerStars coalition is likely to object to this.  The reason they should not is because passing a bill without a bad actor clause may be impossible.  There is too much opposition to it.  Reaching a compromise here would help get the market open.  Continuing to fight will only make it so that nobody gets to enter the market.  PokerStars could wait much longer than 18 months if it is not willing to concede some ground on this point.

Racetracks Get Limited Inclusion

The side that gets the racetracks may be the one that wins.  A good compromise here would be to allow racetracks to become affiliates and skin operators on networks.  For example, a racetrack could have a branded poker site that links to an existing network.  The track could have the ability to promote this product to its existing base of players, including those that already bet on horses over the Internet.  The track operators would get a percentage of the revenue generated by its players under this model.

Tier Taxes Rates

All proposals up to this point have set a flat tax rate.  There are advantages to creating tiers that require a higher percentage for more successful sites.

A luxury tax on higher earners is hardly something new.  It is common for income tax structures and some states also use it for gaming purposes.

The most successful poker sites could pay 5-10% extra in taxes on amounts over $50 million per year.  These extra funds would go to tribes and perhaps smaller card clubs that choose to stay out of the industry.  This helps in multiple ways.

Smaller tribes and card clubs have the legitimate concern that they could be left out of the online poker industry.  This gives them a reason to support the bill.  It would also prevent each and every California gaming operation from launching a standalone site, something that would dilute the market.  This would help liquidity on the existing sites.  It may also soften the opposition to PokerStars, should it run away with the market, if it is forced to subsidize other interests.

Everybody Has Something to Hate

All California gaming interests that read this list will probably find something that they hate.  That is the point.

A true compromise creates a situation where everybody leaves the table a little unhappy.  If there was not a disagreement to begin with, there would be no reason to try and find a middle ground.  Refusing to find a compromise creates an indefinite gridlock.  Meanwhile, Californians continue to deposit cash with offshore sites, depriving the state of tax revenue and jobs.

California is key to getting other markets online.  If an agreement can be reached in California, other states are more likely to follow.  The more states that come online, the less likely it is that federal prohibition finds its way into law.

John Mehaffey
John Mehaffey - John is a writer for multiple online poker publications and is the author of the popular Online Poker Payment Processing Report. Read more from John by following @John_Mehaffey on Twitter.