BILL ANALYSIS                                                                                                                                                                                                    

                                                       Bill No:  SB  
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis

          SB 1485  Author:  Wright
          As Amended:  June 22, 2010
          Hearing Date:  June 29, 2010
          Consultant:  Art Terzakis


                               Internet Gambling

          SB 1485 is an  urgency measure  that enacts the "Internet  
          Gambling Consumer Protection and Public-Private Partnership  
          Act of 2010" for the stated purpose of authorizing,  
          implementing, and creating a legal system for intrastate  
          Internet gambling in order to protect the millions of  
          Californians who gamble online, allow state law enforcement  
          to ensure consumer protection, and to keep the revenues  
          generated from Internet gaming in California.   
          Specifically, this bill:

          1.  Creates a contractual framework to ensure that  
            authorized games are only offered for play in a manner  
            that is consistent with federal and state law. 
           2.  Authorizes the Department of Justice (DOJ), pursuant to  
            a  request for proposal (RFP) seeking hub applicants  
            issued consistent with the terms and conditions in this  
            chapter, to enter into a  20-year contract with up to  
            three hub operators  that meet the background requirements  
            and demonstrate the technical expertise to ensure that  
            wagering authorized by this chapter is only offered to  
            registered players who are physically present within the  
            borders of California at the time of play and who are 21  
            years of age or older.

          3.  Stipulates that factors to be considered in evaluating  


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            hub applicants shall include, but are not limited to,  
            quality, competence, experience, past performance,  
            efficiency, reliability, financial viability, durability,  
            adaptability, timely performance, integrity, security,  
            and the consideration promised to the state, including a  
            lump-sum cash offer, and increasing the percentage of  
            revenue sharing with the state, up to, and including,  20%  
            of the hub operator's gross revenues.  

          4.  Stipulates that DOJ shall establish scoring parameters  
            for evaluation of all bid proposals and requires that  
            DOJ's selection criteria for hub applicants give  
            preference to proposals that meet the following criteria:  
            (a) are most responsive; (b) are most qualified; (c)  
            provide the most revenue to the state; (d) have a  
            managing partner or chief executive officer that is an  
            owner-licensee of a card club or an official of a  
            federally recognized Indian tribe with a tribal-state  
            compact, or a California licensed horseracing  
            association; (e) are eligible to participate in the  
            state's small business program or the Disabled Veteran  
            Business Enterprise Program; and, (f) propose to locate  
            in a distressed area, enterprise zone, or closed military  
            base area, as specified.  

          5.  In recognition of the initial investments and efforts  
            required to start up this business venture, and to ensure  
            hub operators are in the best position to compete with  
            offshore operators and to be successful, requires a hub  
            operator to remit to the State Treasurer on a monthly  
            basis that percentage of its gross revenues as agreed in  
            the contract between the state and the hub operator, but  
             no less than 10% of its gross revenues.  

          6.  Stipulates that a person submitting a proposal to  
            become a hub operator, and all subcontractors of that  
            person, must be residents of California and have all hub  
            facilities and bank accounts related to intrastate online  
            gambling in California.  Provides that, at all times, a  
            hub applicant or hub operator must be domiciled in  
            California and be in good standing with the Secretary of  
            State and Franchise Tax Board.  Also, makes it explicit  
            that a person who is a hub operator that is operating  
            lawfully in another state is eligible to become a hub  
            operator in California.


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          7.  Furthermore, requires hub applicants at the time of  
            submitting a proposal to: (a) post a bond, in an  
            unspecified amount, payable to the state (to be returned  
            if the hub applicant is found unsuitable); and (b) submit  
            nonrefundable filing charges to the State for costs  
            incurred by DOJ and the California Gambling Control  
            Commission (CGCC) in evaluating the suitability of the  

          8.  Provides that any federally recognized Indian tribe  
            that submits a bid shall waive its sovereignty for  
            purposes of evaluation of the bid.  The proposal shall  
            affirmatively declare that the applicant is subject to  
            the state's jurisdiction as set forth in this chapter.   
            Any contract between the state and a federally recognized  
            tribe to offer games as a hub operator shall include that  
            tribe's affirmative agreement to be subject to the  
            jurisdiction of the state for all purposes under this  

          9.  Provides that CGCC will issue a finding of suitability,  
            per specified criteria that mirror the criteria in the  
            Gambling Control Act.  Additionally, makes it explicit  
            that the CGCC shall find both an owner-licensee of a card  
            club or a federally recognized tribe with a tribal-state  
            gaming compact suitable to become a hub operator.  Also,  
            establishes criteria for unsuitability, as specified,  
            including that a hub applicant has offered or allowed  
            games to be played over the Internet for compensation in  
            this state since the passage of the federal Unlawful  
            Internet Gambling Enforcement Act  (UIGEA) of  2006 .

          10. Requires  all  games offered for play to be approved by  
            DOJ, including game rules and betting rules, before they  
            are offered to registered players.

          11. Requires all subcontractor and employees of the hub  
            operator to be subject to background review and approval  
            by CGCC and DOJ and provides for confidentiality of hub  
            contractors'  and subcontractors' proprietary  

          12. Makes it explicit all registered players must be  
            physically located in the State of California at the time  
            of gambling and no registered play may be less than 21  
            years of age.  Also, establishes procedures for verifying  


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            that a person is 21 years of age or older.    

          13. Requires hub operators to deploy controls and  
            technology to ensure games are fair and prevent fraud,  
            cheating through collusion, and robotic play, among other  
            things. Also, stipulates that the hub operator shall not  
            permit registered players to make payments by money order  
            or cash. 

          14. Permits the hub operator to enter into an agreement  
            with a third party for marketing, or any other purpose  
            consistent with this Act, including, but not limited to,  
            displaying the name of a marketing partner on a screen  
            viewed by registered players.

          15. Requires the hub operator to provide information  
            regarding problem gambling on the Web site and to post on  
            the player's screen information related to the amount of  
            time the player has been playing during the current  
            session, his or her winnings or losses during the current  
            session, and periodically requires the player to confirm  
            that he or she has read alerts.

          16. Requires the hub operator to establish a 24 hour toll  
            free help line and requires the CGCC to provide, by  
            regulation, a process for the hub operator to exclude  
            from play any person who has filled out an Online  
            Self-Exclusion Form.

          17. Ensures that all applicable state agencies will have  
            unfettered access to the premises and records of each hub  
            operator to ensure strict compliance with state law  
            concerning credit authorization, account access, and  
            other security provisions.

          18. Requires the hub operator to establish a book of  
            accounts and to regularly audit all of its financial  
            records and reports and be retained in a manner by which  
            it may be accessed by the state agencies online.

          19. Makes it explicit that both the accounts of the hub  
            operator and its segregated registered player accounts  
            must be held in financial institutions located in the  
            State of California.

          20. Provides that the hub operator shall have discretion to  


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            use the expertise of personnel not physically present in  
            the state when necessary to protect registered players  
            and state interests, including, but not limited to, for  
            the purposes of diagnosing and addressing technological  
            problems, investigating fraud and collusion, and  
            supervising software and configuration changes.

          21. Authorizes DOJ, after any hub operator has been  
            providing authorized games for five years, and at any  
            time thereafter, to renegotiate the terms and conditions  
            of the contracts with the hub operators, based in large  
            part on the report and recommendations of the Bureau of  
            State Audits with respect to all aspects of the hub  
            operator's operations, obligations, and economics, and  
            offer existing hub operators the opportunity to agree to  
            these modifications and continue in partnership with the  
            state, subject to the statutory approval of those terms  
            and conditions by the Legislature.

          22. Provides that, if the Legislature statutorily approves  
            the new contract terms and conditions related to the  
            rights and obligations of the hub operators, the existing  
            hub operators may continue in partnership with the state.  
            If the existing hub operators decline to accept the new  
            terms and conditions, DOJ may commence a new RFP process  
            to award contracts to new hub operators.

           23. Provides that, if DOJ recommends no changes to the  
            terms and conditions of the contract, or if the  
            Legislature does not approve any changes to the terms or  
            conditions of the contract, the hub operators shall  
            continue to operate under the existing terms and  
            conditions of the contract, and the contract shall remain  
            in force for the remainder of the term of the contract,  
            or until those terms and conditions are subsequently  
            renegotiated and are approved by the Legislature.

           24. Authorizes DOJ to issue an RFP seeking additional hub  
            applicants should the Legislature determine to increase  
            the number of hub operators.  Also, requires that each  
            hub operator comply with federal and state laws and  

          25. Distributes contractual consideration collected by the  
            state from each hub operator to the Internet Gambling  
            Fund, created by this bill, which shall be administered  


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            by the Controller subject to annual appropriation by the  
            Legislature, and which shall not be subject to the  
            formulas established by law directing expenditures from  
            the General Fund, for the actual costs of contractual  
            oversight, consumer protection, state regulation, and  
            problem gaming programs, and other purposes as the  
            Legislature may decide.

          26. Preserves the authority of the Legislature to opt out  
            of, or opt into, any federal framework for Internet  
            gambling, or to enter into any compact with other states  
            to provide Internet gambling.

          27. Preempts any city, county, or city and county from  
            passing any law or ordinance regulating or taxing any  
            matter covered in this Act as a matter of statewide  

          28. Require CGCC, in consultation with DOJ, the State  
            Treasurer, and Franchise Tax Board, to issue an annual  
            report to the Legislature describing the state's efforts  
            in implementing this bill.

          29. Requires the Bureau of State Audits, at least 3 years  
            after the commencement date of any hub operator's  
            contract with the state, but no later than 4 years after  
            that date, to issue a report to the Legislature detailing  
            the implementation of the bill, and, to make  
            recommendations on the terms, conditions and economic and  
            operational impacts of the contract and consideration to  
            the state.  The State Auditor shall also advise the  
            Legislature whether continuation of the moratorium on  
            state gambling is justified, given statewide competition  
            with legalized Internet gambling.

          30. Makes various legislative findings and declarations and  
            defines numerous terms applicable to this Act and  
            contains an  urgency  clause to take effect immediately. 
                                  EXISTING LAW

           The Gambling Control Act of 1997 established the California  
          Gambling Control Commission which has licensing  
          jurisdiction over the operation of card clubs and of all  
          persons having an interest in the ownership or operation of  


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          card clubs.

          Article IV, Section 19, subdivision (e) of the California  
          Constitution permits Indian tribes to conduct and operate  
          slot machines, lottery games, and banked and percentage  
          card games on Indian land if (1) the Governor and an Indian  
          tribe reach agreement on a compact; (2) the Legislature  
          approves the compact; and (3) the federal government  
          approves the compact. 

          Existing federal law, the Federal Indian Gaming Regulatory  
          Act (IGRA) of 1988, established the jurisdictional  
          framework that presently governs Indian gaming. Under IGRA,  
          before a tribe may lawfully conduct class III gaming (games  
          commonly played at casinos, such as slot machines and black  
          jack), the following conditions must be met: (1) The  
          particular form of class III gaming must be permitted in  
          the state; (2) The tribe and the state must have negotiated  
          a compact that has been approved by the Secretary of the  
          Interior; and (3) The tribe must have adopted a tribal  
          gaming ordinance that has been approved by the chairman of  
          the National Indian Gaming Commission.

          Existing federal law, the Unlawful Internet Gaming  
          Enforcement Act of 2006 (UIGEA), prevents U.S. financial  
          institutions from processing payments to online gambling  
          businesses. The UIGEA does exempt three categories of  
          transactions: intra-tribal, intrastate, and interstate  
          horse racing.  The UIGEA defines intrastate transactions  
          are bets or wagers that are made exclusively within a  
          single state, whose state laws or regulations contain  
          certain safeguards regarding such transactions, expressly  
          authorize the bet or wager and the method by which the bet  
          or wager is made, and do not violate any provisions of  
          applicable federal gaming statues.

          Existing California law, The Gambling Control Act of 1997  
          established the California Gambling Control Commission to  
          regulate legal gaming in California and the Bureau of  
          Gambling Control within the Department of Justice to  
          investigate and enforce controlled gambling activities in  
          California. It prohibits gambling in a city or county that  
          does not have an ordinance governing certain aspects of the  
          operation of gambling establishments, including the "hours  


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          of operation" of gambling establishments.

          Existing law provides that, until January 1, 2015, if a  
          local jurisdiction had not authorized legal gaming within  
          its boundaries prior to January 1, 1996, then it is  
          prohibited from authorizing legal gaming. Furthermore,  
          until January 1, 2015, the California Gambling Commission  
          is prohibited from issuing a gambling license for a  
          gambling establishment that was not licensed to operate on  
          December 31, 1999, unless an application to operate that  
          establishment was on file with the division prior to  
          September 1, 2000.

          Existing law authorizes and defines "advance deposit  
          wagering" as a form of parimutuel wagering in which a  
          person "establishes an account with a board-approved  
          betting system or wagering hub where the account owner  
          provides 'wagering instructions' authorizing the entity  
          holding the account to place wagers on the owner's behalf."

          "Gambling operation" means exposing for play one or more  
          controlled games that are dealt, operated, carried on,  
          conducted, or maintained for commercial gain.

          Existing law authorizes a licensed gambling establishment  
          to contract with a third party for the purpose of providing  
          proposition player services.

          Existing law provides that a "banking game" or "banked  
          game" does not include a controlled game if the published  
          rules of the game feature a player-dealer position and  
          provides that this position must be continuously and  
          systematically rotated amongst each of the participants  
          during the play of the game.
           Purpose of SB 1485:   The author notes that on February 9,  
          2010, the Senate Committee on Governmental Organization  
          held an informational hearing titled, Examining the Public  
          Policy and Fiscal Implications Related to the Authorization  
          of Intrastate Internet Poker.  The purpose of the hearing  
          was to help the Legislature establish a policy framework  
          from which it can evaluate any proposal seeking to  
          authorize online poker in California.  It was a nine and  
          one-half hour hearing that raised a number of policy  
          issues, some of which are unique to California, and helped  


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          educate the Legislators about online poker.  It was a very  
          informative and successful hearing. 

          The author states that after many months of analyzing the  
          risks posed by unregulated Internet gambling he has  
          concluded that the best way to protect consumers from  
          illegal online gaming is through legalization.  Prohibiting  
          online gambling or pretending it does not exist in an  
          interconnected world is simply not realistic.  The author  
          cites several reports and studies which reflect on the fact  
          that nationwide individuals in this country wager well over  
          $10 billion annually on Internet gambling and that figure  
          keeps growing.  

          According to recent studies more than 700,000 teens and  
          young adults gamble online at least once a month and more  
          than a million Californians play poker on the Internet  
          every week. The result of the current U.S. legal approach  
          to Internet gambling is to force millions of consumers to  
          offshore sites out of the reach of U.S. courts and  
          regulators, exposing them to significant risks without  
          effective legal recourse.  Seeing hundreds of millions of  
          dollars being siphoned from California's economy and into  
          the hands of off-shore interests has inspired the author to  
          introduce this piece of legislation which would legalize  
          and regulate Internet gambling within California's borders  
          (intrastate) for California adults.   

          The author states that this bill is intended to extend  
          consumer protections to Californians who play online poker,  
          ensure that the revenues from Internet gaming are realized  
          in California, and to protect the public interest by  
          ensuring that all aspects of Internet gaming are regulated  
          and controlled by the state (Department of Justice).  The  
          author points out that this bill will help offset the  
          negative impacts of gambling, spur a new industry in  
          California which will provide economic inducements to  
          California's economy, including jobs.  Furthermore, the  
          author notes that this bill will ensure games are fair, are  
          played by persons of legal age who are located in  
          California, that players have recourse to resolve disputes,  
          that the revenues stay in the state to support programs and  
          services, and that the negative impacts of gambling are  
          addressed, as well.
          Additionally, the author emphasizes that this bill  
          authorizes intrastate Internet "gambling" and provides that  


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          other Class II games, not just poker, can be offered by the  
          hub operators as long as they are approved by the  
          Department of Justice.  Such a provision is intended to  
          give the state and the hub operators flexibility into the  
          future to maximize the potential benefits to the state of  
          Internet gambling.  The author references the California  
          Lottery and the fact that it was restricted by the  
          Proposition that established it in 1984 as a means of  
          restricting its growth.  The author states, "Looking back,  
          that provision was a mistake in that the Lottery is  
          prohibited from using modern technology to generate revenue  
          for the state."  This bill learns from that mistake and  
          leaves open the option for games other than poker to be  
          played which will create broader appeal to a more diverse  
          customer base thus allowing the state to capture more  

          The author notes that over the past year numerous parties  
          have expressed concern regarding any proposal to authorize  
          by statute a form of online poker and its impact on  
          Tribal-State Gaming Compacts.  With that in mind, the  
          author asked Legislative Counsel the following questions:

                     Question #1:   Would the online play by  
                 California residents located within California of  
                 various poker games provided by offshore providers  
                 located outside of the United States abrogate the  
                 exclusive right of Indian tribes to operate gaming  
                 devices under the provisions contained in the 1999  
                 Compacts or the 2004 or 2006 Compacts Amendments?   
                 On June 21, 2010, Legislative Counsel opined as  
                 follows, "The state has not authorized any play of  
                 Internet poker within the state, by statute,  
                 constitutional provision, or otherwise. At present,  
                 the play by California residents located within  
                 California of Internet poker provided by offshore  
                 providers occurs in the absence of statutory or  
                 constitutional authorization?Accordingly, the online  
                 play by California residents located within  
                 California of various poker and poker-like games  
                 provided by offshore providers today does not  
                                                                                       implicate the exclusivity provisions contained in  
                 the 1999 Compacts or the 2004 or 2006 Compact  
                 Amendments because the state has not authorized any  
                 play of Internet poker, within the state."


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                      Question #2:   Would authorization by the State  
                 of California of the play of Internet poker within  
                 the state's borders abrogate the excusive right of  
                 Indian tribes to operate gaming devices under the  
                 provisions contained in the 1999 Compacts or the  
                 2004 or 2006 Compact Amendments?  On June 21, 2010,  
                 Legislative Counsel opined as follows, "Internet  
                 poker would provide for play of poker, according to  
                 the rules currently authorized for play at card  
                 clubs in California, against other players on a  
                 device that allows access to the Internet, and does  
                 not contemplate play with or against the  
                 device?Because Internet poker would be conducted on  
                 the same basis as the forms of poker authorized for  
                 play at card clubs, we think sufficient elements of  
                 skill would be preserved in the play of Internet  
                 poker...Accordingly we think a court would conclude  
                 that Internet poker is not a slot machine because of  
                 the predominance of the element of skill, and  
                 therefore, not a 'gaming device' for purposes of the  
                 exclusivity provisions contained in the 1999  
                 Compacts or the 2004 or 2006 Compact Amendments.  
                 Accordingly, it is our opinion that, if the  
                 Legislature authorized by statute Internet poker  
                 within the state's borders, that authorization would  
                 not abrogate the excusive right of Indian tribes to  
                 operate gaming devices under the provisions  
                 contained in the 1999 Compacts or the 2004 or 2006  
                 Compact Amendments."  

                      Question #3:   Would personal computers used by  
                 Internet poker players or network components and  
                 software used by an Internet hub to provide Internet  
                 poker to remote players so that they can compete  
                 with one another constitute a 'gaming device' for  
                 purposes of the 1999 Compacts or the 2004 or 2006  
                 Compact Amendments if the Legislature by statute  
                 were to authorize Internet poker? On June 21, 2010,  
                 Legislative Counsel opined as follows, "Internet  
                 poker does not fall within the definition of a  
                 'gaming device'?Among other things, , Internet poker  
                 does not contemplate play against the device  
                 allowing access to the Internet, the game played is  
                 not a banked game, and the game involves elements of  
                 skill?Accordingly, the play of Internet poker on a  
                 device that allows access to the Internet, including  


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                 a personal computer used by Internet poker players,  
                 or network components and software used by an  
                 Internet hub to provide Internet poker to remote  
                 players so that they can compete with one another  
                 would not constitute a 'gaming device' as defined in  
                 section2.6 of the 1999 Compacts or for purposes of  
                 the 2004 or 2006 Compact Amendments."   

           Arguments in Support:    Bay 101 Card Club  writes, "Bay 101  
          does not perceive intrastate online gaming as a threat  
          because we compete with offshore online operators today?Bay  
          101 believes that adopting the framework for intrastate  
          Internet gaming in [this bill] presents multiple  
          opportunities for the State, Native Americans, and card  
          clubs. Bay 101 summarizes its position as follows, "(1)   
          Internet gaming is here to stay and will grow both in terms  
          of the number of players and the amount being wagered  
          regardless of whether the Legislature acts or not; (2)  
          Federal law requires that any framework established by the  
          Legislature protects players and minors; (3) Consistent  
          with the framework detailed in [this bill], the State  
          should seek financially, technically and legally qualified  
          hubs to offer Internet games in a secure environment to  
          meet the goals defined by the Legislature; and, (4) The  
          public/private partnership envisaged by [this bill] offers  
          the best hope for success in California - that competing  
          hubs here will be able to compete with offshore providers  
          for players and revenues."   

          Bay 101 notes that it sees three potential opportunities  
          from [this bill] that would directly benefit any brick and  
          mortar gaming provider: 

          First, Bay 101, "Intends to compete for a hub contract with  
          partners which have the technical expertise to offer games  
          fairly and provide security and transparency necessary in  
          any Internet gaming environment?We believe that the  
          non-discriminatory criteria in [this bill] is fair,  
          although we hope that the scoring factors and process will  
          be tightened as the Legislature considers [this bill]? Bay  
          101 is prepared to submit a detailed proposal and compete  
          for a hub on the merits of its application if the basic  
          framework in [this bill] is adopted."   

          Second, "[this bill] gives Bay 101, and any other card club  
          or Native American casino, the ability to contract with hub  


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          operators to sponsor tournaments?Thus, any card club - or  
          for that matter any other entity - will be able to  
          participate in online gaming activity without having to  
          expend the capital necessary to construct and operate a  

          Third, Bay 101, "Believes that what's good for gaming  
          generally will accrue to the benefit of our bricks and  
          mortar card club?This belief is rooted in our competitive  
          philosophy. For example, while others have encouraged the  
          Legislature to extend the moratorium on expansion of bricks  
          and mortar establishments, Bay 101 believes that the  
          moratorium is an artificial barrier which prevents the  
          market from evolving rationally. In the same vein, the  
          longer the Legislature waits to enact a framework for  
          Internet gaming, the more difficult it will become for  
          online competition to evolve in California?[this bill] can  
          achieve for California that which has occurred in  
          jurisdictions where legal frameworks for online gaming have  
          been adopted (e.g., Sweden, Italy and France). The evidence  
          clearly shows that, given the choice, online players will  
          migrate from unsecured to legal, regulated sites."   

           CyberArts,  an enterprise software company that designs,  
          develops, and markets the foundation Universal Gaming  
          Platform for legal, regulated, casino gaming operators  
          worldwide writes, "The legalization and regulation of poker  
          in California will provide a safe environment for online  
          poker enthusiasts who now risk prosecution and fraud by  
          playing at illegal offshore sites. In addition to the  
          consumer protection it will bring to Californians, we also  
          support the legalization of online poker because of the  
          jobs and tax revenue it will create."

           Vista Global Media, Inc.,  a company that provides e-gaming  
          solutions to clients around the world and headquartered in  
          Southern California writes, "Online poker is a game of  
          skill currently played by some two million  
          Californians?Vista Global supports [this bill] because  
          regulated online poker will provide a safe U.S. environment  
          for online poker enthusiasts who now can play only at  
          offshore sites.  Vista Global, "Believes [this bill] is an  
          important approach to generating revenue and jobs for the  
          state while providing domestic regulatory protections for  
          California players. More important, [this bill] encourages  
          partnerships among California technology companies and  


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          existing land-based gaming entities in the state to ensure  
          the success of legalized online poker."      

           Quova, Inc.,  an international company based in Mountain  
          View, CA which creates systems that enable online  
          businesses to instantly identify where a visor to their Web  
          site is geographically located writes, "Geolocation  
          technology allows companies to use the Internet as a  
          distribution channel when contracts or laws restrict them  
          from doing business in certain geographic locations.  Quova  
          has had great success in countries around the world of  
          accurately locating the city, country and the zip code of  
          online poker players and determining if it is valid to play  
          in that jurisdiction. We feel confident that the technology  
          can support the requirements of [this bill]."

           Paddy Power  , a 21 year-old Irish business that offers  
          multi-channel gambling through shops, telephones and the  
          Internet writes, "If rapidly raising revenue for the state  
          is one of the primary purposes of the legislation, then the  
          competitive bidding system proposed in the legislation is  
          unquestionably the best structure.  We also point out that  
          allowing non-California companies to compete for the  
          license will ensure that the licenses are optimally sold by  
          maximizing the pool of bidders.  Additionally, we can  
          foresee the birth of a new online gaming technology  
          business in California with associated employment creation.  
           It is our belief that the legislation should mandate three  
          licenses, as this will ensure effective competition, which  
          is good for consumers, while making any successful bidder  
          confident that the license will be a valuable concession."
          Arguments in Opposition:   The  Barona Band of Mission  
          Indians  write, "[This bill] requires Indian tribe to submit  
          proposals for the operation of a hub to 'waive sovereignty  
          for the purpose of evaluation' of the proposal and  
          'affirmatively declare that the hub applicant [tribe] is  
          subject to the state's jurisdiction...' It also requires a  
          tribe entering into a contract with the state, to operate a  
          hub, to be 'subject to the jurisdiction of the state for  
          all purposes under this chapter.'  We believe this is  
          overbroad and represents an unreasonable intrusion on  
          tribal sovereignty."
          The  California Tribal Business Alliance  (CTBA) writes, "Our  
          opposition is grounded in the fact that inadequate due  
          diligence has occurred to fully examine the policy  


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          implications of intrastate Internet gambling on the  
          citizens, businesses, and governments in California."  CTBA  
          also writes, "[This bill] may conflict with the federal  
          Wire Act of 1961, as well as, the California Constitution  
          and the exclusivity provisions contained in Tribal-State  
          Gaming Compacts. Until these legal ambiguities are examined  
          and clarified, we believe it is unwise and potentially  
          fiscally irresponsible to pursue this policy."

          The  Tribal Alliance of Sovereign Indian Nations  (TASIN)  
          writes, "By legalizing a potentially broad spectrum of  
          online gaming, [this bill] could significantly and  
          permanently expand and alter the landscape of gaming in  
          California, and undermine the foundation upon which many  
          tribal and State government decisions and financial  
          commitments have been premised. Numerous California tribes  
          have entered into long-term tribal-state compacts that will  
          provide billions of dollars in funding for critical tribal  
          programs, healthcare, infrastructure, housing, educational  
          services, elder care - all without government assistance,  
          as well as providing significant revenues to the State,  
          surrounding local governments and non-gaming tribes." 

          The  California Nations Indian Gaming Association  (CNIGA)  
          writes, "We believe [this bill] will allow out of state and  
          overseas operators to come in and run sites to the  
          detriment of tribal gaming operations and California.   
          Tribes have spent millions of dollars and have worked hard  
          to create and maintain well regulated and safe gaming  
          operations for consumers in their communities. Blindly  
          giving licenses to interests away from our local  
          communities takes away local dollars and jobs from hard  
          working Californians."

           Poker Players' Alliance  (PPA) writes, "[This bill] will not  
          attract the best qualified and most experienced hub  
          operators... the measure imposes a variety of operational  
          financial barriers and preferences that will discourage or  
          bar nontraditional telecommunications, software, and  
          out-of-state gaming companies from applying as hub  
          operators or subcontractors.  Rather than leveraging proven  
          Internet gaming models with recognizable brands and sizable  
          player bases, this bill sets out to 'reinvent the wheel'  
          and assumes that California players will readily migrate to  
          unfamiliar new sites."  PPA also states, "[This bill] makes  
          it a misdemeanor punishable by up to a year in county jail  


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          to play any game on an unauthorized site?Criminalizing  
          harmless recreational conduct that typically takes place in  
          the privacy of one's home and cannot be practically  
          enforced undermines public respect for all laws. Making it  
          a crime to visit 'unauthorized' gaming website is also  
          unnecessary?.Poker players will naturally gravitate to  
          government-regulated sites where they can be assured of  
          fair play and secure financial transactions." 

          The  Coalition of Card Clubs (Hollywood Park Casino,  
          Commerce Casino, Bicycle Casino, Hawaiian Gardens Casino)  
          and the Morongo Band of Mission Indians  writes, "Online  
          poker should be developed on an intrastate basis that  
          ensures wagering activity; its revenue and economic  
          benefits should accrue to the state of California and to  
          California businesses.  We believe what plays in California  
          should stay in California. By licensing foreign operators  
          and Las Vegas gaming interests, this bill allows money to  
          leave the state instead of helping California's economy.  
          Ownership and investment in the wagering hubs should be  
          restricted to currently licensed and regulated gaming  
          operators in the state - card club owners and California  
          tribal governments. This keeps online gaming revenue in  
          California; assures the state of gaming management with a  
          proven track record of game and operator integrity; and  
          delivers a reliable program for the prevention of problem  
          gambling and illegal participation by minors."

          The  California Coalition Against Gambling Expansion  (CCAGE)  
          writes, " Any attempt to legalize internet gambling will  
          probably run afoul of federal law and U.S. Department of  
          Justice regulatory interpretations, given the 'world wide'  
          reach of the internet (including not only those on the  
          playing side, but how and where the hubs and technologies  
          are utilized and domiciled)?[this bill] represents the  
          'Mother of All Expansions,' turning every home computer,  
          school laptop, I-phone, I-pad and most cell phones into a  
          gambling device, and every home, dorm-room, apartment and  
          Wi-Fi business into a casino."
          Additional Concern:   The  Thoroughbred Owners of California   
          (TOC) writes, "We appreciate the fact that [this bill]  
          creates a fairly level playing field for entities willing  
          and able to compete for state contracts to provide related  
          technology and operational support.  It is also encouraging  
          to see [this bill] acknowledge that horse racing  


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          associations are already successfully providing web-based  
          wagering in California. The language allowing a small  
          preference for horse racing in the contracting process is  
          essential to keep us on even footing with casinos and card  
          clubs in the competition for hub contracts? "[This bill]  
          will dramatically alter the entire landscape of California  
          gaming. California's $4 billion per year horse racing  
          industry is already disadvantaged in its effort to compete  
          with other states for horses/purses as a result of the  
          state's extension of exclusive rights for casino-style  
          gaming to Indian tribes. The legislature should ensure that  
          Internet gaming included in [this bill] is carefully  
          constructed to avoid unintentional consequences for an  
          industry that has long provided local communities with  
          environmentally attractive settings, quality entertainment,  
          good jobs and reliable tax revenues."

           LECG, Inc. Study:   The author provided committee staff with  
          a June 2010 report by LECG, Inc. (authored by Jose Alberro,  
          Ph.D. and Ronald H. Schmidt, Ph.D.) and titled, "A  
          Multi-Hub Model for Legalized Internet Poker in California:  
          Fiscal and Economic Implications," which found that, "[This  
          bill] has the potential to develop significant revenues for  
          the State: between $2.4 and $6.1 billion over the period  
          2012 to 2020.  A key unknown in the estimate is the extent  
          to which revenues currently flowing offshore to illegal  
          sites will be captured by the legal California hubs.  If  
          recapture is high, the revenues will be at the top end of  

          The report also found that "California needs to consider  
          thoroughly its share of revenues - if the State's share is  
          20%, a model with up to three hubs is likely to generate  
          sufficient profits to attract technically and financially  
          qualified vendors, who will have strong incentives to  
          recapture gamers currently playing offshore.  If the  
          State's share rises to as much as 40%, however, operators  
          may face losses before turning a profit.  Reduced 'yield'  
          from each player will cause hubs to invest less in  
          attracting new players and trying to recapture accounts  
          currently playing on illegal sites."  

          Furthermore, the report found, "Competition by up to three  
          hubs will create new jobs for the State.  We estimate that  
          the number of incremental jobs can be as high as 4,800 -  
          many of which are likely to be high paying - with major  


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          gains for the State in marketing and advertising  
          sectors...Legalization of Internet poker will have  
          significant impact on total gross gaming revenue paid by  
          Californians to hub operators.  By 2020, we project that  
          Internet annual poker gross gaming revenues from California  
          residents will range from $1.7 to $2.1 billion."   
          Additional Data Relative to Scale and Scope of Internet  
          poker in California:   Global Betting and Gaming Consultants  
          (GBGC) estimate 778,000 active real-money online poker  
          player accounts (players often have more than one account)  
          in California.  GBGC estimates that there will be 1.04  
          million accounts in California in 2012.

          H2 Gambling Consultants estimates that there are 400,000  
          active real-money online poker players in California.  H2  
          estimates there will be 833,000 real-money online poker  
          players in California in 2012.  

          The amounts of gross gambling yield (GGY) currently being  
          generated and realized by offshore operators from Internet  
          poker in California is estimated to be between $309 million  
          (GBGC) to $448 million (H2).  The GGY generated by Internet  
          poker in California is expected to be between $589 million  
          (GBGC) to $1.1 billion (H2) in 2012.
          Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006:   
           In October 2006, Congress passed the Safe Port Act, to  
          increase the security of U.S. ports.  Imbedded within the  
          language of that bill was a section called the Unlawful  
          Internet Gaming Enforcement Act (UIGEA) of 2006, which  
          prohibits a person engaged in the business of betting or  
          wagering from knowingly accepting specified methods of  
          payment, including credit, electronic fund transfers, and  
          checks, in connection with the participation of another  
          person in unlawful Internet gambling.  In other words, the  
          bill made it illegal for banks, credit card companies, or  
          similar U.S. institutions to collect on a debt incurred on  
          an online gambling site, thus eliminating any assurances  
          for gamblers that they will actually collect on any  

          UIGEA does exempt three categories of transactions, (i)  
          intratribal (within the Indians lands of a single tribe or  
          between 2 or more tribes as authorized by the Indian Gaming  
          Regulatory Act (IGRA)), (ii) intrastate, and (iii)  


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          interstate horseracing.  

          As defined in the Act, intrastate transactions are bets or  
          wagers that are made exclusively within a single state, and  
          whose state laws or regulations: (1) Contain certain  
          safeguards regarding such transactions (age and location  
          verification requirements, and data security standards  
          designed to prevent access to minors and persons located  
          outside of that state); (2) Expressly authorize the bet or  
          wager and the method by which the bet or wager is made;  
          and, (3) Do not violate any provisions of applicable  
          federal gaming statues (e.g., Interstate Horseracing Act,  
          Professional and Amateur Sports Protection Act, Gambling  
          Devices Transportation Act, and IGRA).

          The exemption in UIGEA is consistent with the idea that  
          state governments have the primary responsibility for  
          determining what forms of gambling may legally take place  
          within their borders, a right given to them under the 10th  
          amendment of the U.S. Constitution.

          SUPPORT:   As of June 25, 2010:

          Bay 101
          Paddy Power
          Quova, Inc.
          Vista Global Media, Inc.
          OPPOSE  :  As of June 25, 2010: 

          Barona Band of Mission Indians
          Bicycle Casino
          California Coalition Against Gambling Expansion
          California Nations Indian Gaming Association
          California Tribal Business Alliance
          Commerce Casino
          Hawaiian Gardens Casino
          Hollywood Park Casino
          Morango Band of Mission Indians
          Poker Players Alliance
          Tribal Alliance of Sovereign Indian Nations
          Yocha Dehe Wintun Nation

           FISCAL COMMITTEE:  Senate Appropriations Committee


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