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.

But it was only last year that the weakness of Proposition 1A came into full view. The North Fork Tribe of Mono Indians got the OK from state and federal authorities to build a large casino adjacent to busy Highway 99, 35 miles northwest of Fresno.

The casino site, however, was not long-held tribal land. It was purchased by the North Fork Tribe in 2012 and was 38 miles away from the nearest tribal land. This contradiction of promises made in 2000 didn’t bother state officials — not even the fact that the precedent it set might bring Indian casinos into every big city in the state.

So what happened to the North Fork casino proposal? Instead of being pushed through by big gambling money, the project was squashed with big gambling money. Other casinos funded a signature-gathering campaign to get what would become Proposition 48 on the November ballot.

This is from a Monday story in the Los Angeles Times analyzing the final round of campaign spending reports released by state officials.

Rival Native American casino interests spent $18 million last year to defeat Proposition 48, which would have given permission for two other tribes to build a new casino near Madera, just north of Fresno, according to records filed by the campaigns.

A separate committee that supported the ballot measure spent $631,000, much of it from the North Fork Rancheria of Mono Indians, which planned to build the new casino near Madera, and the Las Vegas giant Station Casinos Inc., a partner in the project.

The measure was rejected by 61% of voters in the November election.

The campaign that defeated the measure on the November ballot was largely funded by the Table Mountain Rancheria, a Native American group that operates a casino 25 miles east of Madera, and Brigade Capital Management, a New York hedge fund invested in the Chukchansi Gold Resort & Casino in nearby Coarsegold, Calif.

Those interests spent $15.7 million on a campaign that argued that allowing an off-reservation casino would set the stage for more Indian casinos closer to neighborhoods in cities in California.

The distant tribe opposing Fresno-area project

But it wasn’t just nearby casinos protecting their interests. A casino more than 300 miles to the south, eager to avoid a precedent that could lead to it having tough competitors for the Los Angeles market, also joined the onslaught against the North Fork project.

Another group, including the Pechanga Band of Luiseno Indians, formed a second committee that spent $2.3 million to oppose the ballot measure.

That’s also from the Times account, which doesn’t mention Pechanga’s casino is in Temecula in southern Riverside County, less than an hour’s drive from much of affluent Orange County and from the east L.A. suburbs full of Asian-Americans who are Indian casinos’ best customers.

If Pechanga tribal leaders would spend $2.3 million to block a casino 300-plus miles away, it boggles the mind to think how much they’d spend to block a fancy Indian casino project in the Los Angeles Basin.

And so the main check on “reservation shopping” to speed the spread of Indian casinos throughout California is other Indian casino operators, who perceive gambling as a zero-sum game in the Golden State and don’t want to lose market share.

Assemblymen Mike Gatto, D-Glendale, and Reggies Jones-Sawyer, D-Los Angeles, have introduced separate proposals to allow online poker in the largest potential gaming market in the country. As many as 2 million Californians already play online poker, according to e-gaming company Vista Global Media, Inc., using websites located in other states or countries.

Both bills would take advantage of new federal rules that allow states to legalize and regulate online poker. Delaware, Nevada and New Jersey have already granted gamblers the right to ante up online. The two bills proposed in California would establish the basic regulatory structure, set licensing requirements for online poker providers and levy taxes on gross online gaming revenue.

While the bills share much in common, their subtle differences foretell a bruising battle between the state’s biggest and most powerful gambling interests.

Gatto’s AB9: Limited to card rooms, tribal casinos

Back in December, Gatto was first out of the gate, arguing that California lets millions of dollars in potential tax revenue flow to other jurisdictions.

“The status quo is a lost opportunity,” Gatto said last month when he introduced his legislation. “California could receive significant revenue for merely regulating and legitimizing an industry that Californians already participate in but send their dollars overseas.”

His proposal, Assembly Bill 9, includes a one-time license deposit of $5 million, which “would be credited against quarterly fees equivalent to 5 percent of the licensee’s gross gaming revenue proceeds.” It limits licenses to tribal gaming establishments and card rooms, excluding the horse racing industry, from the market.

“The state’s interests are best met, therefore, by licensing only those entities in California that have experience operating card rooms and tribal gaming facilities that are currently permitted to offer live real-money poker games and are in good standing with the appropriate state, federal and tribal regulatory agencies,” Gatto’s bill states.

Understandably, Joe Morris, president of Thoroughbred Owners of California, objected to Gatto’s exclusion, saying his industry wants a piece of the action.

“We want a seat at the table, on a level playing field,” Morris told Dave Palermo of Pechanga.net. “If there are licenses out for sites, we want a site also.”

Jones-Sawyer embraces horse racing industry

Gatto’s exclusion of the horse racing industry is one of several major differences with Jones-Sawyer’s proposal.

Assembly Bill 167 explicitly includes “in-state horse racing associations” in the list of potential online poker providers. Jones-Sawyer, who serves as chair of the California Legislative Black Caucus, also calls for a higher deposit, $10 million, and higher tax rate of 8.5 percent of “the licensee’s gross gaming revenue proceeds.”

“The reintroduction of this legislation comes on the heels of very thoughtful and collaborative discussion, including substantial input from both the state Department of Justice and the Gambling Control Commission,” Jones-Sawyer said in a press release announcing the bill’s introduction. “It is absolutely essential that we have a proper regulatory structure in place that provides safe and compliant internet poker access.”

While Jones-Sawyer has curried favor with horse tracks, he’s drawn the ire of the state’s most powerful gambling interest, the Pechanga Band of Luiseno Indians.

Debate over “bad actors”

Pechanga is concerned that Jones-Sawyer’s legislation would allow “bad actors” to enter the online poker market. The concern is similar to its opposition to Proposition 48, which voters rejected in 2014 and would have allowed off-reservation casinos.

“There is much for tribes to dislike about this bill,” Pechanga Tribal Chairman Mark Macarro said in reference to AB167. “We are disappointed that the bill disregards important principles from a broad coalition of respected tribes and card rooms that help prevent corporations and entities that previously violated federal law from profiting from tainted software, brands and databases derived from illegal activity.”

Macarro’s reference to “entities that previously violated federal law” is directed at PokerStars, a popular online poker site that defied the 2006 federal Unlawful Internet Gambling Enforcement Act. In 2011, the U.S. Department of Justice used UIGEA to seize the Internet domains and freeze the accounts for several online poker sites, including PokerStars. The following year, the company reached a settlement with the Justice Department that dismissed the charges without admitting any wrongdoing.

Gatto’s bill includes language that could qualify PokerStars as a “bad actor” for its role in violating the 2006 law. According to OnlinePokerReport.com, Jones-Sawyer’s bill “appears to lack any UIGEA brightline or similar conditionals designed to explicitly exclude PokerStars.”

In addition to PokerStars, several tribes and card rooms are opposed to the tougher standards for blocking “bad actors.” Amaya Gaming Group, which owns and operates PokerStars, has partnered with two tribes, Morongo and San Manual, and three card rooms, Bicycle, Commerce and Hawaiian Gardens, to develop an online poker venture.

“The bill seeks to establish a vibrant, competitive, fully inclusive marketplace with choices for consumers that enacts strong consumer protections; requires strict oversight and regulation of operators and licensees; and ensures a financial return for the state,” the PokerStars coalition said in reference to Jones-Sawyer’s bill.

Potential for compromise?

What are the chances for a compromise?

“If this gets done, and it’s a big if, it’s going to be a year-long process,” Gatto told PokerNews. “It’s not a bill that’s just going to be amended a little bit. It will be amended at every committee stop, and it would probably appear in six committees before it passed.”

He added that he looks forward to working with Jones-Sawyer to forge a compromise bill.

“My goal remains creating a sensible framework for a new California industry,” Gatto said. “That will involve a thoughtful process of consultation with all of the key stakeholders. I pride myself in listening; I expect this process will continue throughout the year.”

Both measures need a two-thirds majority in both houses of the Legislature.

The Pechanga Band of Luiseño Indians recently contributed $1 million to oppose Proposition 48, a controversial compact that would pave the way for off-reservation casinos in California. In the tribe’s view, the state’s agreement with the North Fork Rancheria of Mono Indians would set a “bad precedent” and violate the spirit of Proposition 1A, the measure approved by voters in 2000 that authorized gaming on reservation land.

“Proposition 48 would allow a Nevada gambling company to use a rural tribe to build a casino on off-reservation land,” Mark Macarro, the tribal chairman of the Pechanga Band of Luiseno Indians, tells voters in a new ad. “48 would set a bad precedent — allowing off-reservation casinos.”

The tribe’s opposition to Prop. 48 is notable in that it has no vested financial interest in the outcome. Tribes with nearby casinos commonly use ballot measures and legislative approval of compacts as another front in their battle for the $7 billion tribal gaming market. In this case, Pechanga’s popular resort and casino in Temecula would be unaffected by the North Fork’s plans to build a casino in the Central Valley.

Its opposition to Prop. 48 seems motivated by an interest in preserving voter support for a system that has allowed the tribes to lift themselves out of poverty.

Referendum of controversial North Fork compact

In 2013, the Legislature narrowly approved Assembly Bill 277, a gaming compact that authorized the North Fork Rancheria of Mono Indians to build and operate a casino with up to 2,000-slot machines. The 305-acre site is conveniently located off Highway 99 north of Fresno — nearly 40 miles away from the North Fork reservation.

That location would give the North Fork tribe a competitive advantage over the Table Mountain Rancheria tribe, which “played by the rules” and built a smaller casino on its reservation lands.

“Years ago, California Indian Tribes asked voters to approve limited casino gaming on Indian reservation land,” opponents of Prop. 48 write in their ballot argument. “While most tribes played by the rules, building on their original reservation land and respecting the voters’ wishes, other tribes are looking to break these rules and build casino projects in urban areas across California.”

Last week, the Table Mountain Rancheria, along with Pechanga, contributed $1 million to the No on 48 campaign, according to Capitol Weekly. In all, Table Mountain Rancheria has spent more than $10 million to oppose Prop. 48.

Prop. 48 bankrolled by Station Casinos

The North Fork tribe says that the land located off Highway 99 was associated with the tribe centuries ago.

“We’re getting back to the historical land that served as a reservation for our tribe in the 1850s,” Charles Banks-Altekruse, a spokesman for the tribe, told the Associated Press.

In addition to its controversial site, the compact would exempt the project from the state’s environmental regulations and benefit its Las Vegas casino operator, Station Casinos. According to the Los Angeles Times, the Las Vegas-based casino company would “reap 30 percent of the profit.”

Unsurprisingly, Station Casinos has bankrolled the “Yes on 48” campaign. After the North Fork tribe, Station Casinos is the biggest contributor to the Yes on 48 campaign. According to state campaign finance disclosure reports, the Las Vegas-based casino giant has spent $375,000 to convince voters to approve the compact.

“Prop. 48 is not about Indian gaming,” Macarro said in a statement to the Press-Enterprise. “It is about a Las Vegas casino corporation making an end run to locate a casino in an urban area.”

Prop. 48: “Transforming California into Nevada”

Station Casinos’ support for the measure validates criticism that the North Fork compact could pave the way for Nevada-style gaming in California.

“Now, the North Fork tribe aims to change the face of tribal gaming, effectively transforming California into Nevada, where casino gambling is permitted practically anywhere and everywhere,” the Orange County Register wrote in its editorial against Prop. 48. “If that is what is to become of California, the issue should be put clearly before the state’s electorate and not by a ballot measure that does not inform voters that they are being asked, effectively, to ratify the precedent of off-reservation tribal casinos.”

If approved, the compact would provide the state with a one-time payment of between $16 million to $35 million, followed by $10 million annually over the next 20 years. The compact also requires the North Fork tribe to contribute less than 4 percent of slot revenues to the Wiyot Tribe, which has agreed not to build a casino on its nearby land.

Prop 48: Ballot Summary

A “Yes” vote approves, and a “No” vote rejects, tribal gaming compacts between the state and the North Fork Rancheria of Mono Indians and the Wiyot Tribe. Fiscal Impact: One-time payments ($16 million to $35 million) and for 20 years annual payments ($10 million) from Indian tribes to state and local governments to address costs related to the operation of a new casino.

No on 48 ad: “Honoring the Trust”