Online Gambling in California

Before Delaware became the first state to legalize online gambling in 2012, it was widely thought that California would be the first to do so. With a vast amount of Californians taking part in online poker, the fact that California still has not passed definitive legislation addressing online gambling is a testament to the difficulties that await any bills passage into law. California's neighbor, Nevada, has since passed legislation of its own to regulate online poker, thus lending prospects to developing interstate gambling compacts and further giving California even more incentive to pass legislation. While efforts are still being taken to do so, as of January, 2017, California is still lacking online gambling regulations.

Is Online Gambling Legal in California?

The short answer is that online gambling in California is neither legalized nor criminalized.

Proposed Legislature Failure

Having debated the issue of regulation for over ten years, California lawmakers have certainly not tried to pass regulatory legislation. As is the case with other states that have land-based gambling industries, getting all sides to agree on regulations, let alone legalizing online gambling to begin with, can be a tricky matter. In the case of California, this has involved catering to the needs of brick and mortar poker rooms, tribal casinos and horse racing tracks. But unlike New Jersey, which now has a small but growing online gambling industry, California has not been in the same fiscal "crisis" many other states have endured.

This is not to say California could do without the tax revenue. The more pressing issue has been meeting the demands of all party's with stakes in California's gambling business. Initially, the biggest challenge for California lawmakers was getting the horseracing industry on board. Largely thanks to Assemblyman Adam Gray and a provision that would give the industry a $60 Million stipend, the largest coalition to date in support of online poker was formed. But this was to be short lived, as dissension amongst California's tribal leaders, namely the powerful Pechanga tribe, was brewing. As to be expected, part of the controversy centered around PokerStars, which is a recognized brand in California, that had partnered up with the Morongo tribe.

Pechanga rightfully believed that PokerStars would have a competitive edge in California and pushed for a permanent ban of Poker Stars. This, in turn, did not draw support from the Morongo tribe. Not until PokerStars agreed to a $20 Million fine (for doing prior business in California) and Pechanga backed off pressing for a permanent ban (settling instead for a 5-year ban to give other online poker rooms time to establish themselves) did it seem as if any progress was being made. But the reality is that an agreement is far from over, and the momentum to pass legislation in 2016 has slowed considerably.

As mentioned, several bills have been introduced to regulate online poker in California. At the beginning of the 2014 legislative session, a major concern was whether or not to allow for interstate gambling pacts, with AB 2291 calling for a prohibition of interstate liquidity agreements.

Assembly Bill 2291

AB 2291's primary focus was to give California tribal gaming groups the ability to become online poker room license holders, while providing protections against poaching of their land-based gambling revenues. Provisions included a 10-year renewable license (assuming the operator is in good standing), a quarterly 5% tax on gross online poker revenues, and a one-time licensing fee of $5M to be earmarked for ongoing taxes.

As mentioned, AB 2291 sought to prohibit interstate compacts to prevent poaching of revenues. It also included a "bad actor" clause that would prevent any operator found to have accepted real money wagers in California before the passing of federal regulations to ban online gambling. Although no specifics were made in regards to a timeframe, a general consensus was that it would be following the passing of the UIGEA (post 2007).

Ultimately, AB 2291 did not win over all parties, and would soon become further altered and combined with additional legislation.

 

Senate Bill 1366

In manny ways very similar to AB 2291,  SB 1366 differed in two key areas: 1) It called for the allowance of interstate gambling compacts, and 2) It imposed a $10M licensing fee to be earmarked for paying taxes at an increased monthly rate of 10%, which was essentially double that of AB 2291. In the end, the fate of SB 1366 would be the same as AB 2291 - never fully gaining the support it needed for a final vote.

Assembly Bill 2863

AB 2863 is currently the bill that stands the best chance of being passed into law in 2017. Although AB 2863 does not specifically address taxation, a previous version of the bill (AB 431) called for a $15 Million licensing fee to be earmarked for paying a 15% taxation rate on gross poker revenues.

The primary focus of AB 2863 however, pertains to getting the entire brick and mortar gambling business on board. This initially included the horse racing industry, which was achieved by legislating a $60 million kickback to racetracks.  The second point of contention revolved around a bad actor clause. Initially devoid of a bad actor clause, protest from the Pechanga tribe (directed toward the Morongo tribes affiliation with Poker Stars) resulted in an amendment that would impose a five-year penalty on Poker Stars' participation along with a multi-million-dollar fine. To be expected, the Morongo tribe was not on board with this amendment, and a rift was formed, leading to the current delay in proposing a newly amended bill.

Other provisions in AB 2863 state that licenses can be renewed every seven years, license holders can operate up to two websites, and that operators (including Tribal groups) must have at least five years of experience in the brick and mortar casino gambling business. B2B partnerships are also permitted between qualified companies.

As of January 1, 2017, legislative actions are pending. For more legislative updates on the California online gambling industry, please visit the California Gambling Control Commission : http://cgcc.ca.gov.