The history of California online poker legislation dates back 10 years, but those attempts to pass an online poker bill have intensified since 2014. Over the years, five different lawmakers introduced twelve separate bills in the California legislature, though gained the support they needed to become laws.
After the U.S. Department of Justice published an opinion that online casinos and poker sites were not illegal under their interpretation of the 2006 UIGEA, Delaware, Nevada, and New Jersey founded online gambling industries.
In response, California lawmakers sponsored several new online poker bills. Those efforts have foundered largely on “bad actor” clauses centered around the role of PokerStars in California iPoker. The article below is a detailed history of California’s online poker bills.
History of California’s Online Poker Bills
It contains the main proposals in each bill, along with the reason each measure failed. Men like Roderick Wright, Lou Correa, Reggie Jones-Sawyer, Mike Gatto, and Adam Gray each have sponsored bills in that time. Still, the right formula has been elusive.
Eventually, Nevada, New Jersey, and Delaware passed online gambling bills, while California’s political and business leaders argued. Each time a new bill was introduced in the California legislature, squabbles between land-based casinos hamstrung legislative efforts. Over the past 5 years, battle lines have been drawn that exist to this day.
A brief look at the beginning of the online poker debate in the Golden State might be helpful.
California Online Poker Law Enforcement Compliance Act
The California Online Poker Law Enforcement Compliance and Consumer Protection Act of 2009 was the first attempt to legalize online poker in the United States. The 2009 California online poker bill was only a draft and never received formal consideration in the state legislature. 2010 was the year that the first bill was sponsored.
SB 1485 – State Sen. Roderick Wright
The Internet Gambling Consumer Protection and Public-Private Partnership Act of 2010, also known as SB 1485, was the first online poker bill in California. State Sen. Roderick Wright introduced the bill, named SB 1485, in June 2010.
In September 2010, a Los Angeles grand jury indicted Roderick Wright on 8 charges, including filing a false declaration of candidacy. The indictment made it next-to-impossible for Sen. Wright to champion any legislation in the California State Senate, so the effort was put on hold for a time.
In December 2010, Senator Wright returned to the senate, though the indictments continued to hang over his head. Despite his legal troubles, Wright introduced the Internet Gambling Consumer Protection and Public-Private Act of 2011, also known as Senate Bill 45.
Black Friday Scandal – April 2011
On April 15, 2011, the Black Friday Scandal broke in the United States online poker industry. The U.S. Department of Justice seized the domains of several major online poker sites, including PokerStars, Full Tilt Poker, and Absolute Poker. Top executives from those firms were indicted and player funds were frozen on each of the sites.
The unsealed indictments and seizure of domain had a dampening effect on online poker in America, and players dubbed the day “Black Friday”. The federal government claimed that PokerStars, FullTilt Poker, and Absolute Poker had violated the Unlawful Internet Gambling Enforcement Act (UIGEA) from January 1, 2007 until April 15, 2011. Also, PokerStars was accused of working with smaller US banks to disguise poker withdrawals and deposits from US credit card companies, financial institutions, and authorities.
The so-called Black Friday charges are central to understanding California’s online poker deliberations, because “bad actor” clauses are related to the Black Friday violations. For the time being, though, PokerStars paid a $731 million fine to the US government for its violations.
California Online Poker Association (COPA)
California’s land-based gaming interests continued to plan for online poker, though. In October 2011, the states tribal casinos and private poker rooms formed a lobbying alliance called the California Online Poker Association, or “COPA”.
This group would remain in existence until October 2012, when COPA’s members split over their vision of California’s prospective online poker industry. The dissolution of COPA was a sign of future troubles among the state’s gaming interests.
U.S. Justice Department Opinion on UIGEA
In December 2011, the attorney generals of Illinois and New York State sent a letter to the U.S. Justice Department, asking their opinion on what is legal or illegal under the UIGEA law. Since UIGEA went into effect on December 31, 2006, the Deparment of Justice viewed online sports betting, poker, and casinos as illegal. That opinion was based on an interpretation of what was illegal according to the 1961 Wire Act, which made certain forms of gambling illegal if they were conducted over the telephone lines.
Under the 2011 Department of Justice opinion, online sports betting is illegal, because the Wire Act punished sports bets which were sent over the telephone lines — a law often used to prosecute organized crime, racketeers, and bookies over the years. The Justice Department did not see online casinos or cardrooms as illegal, because people did not make casino bets or poker bets over the phone lines in 1961.
In a surprise decision only 7 months after Black Friday, the federal government suddenly made it legal for online casinos and poker sites to accept real money American gamblers. Individual U.S. states could ban online poker, leave the industry unregulated, or pass regulated that would make iPoker legal. Efforts in a variety of US states got underway to legalize, regulate, license, and tax online poker sites and online casinos. Suddenly, California legislators’ efforts to legalize online poker became much more serious.
Roderick Wright Backs Online Poker Bills
As the federal policies on online poker were changing, State Sen. Roderick Wright continued to sponsor online poker bills in the California Senate. He introduced the Internet Gambling Consumer Protection and Public-Private Partnership Act of 2012, as well as the Internet Gambling Consumer Protection and Public-Private Partnership Act of 2013. Neither of these iPoker bills gained traction in the California legislature, though.
Roderick Wright continued to be a strong supporter of online poker until he was convicted on the 8 charges of corruption on January 28, 2014. While awaiting sentencing, he chose not to introduce his annual iPoker bill in 2012. Instead, he was sentenced in September 2014 to 90 days of confinement and was banned from public office for life. Roderick Wright announced his resignation on September 22, 2014.
Enter: Edwin Correa – SB 678
With Roderick Wright facing legal troubles, Senator Edwin Correa became the new chief supporter of online poker in California. Edwin Correa sponsored the Authorization and Regulation of Internet Poker and Consumer Protection Act of 2013, also known as Senate Bill 678.
SB 678 was more than a year after the DoJ opinion, so the bills at this time were a serious attempt to pass online poker legislation in an environment which allowed it. Edwin Correa’s 2013 legislation was introduced at the same time that successful initiatives were being introduced in Delaware, Nevada, and New Jersey. Every expectation was the California online poker bill would be a success, too.
Unfortunately, the unique troubles for California online poker already were evident. The end of COPA the year before signaled that the state’s brick-and-mortar casino interests could not agree on policy. This political split has proven to be a fatal flaw in any legislation proposed over the past 5 years.
Edwin Correa sponsored online poker bills in 2013, 2014, and 2015. Each time, the bills faltered over bad actor clauses.
California Online Poker Bill 2014 (AB2291)
Reggie Jones-Sawyer is the sponsor of the current online poker bill.
Assemblyman Reggie Jones-Sawyer, a Democrat from South Los Angeles, is the most persistant California politician who supports online poker. Assemblyman Jones-Sawyer supported online poker legislation in 2014, 2015, and 2017.
While a powerful coalition of land-based gaming interests stonewalled the bills, the Reggie Jones-Sawyer continues to push for iPoker legalization to this day. The 2014 California state legislature’s session is important to understanding the main arguments.
Lawmakers introduced two bills that year: one in the State Senate (SB 1366) and one in the General Assembly (AB 2991). Both faced similar opposition. Both were pulled from the process in early August 2014. Reggie Jones-Sawyer sponsored the Assembly bill, while Lou Correa sponsored a bill in the Senate.
Senate Bill 1366 – Senator Lou Correa
State Senator Lou Correa, a Democrat Santa Ana, introduced Senate Bill 1366 in early 2014. The Morongo Tribe of Cabazon and the San Manuel Band of Mission Indians supported the bill, which would have legalized and regulated online poker. Several tribes opposed the SB1366, including the Pechanga Band of Luiseno Indians, the Pala Tribe, and the Agua Caliente Tribe.
The coalition of tribes led by Pechanga, who own the largest brick-and-mortar casino in California, wanted a “bad actor” clause in the bill. The clause would have banned PokerStars from entering California’s iPoker market. Pechanga’s stance earned a strong rebuke from Morongo’s chairman, Robert Martin.
Morongo Chairman on Bad Actor Language
Robert Martin said the bad actor language in the bill was “just a smoke screen…to give a competitive advantage to others.”
Robert Martin figured, if PokerStars entered California’s Internet poker industry, its joint venture with Morongo would have dominated whatever gaming sites the Pechanga Tribe and their allies might have launched.
Thus, a pattern was set that has played out every year since. A handful of operators (Morongo, Bicycle Club) want PokerStars, because they have a deal with the world’s leading online poker site. The remainder of California’s substantial tribal gaming sector wants a bad actor clause.
Since 2014, several politicians introduced legislation designed to bridge the gap. All have failed.
AB 167 – 2015 California Online Poker Bill
In 2015, Reggie Jones-Sawyer sponsored a slightly altered Assembly Bill. This time, Jones-Sawyer worked with Mike Gatto on Assembly Bill 167 to champion “a proper regulatory structure in place that provides safe and compliant internet poker access”.
Jones-Sawyer and Gatto softened the bad actor language in AB 167, hoping to thread the needle between the pro-PokerStars and anti-PokerStars factions. The assemblymen hoped to keep PokerStars in California online poker, while making concessions to Pechanga and its allies.
By the time the assemblymen introduced AB 167, Amaya Gaming’s purchase of PokerStars was complete. The original founders of PokerStars were no longer with the company and David Baazov, a Montreal-based Canadian gaming software executive, was the CEO of PokerStars. The main change in the new proposed statute involved this change in ownership.
Defining a Bad Actor
Assembly Bill 167’s section on bad actors stated, “The person [who] has been convicted in a court of competent jurisdiction of a felony consisting of either having accepted a bet over the Internet in violation of United States or California law, or having aided or abetted that unlawful activity.”
Use of the word “person” was pivotal. This meant that PokerStars executives who led the company during the time it violated the UIGEA would be banned from California online poker, but not the company itself. When the anti-PokerStars coalition’s lawyers had a chance to look at the language, their faction denounced the new legislation. Despite an attempt in June 2015 for all of the tribal gaming interests to gather and negotiate, the whole effort failed. Neither side moderated their demands, so AB 167 floundered like the rest of the recent bills.
AB 9 Online Poker Bill – Assemblyman Mike Gatto
In December 2015, Assemblyman Mike Gatto made another attempt to bridge the gap. Mike Gatto’s bill went further in punishing bad actors, saying any outside company that “has purchased or acquired the covered assets of any entity” considered a bad actor themselves be considered unsuitable for a license.
AB 9 stated, “The commission shall issue a finding that a license applicant is not suitable to obtain a license.”
This seemed to bar PokerStars completely from California online poker, even if it was owned by Amaya Gaming or someone else. Another clause flipped the language, though, giving PokerStars/Amaya an out clause.
The Californian Gaming Commission received authority to waive the above clauses, if the applicant demonstrated “by clear and convincing evidence” that it deserved to receive a gaming license. Thus, the language sounded tough, but if PokerStars convinced commissioners appointed by Governor Jerry Brown it should receive a free pass, then it could enter the California gaming market.
In a press release to support his bill, Mike Gatto said, “The status quo is a lost opportunity. California could receive significant revenue for merely regulating and legitimizing an industry that Californians already participate in, but send their dollars overseas. California has led the world in computer and Internet innovation, and there is no good reason why we can’t continue to lead with a sensible online-poker framework.”
Assembly Bill 9 in 2016
Gatto suggested his bill followed “time-tested business practices” and was a common sense approach to online and mobile poker. The key passage in Assembly Bill 9 read, “The applicant’s use of the covered assets in connection with intrastate Internet gaming will not adversely affect the integrity of, or undermine public confidence in, intrastate Internet poker or otherwise pose a threat to the public interest or to the effective regulation and control of intrastate Internet poker.”
Readers at this point can imagine the reaction of the Pechanga coalition to these stipulations. When Mike Gatto formally introduced his legislation to the Assembly in early 2016, it received almost no attention from other legislators.
“Titanic Shift”: San Manuel LeavesPokerStars Deals
In April 2016, the coalition backing PokerStars took another hit. The San Manuel Band of Mission Indians sent a letter stating they were backing out of the PokerStars deal. One anonymous tribal executives said was a “titanic shift in the landscape”.
Jacob Coin, the Executive Director of Public Affairs, sent a letter informing its potential partners that it was pulling out of the deal. In April 2016, Amaya Gaming Inc. CEO David Baazov took a leave of abscence from Amaya due to insider trading charges back in Canada. Since Amaya was the part of the PokerStars equation with the best reputation, that seemed to shatter San Manuel’s confidence in eventual victory in the case. (Baazov eventually left Amaya altogether.)
Adam Gray’s 2016 Online Gaming Bill
Meanwhile, the gaming legislation which received the most attention was Adam Gray’s daily fantasy sports bill labeled AB 1437, also known as the “Internet Fantasy Sports Game Protection Act”. Assemblyman Adam Gray’s DFS bill won a 62-1 vote in the General Assembly in January 2016, but California’s gaming tribes began opposing the bill in February 2016.
Adam Gray also proposed online poker legilation which offered a stipend to California racetracks. This stipulation did not help Adam Gray’s effort, but is included in the current iteration of California’s online poker proposals.
5-Year Bad Actor Ban for PokerStars
In mid-August 2016, Adam Gray added a 5-year ban for PokerStars under the bill’s “bad actor” clauses. This not only would act as a punishment for PokerStars in terms of tens-of-millions of lost dollars, but competitors would have five years to build brand loyalty among California’s potential 40 million online and mobile poker players.
By early September 2016, Adam Gray’s bill also ran aground in the California Senate. The Morongo Tribe — along with the Bicycle Club, Commerce Club, and Hawaiian Gardens — joined PokerStars in opposition to such a harsh clause in the bill. Adam Gray and his backers said the clause was the result of negotiation, but resulting actions proved that was not the case.
Without widespread agreement, the bill failed. John Pappas, president of the Poker Players Alliance, was critical of the bill. Pappas said, “To suggest that the amendments are the result of some sort of compromise I don’t think is accurate. It was not the result of various stakeholders coming to the table with Assemblyman Gray, hashing out their differences and saying this is what I’m willing to give and this is what I’m willing to take.”
Internet Poker Consumer Protection Act 2017
The current online poker bill in California is the “Internet Poker Consumer Protection Act“. Reggie Jones-Sawyer introduced the bill in late-February 2017 and it is still active. It combined aspects of previous bills by Mike Gatto and Adam Gray, while offering a fig leaf to the California horse racing industry, in hopes of gaining lobbying support from that niche.
The Internet Poker Consumer Protection Act of 2017 calls for a $12.5 million Internet poker licensing fee. The licensing would last 7 years and some of the tax revenues collected would provide a rebate on the next gaming license fee.
Online Poker Stipend for Racetracks
Racetracks throughout the state cannot operate online gambling websites, but 95% of the first $60 million collected in iPoker funds would go to the racetracks. That eliminates competition for the many tribal gaming interests, but pays the horse racing industry a much-needed stipend. Reggie Jones-Sawyer hopes the racetracks of California will lobby on behalf of the bill.
The weakest aspect of the Internet Poker Consumer Protection Act of 2017 is its “bad actor” clause. As always, this is likely to be the poison pill. Like Mike Gatto’s previous bill, Reggie Jones-Sawyer left the PokerStars licensing decision to the California Gaming Commission. Since this option was dismissed by the anti-PokerStars crowd before, it is not likely to gain acceptance now. In fact, the clause is vague enough that Assemblyman Jones-Sawyer might be leaving room for negotiation.
