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California Poised to Pass On-Line Poker Legislation




by:
Jeffrey Leacox
Greenberg Traurig, LLP - Sacramento Office

Martha A. Sabol
Greenberg Traurig, LLP - Chicago Office

Parke D. Terry
Greenberg Traurig, LLP - Sacramento Office

 
March 27, 2014

Previously published on March 20, 2014

Two coalitions have introduced rival bills in the California Legislature marking a third year of debate among state lawmakers over how to license and regulate on-line poker.

Previous Internet gaming legislation stalled when stakeholders could not reach consensus on the scope of games, which entities would be permitted to apply for licenses, or how licensees and subcontractors would be vetted for suitability. Also at issue in the dueling bills is the extent to which the State will attempt to impose burdens on tribal sovereign immunity in connection with any online gaming activities.

Although some differences remain, there is a sense amongst observers of the legislature that there is an emerging consensus among some stakeholders that could allow a bill to move forward. Additionally, a change in the chairmanship of one of the key legislative committees that controls gaming-related bills brings a more favorable dynamic to the discussions. The new Chair of the Senate Governmental Organization Committee, Senator Lou Correa (D-Santa Ana), is the author of one of the new bills (SB 1366) and has displayed willingness to understand and accommodate stakeholder concerns.

The Correa bill is backed by a coalition including the San Manuel Band of Serrano Mission Indians, the United Auburn Community, and the Rincon Band of Luiseño Indians, among others. The other bill (AB 2291) was introduced by Assemblymember Reggie Jones-Sawyer (D-Los Angeles), a relative newcomer to on-line gaming. AB 2291, has the support of the Pechanga Band of Luiseño Indians, the Agua Caliente Band of Cahuila Indians, and the Yocha Dehe Wintun Nation, as well as others.

Both bills legalize on-line poker only, and require that all players be physically located within the state boundaries. Both bills limit operator licensing to: (i) federally-recognized California tribes that have conducted on-premises casino gaming under the Indian Gaming Regulatory Act (IGRA) for a minimum period of time or (ii) licensed card rooms that are in good standing with the California Gambling Control Commission. Both bills provide for expedited background checks for license applicants that currently operate tribal casinos or card rooms. Both bills also exclude racetracks and advance deposit wagering providers that were included as potential licensees in previous legislation.

Significant differences between the two bills include license application procedures, eligibility and suitability requirements for licensees and subcontractors, permitted methods for presenting poker games to players, the number of websites or online gaming portals each licensee may operate, and whether the state could opt-in to any future federal framework for regulating Internet gambling.

The two bills take different approaches to the ability of licensed operators to contract with game technology, marketing, or service providers that accepted on-line wagers from players in the U.S. after December 31, 2006, the date the Unlawful Internet Gambling Enforcement Act (UIGEA) became effective. As gaming purveyors have begun to partner with providers of on-line gaming technology and marketing services, those partnerships and service arrangements have also given rise to some controversy about what sorts of entities might be excluded from participation in on-line gaming under California law has become one of the most contentious unresolved issues.

The Correa measure requires a finding of unsuitability for persons or entities that knowingly and willfully accepted a bet on any form of Internet gambling not affirmatively authorized by U.S. law, or for persons or entities that held a direct or indirect financial interest in a person or entity accepting the bet. The Correa bill further prohibits a licensee from entering into an agreement with a third party for marketing purposes that utilizes any brand or business name, trademark, software, or technology of persons or entities that knowingly and willfully accepted bets on any form of Internet gambling from persons located in the U.S. after December 31, 2006. However, the Correa bill also permits the California Gambling Control Commission to grant waivers where the person or entity demonstrates by clear and convincing evidence that it did not act in an unlawful manner.

Conversely, the Jones-Sawyer bill requires a finding of unsuitability, with no possibility of waiver, for persons or entities that accepted a wager from any person in California on any form of Internet gaming prior to an unspecified date. However, his bill does not prohibit a licensed operator from utilizing the brands, technology, or customer lists of persons or entities that would automatically be deemed unsuitable.

It is likely that both bills will be significantly amended as they work their way through the legislative process. The current legislative session is scheduled to end on August 31st and Governor Jerry Brown will have until September 30th to act on any bills reaching his desk.

With an estimated one million poker players residing within its boundaries, the Golden State would become by far the single largest Internet gaming market in the U.S. with gross poker wagers likely exceeding one billion dollars and generating potential state revenues of $250 to $400 million annually.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Jeffrey Leacox
Martha A. Sabol
Parke D. Terry
 
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