Assembly Bill 2863, introduced by Assemblyman Adam Gray, D-Merced, would make California the fourth state after New Jersey, Nevada and Delaware to legalize some Internet poker websites. The measure, which passed the Assembly Governmental Organization Committee on a 19-0 vote last week, says the sites can only be operated by Indian tribes that already have casinos in California.

The connection between the financial struggles of California horse-racing tracks and online poker is based on track owners’ arguments that they have been financially devastated by the rise of legal online horse betting and by the proliferation of Indian casinos in the Golden State since 2000. That’s when voters approved a state constitutional amendment making it much easier for tribes to get casinos approved. While the racing industry is declining in California, it still has some pull in the Legislature.

But there is a split in the media over how much of a breakthrough online poker advocates truly achieved last week. Coverage in the niche media that specialize in gambling was less likely to see the committee vote as a huge step toward online poker’s legalization than the mainstream media.

OnlinePoker.Report.com challenged the description of some of California’s wealthiest tribes as being “neutral” on AB2863 simply because they had not taken an unequivocal public stand on the measure. In particular, OPR reported, Agua Caliente and Pechanga representatives privately express broad skepticism about Gray’s bill. 

Some CA tribes want to block online juggernaut

Their biggest objection involves what in the online poker world is known as the “bad actor” debate: whether online poker sites with questionable histories should be firmly banned from partnering with casinos in setting up new state-specific online sites.

PokerStars is the site most consistently depicted as a villain, which led to clauses in a Nevada law meant to keep it out of state-approved online poker sites. Founded in 2001, the world’s largest online poker site was the biggest fish targeted in the U.S. government’s 2011 crackdown on online betting. The next year, it settled its legal fight with the Justice Department by paying $700 million without admitting wrongdoing.

Now PokerStars has quickly established itself as a juggernaut in New Jersey with its pokerstarsnj.com site. In 2014, it lined up partners in California: the Morongo Tribe and the San Manuel Band of Mission Indians.

Unless other tribes get language in AB2863 that provides hard protections against a PokerStars-Morongo-San Manuel partnership, the legislation may end up being opposed by most of California’s richest tribes, whose generous campaign donations have given them considerable clout in Sacramento.

There is again a gap between mainstream and niche media coverage of this issue. Instead of being about keeping “bad actors” out of states, gambling news sites depict “bad actor” clauses as being about market protectionism.

One of the world’s best known law professors, Harvard’s Lawrence Tribe, agrees with that description and could work as a lobbyist for and counsel to PokerStars if a state law attempts to keep PokerStars from partnering with California tribes.

State voters last November rejected Proposition 48, which would have ratified Brown’s and the Legislature’s approval of the proposed $350 million, 2,000-slot machine casino. Opposing the ballot measure was largely supported by the state’s editorial pages on the grounds that the casino would be built on land purchased by North Fork Rancheria that’s more than 30 miles from tribal lands. The fear was this would set up a precedent for a sharp expansion of Indian casinos in heavily populated urban areas.

But the main groups funding the push to reject Proposition 48 were Indian tribes who didn’t want to see their market share reduced, not civic activists worried about gambling expansion. U.S. District Court Judge Anthony W. Ishii’s ruling appears to clear the way for such an expansion. This is from the Fresno Bee:

Ishii said federal law requires the governor to negotiate with the tribe and conclude compact negotiations within 60 days. If both sides can’t reach agreement, the judge will appoint a mediator. The state and the tribe will then have 60 days to present a final offer for the mediator’s selection.

 

The North Fork tribe argued that under federal Indian gambling law, the power rested in the hands of a federal judge to order the governor back to the table and, if necessary, select a mediator to choose between a state-proposed compact and one from the tribe. The complaint was filed after the governor’s office sent a letter to the tribe’s lawyers declining further negotiations.

 

“The state does not now contend that any of the (Department of the Interior) secretary’s determinations were incorrect, nor does it articulate a basis for its refusal to negotiate regarding the Madera parcel,” the judge said in requiring the governor to negotiate.

Construction of the North Fork casino would be paid for by Station Casinos, the Las Vegas company that would operate the facility and share profits with the tribe.

Senate president worries about rapid gambling expansion

The federal court’s ruling is likely to be treated with alarm by some state lawmakers. State Senate President pro Tem Kevin de Leon has a history of raising concerns about off-reservation casinos. In July 2013, he wrote a letter to Gov. Jerry Brown in reaction to approval of the North Fork project.

“I am deeply concerned by the current ad hoc process of approving off-reservation gaming projects which does not sufficiently protect state interests and our residents,” he declared.

But Brown has been working much more closely with Indian tribes to advance their casino projects, at least their non-controversial ones, than his predecessor, Arnold Schwarzenegger.

The Republican actor-turned-politician used his 2003 recall campaign as a platform to demand that Indian tribes share their gaming revenue with the state. Subsequent deals his administration cut with tribes were conditioned on such revenue sharing. But in 2011, the 9th U.S. Circuit Court of Appeals held up a trial court summary judgment ruling throwing out any such state requirements. The blistering opinion mocked the state of California’s official position that demanding a cut of tribal gaming revenue wasn’t really a tax.

“No amount of semantic sophistry can undermine the obvious: a non-negotiable, mandatory payment of 10 percent of net profits into the state treasury for unrestricted use yields public revenue, and is a ‘tax,’” the ruling held.

Brown’s administration chose not to appeal the ruling to the U.S. Supreme Court. That suggests the governor, a Yale Law School graduate, expected the North Fork ruling but didn’t want to resume negotiations with the tribe until ordered to by a federal judge so as to not seem to be defying voters’ rejection of Proposition 48.

But voters have been confronted by unpopular plans to expand brick-and-mortar gaming. And customers in at least one high-profile instance have been confronted by an all-too-literal conflict within tribal casino owners.

Both cases have underscored a new reluctance among Californians to treat Indian gambling operations with the degree of generosity extended by Sacramento.

Earlier this month, voters rejected Proposition 48 — a measure designed to approve the state’s legal authorization for a new, off-reservation casino.

AP reported Gov. Jerry Brown signed off on the plan because it would have precluded putting the casino on “environmentally sensitive” locations in Humboldt County.

It would have allowed the North Fork Rancheria Band of Mono Indians to construct a massive, 2,000-slot building 40 miles away from its reservation. It lost, 61-39.

But according to AP, Prop. 48 backers blamed “opponents — including wealthier tribes with competing gaming interests” that “had confused voters by construing the ballot measure as a referendum on the limits of gaming statewide instead of the one-tribe compact it was.”

Regardless, the tribe’s spokesman Charles Banks-Altekruse told AP the failure of Prop. 48 would simply lead to another deal at a later date. “What’s next is we’ll go back and get another agreement and we’ll build the casino with another compact,” he said.

The ordeal reflected a potentially rancorous political situation, where voters struggle against lawmakers — ultimately unsuccessfully — to impose limits on California gaming. According to the Las Vegas Review-Journal, California’s Indian casinos generate nearly $7 billion in revenue per year, a figure that makes up a fourth of gaming totals nationwide.

Winners and losers

The combination of big money and government regulation that drives Indian gaming expansion well could turn voters who won the fight against Prop. 48 into losers.

According to Jeff Heiman, the Southern California managing director of Tribal Financial Advisors, the defeat of Prop. 48 actually works to the advantage of a troubled casino. The Chukchansi tribe, currently feuding over its Chukchansi Gold Resort and Casino in the town of Coarsegold, recently sent patrons fleeing as a former tribal leader staged an armed raid of the property last month.

The shocking attack, however, was just the latest twist in a factional fight that closed Chukchansi last month. As Heiman suggested to the Fresno Bee, the big financial interests with a large stake in Chukchansi and other Indian casinos will be more apt to work out a deal since Prop. 48 hasn’t put another massive gaming project on the table.

Now temporarily closed (the above image is of the front page of its website), Chukchansi has cost the tribe millions in lost revenue — an especially large poker chip to swallow given the unfavorable terms the tribe had worked out with its creditors.

As the Bee noted, the tribe agreed in 2011 to restructure its debt at an interest rate of 9.75 percent.

In fact, the Bee reported, the October raid was launched to “recover financial records” about audited financial statements from the past two years. Because the audits were late, the National Indian Gaming Commission slapped Chukchansi with an order imposing the temporary closure.

As ABC reported, “Chukchansi’s financial losses are unclear because Indian casinos are not required to disclose earnings.”

Trickle-down benefits

The trouble faced by Chukchansi has exposed the way the economy surrounding Indian gambling often allocates revenues more to financial concerns than to tribal members.

Generating some $100 million a year, the Bee calculated, only about $12 million a year from the casino went to the Chukchansi tribe. The remainder was divided between bond payments, payroll and operating costs.

As a result, tribes face continued pressure to expand casino operations, especially into online gambling.

Robert Martin, chairman of the Morongo tribe, told the Review-Journal that as “tribes come together” on Internet betting, “the opportunity for success grows.”

Yet online gambling faces major high-stakes opposition not only in California, but nationally. Forbes reported:

“Sheldon Adelson, the nation’s 11th richest person and chief executive of casino company Las Vegas Sands, says he is determined to stop online gambling in America and he will go to great lengths to battle the corporate interests pushing for it. ‘I am willing to spend whatever it takes,’ Adelson said in his first interview since The Washington Post revealed that he had hired an army of lawyers and lobbyists to try to convince Congress to ban online gambling.”

As a Republican, Adelson will wield even more clout when the GOP takes over the U.S. Senate in January.