California State Senators Roderick Wright and Darrell Steinberg have introduced SB 1463 in the California State Senate. If passed, SB 1463 would allow for online poker to be offered by approved gaming companies in the State of California. Players would have to be located within the state to participate. The bill would allow for companies to apply for a license to offer games to California. At first, the only allowable game would be online poker. After two years, other internet gambling games could be approved as long as they are currently legal under brick and mortar gaming laws. The state legislature could reject any new game introduced after the two year period within 90 days of approval by the online gambling regulatory body.
A potential licensee would be required to make a deposit into the Internet Gambling Licensing Fund. This fund would be used to fund background checks on applicants. An Internet Gambling Fund would also be established. This fund would cover regulatory operations, consumer protections, and problem gambling. Once approved, a licensee would be required to deposit $30,000,000 into the Internet Gambling Fund. This deposit would go towards taxes for the first three years of holding a license.
State of California Benefits
The bill is considered to be an emergency bill. This means that it will require a two-thirds vote to be approved. If approved, the bill would become law immediately. Standard California laws become effective on January 1st of the following year. Standard bills only require a majority vote. The sponsors of the bill estimate that $200,000,000 would be generated in tax revenue in the first fiscal year. The sponsors of this bill consider the revenue that could be generated by this bill to be so important that they are willing to take this route first. Should this bill not pass, it could be reintroduced as a standard bill but would not go into effect until January 1, 2013 should it pass.
How to Qualify as a Licensee
The bill allows for private companies and federally recognized tribes to provide the online gambling services. Private companies can be current brick and mortar card clubs, horse racing tracks, off track betting parlors, and online off track betting establishments. The Department of Justice would issue the online gaming licenses to both tribes and private companies. The Department of Justice would be allowed to negotiate the terms and conditions of the licenses.
California SB 1463 allows the State of California the option of moving to federal online gambling down the road should there be a federal law passed into law in the future. The state would be under no obligation to move to a federal online gambling program under the law. California would also have the option of networking with other states that have already passed online gambling legislation.
State of California Presence
All licensees and their employees involved with the operations of the licensed Internet gambling sites must physically be located within the State of California. This includes all player support. There are some exceptions including technological work, game security, and software development.
Player Specific Rules
There are some rules that would affect those not directly involved in the licensed business. Most of these pertain to players. Players would be required to be 21 years of age or older. Players would have to prove their identity before playing. A player must also live at the address on their check or registered credit card that is used for deposit. Players would not be allowed to deposit by cash or money order. When using a credit or debit card, the words “Internet gambling” would be printed as the charge. It would become illegal for a player to play on an unlicensed gambling site in the State of California. Internet cafes where the primary intent is to provide online gambling would also be illegal to participate in as either an owner or player. Players will be able to self exclude themselves from California online gambling.
Players would be able to create an account in several different ways. These include by mail, telephone, or electronically. Players would be required to submit their:
Players would be able to set up deposit limits and loss limits. There is no specific set time for self imposed limits. Every six hours a player would be presented with a pop up screen that would tell the player how long that they have been playing and how much they have won or lost.
Licensee Specific Rules
All approved licensees would receive a license valid for ten years. All licenses would go into effect on the same day, no later than January 1, 2014. There will be no limit on the number of licenses. Companies would be allowed to launch joint ventures that would only require one license. Not only will the licensees be required to submit to background checks and the license terms and conditions, all subcontractors and affiliates will be required to adhere to the rules and standards. The license application fee would be between $1,000,000 and $5,000,000. A licensee may abandon their license with 90 days notice. A written explanation is required to be submitted.
Licensees would be required to monitor their games. Licensees would be required to identify players that are not human, also known as bots. Licensees would also be required to stop cheating and collusion, and report those suspected cheaters and colluders to the state.
Licensees would not be allowed to extend credit to players. Licensees would be required to identify all banking transactions and their origins. Licensees would also not be allowed to pay interest on balances. Funds would be required to be held in a segregated account.
Licensee’s support would be based in California. Support must be available 24 hours a day, seven days a week. Player support would be required to be open every day, even on all holidays. A toll free number is required to be provided by all licensed operations.
Operators would be allowed to generate revenue in two ways. They may take a per hand charge in cash games. California does not charge rake as a percentage of the pot. California card clubs take a set amount per hand based on the limits. It is assumed that this would be the same for online poker. California online poker rooms would also be able to set a house tournament fee. The fee could vary based on the size of the buyin. All fees must be fully disclosed.
Licensees would be required to submit monthly statements to the State of California. These statements would include a 10% tax on its monthly revenues. The $30,000,000 license fee would be a down payment on those taxes for the first three years. Once an online gambling site has surpassed $300,000,000 in gross revenues during the first three years of holding their license, they would be required to submit a 10% tax on gross revenue monthly. Licensees would be required to withhold 5% from tournament winnings of players assuming the win was over $600 and the win was at least 300 times the tournament buyin.
Employees will be required to be based within the State of California. Employees will be required to hold a work permit. The work permit process will include a background check. The license would require a renewal every two years. The bill also applies the same standards to subcontractors.
Affiliates are specifically mentioned in the bill only once. Affiliates would be required to submit to a background check, including a fingerprinting. The bill does state:
Nothing in this section shall prevent a licensee from entering
into a marketing agreement with any third party to recruit people
to become registered players if the registration process described
in this section is under the sole control of the licensee.
This wording would lead one to believe that it would apply to media buys, not traditional online poker affiliate agreements. This may make it easier for California online poker rooms to buy media packages, as opposed to revenue share or CPA.
Existing Online Poker Room Involvement
Existing online poker rooms that have accepted bets from U.S. players after December 31, 2006, would not be allowed to be involved with California online poker. This includes business names, trademarks, software, nor could any player data be used from those firms.
Cities and counties would not be allowed to become involved in the online gambling business in any way. This includes additional taxes on players or operators. Local jurisdictions would also not be allowed to opt out of online gambling.
Bills tend to look nothing like a final law. Expect there to be a lot of debate on this hot topic and many changes. California is desperate for revenue and this may sway legislators that may otherwise be against the expansion of gambling within the state. Other states are looking closely at this, especially Nevada. That is because California would be able to network their games with other states that have already legalized online poker. Expect that to create some lobbying efforts from outside the state.