BILL ANALYSIS
Bill No: SB
1485
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
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
SUBJECT
Internet Gambling
DESCRIPTION
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
SB 1485 (Wright) continued
Page 2
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.
SB 1485 (Wright) continued
Page 3
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
applicant.
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
chapter.
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
information.
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
SB 1485 (Wright) continued
Page 4
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
SB 1485 (Wright) continued
Page 5
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
regulations.
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
SB 1485 (Wright) continued
Page 6
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
concern.
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
SB 1485 (Wright) continued
Page 7
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
SB 1485 (Wright) continued
Page 8
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.
BACKGROUND
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
SB 1485 (Wright) continued
Page 9
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
SB 1485 (Wright) continued
Page 10
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
revenue.
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."
SB 1485 (Wright) continued
Page 11
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
SB 1485 (Wright) continued
Page 12
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
SB 1485 (Wright) continued
Page 13
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
hub."
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
SB 1485 (Wright) continued
Page 14
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
SB 1485 (Wright) continued
Page 15
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
SB 1485 (Wright) continued
Page 16
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
SB 1485 (Wright) continued
Page 17
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
estimate."
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
SB 1485 (Wright) continued
Page 18
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
winnings.
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)
SB 1485 (Wright) continued
Page 19
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
CyberArts
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
SB 1485 (Wright) continued
Page 20
**********