California Legislators Offer Initial Approval for Online Gambling Bill

After nearly a decade of halting progress, legislation designed to legalize and regulate the online poker industry in California recently cleared the latest hurdle.

On April 23, by a unanimous 19-0 vote, the state’s Assembly Governmental Organization Committee passed Assembly Bill 2863 – moving the latest iPoker proposal put forth by California lawmakers through to the next phase in the process.

AB-2863 was introduced in February of this year, under the auspices co-sponsors Assemblyman Adam Gray and Assemblyman Reggie Jones-Sawyer, as an amendment to a previous proposal. That bill, known as AB-431, was floated in 2015, but the so-called “shell” of a potential legislative failed to gain significant traction.

The point of contention for opponents of AB-431, and prior attempts to pass an iPoker bill for that matter, has been twofold.

First, a loose coalition of Native American tribes – which currently holds the exclusive right to operate casinos and gambling enterprises within California – remains vehemently opposed to allowing horse racing tracks to apply for online poker licenses. According to the representatives for seven California tribes, led by the Pechanga Band of Luiseño Indians of Temecula, granting racetracks the right to run online poker operations violates the longstanding laws which restrict gambling to tribal jurisdictions.

Second, many of these same tribes, along with a vocal group of state lawmakers, business people, and government officials, have expressed their desire to institute a so-called “bad actor” clause within any iPoker legislation. The term bad actor refers to any online poker operator which willfully violated federal law by continuing to serve American customers following the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

In specific terms, the bad actor debate centers around PokerStars, as local entities fear that the industry’s undisputed global leader would quickly monopolize the state’s fledgling industry.

Improving by leaps and bounds on AB-431 and that bill’s barebones construction of regulatory law, Assemblymen Gray and Jones-Sawyer sought to address these specific concerns when drafting AB-2863. In doing so, the lawmakers appear to have assuaged many of the most oft cited concerns, especially those raised by tribes in regards to racetracks.

Under the provisions of AB-2863, California’s racetracks would receive annual disbursements of up to $60 million – based in part on income generated by online poker business itself, along with the hefty licensing fees charged to prospective operators. Under this arrangement, the racetracks would benefit financially from a successful online poker industry, but in exchange, no horse racing track would be permitted to apply for licensure as an online poker operator.

The bad actor debate is not addressed as clearly by AB-2863, and no prohibitions on bad actors was included in the legislative language. Despite this fact, the Morongo, San Manuel, and United Auburn tribes, as well as the California Nations Indian Gaming Association all reversed their previous opposition to iPoker by appearing at the April committee hearing to voice their support.

While AB-2863 doesn’t address the bad actor issue directly, the bill puts a greater emphasis on enacting consumer protections than any previous attempt to legalize online poker in California. The bill would make it a felony for residents of the state to play on any unregulated sites, mandate strict segregation of player funds in separate accounts, employ cutting edge geolocation technology to prevent out-of-state players from abusing the system, and divide the regulatory responsibilities between the California Gaming Control Commission and the California Department of Justice.

California is seeking to become the fourth state to enact online poker regulations, following Nevada, New Jersey, and Delaware. And while May’s unanimous approval was an encouraging sign, AB-2863 will still need to be passed by the Assembly Appropriations Committee, before moving on to the state’s Senate for final approval.