GPWA Times Magazine - Issue30 - October 2014

“California is full of Indian tribes,” Ow- ens said. “Of the approximately 350 fed- erally recognized Indian tribes, 110 are in California. And every recognized tribe has the right — at least potentially — to set up some sort of (online) operation. “Now you add in half-a-dozen racetracks, county fairs and the 90-odd municipal cardrooms, all of a sudden you have more than 150 potential claimants for a license out here,” Owens said. “Well, even with a population of 38 mil- lion and a very tolerant attitude toward adult pastimes of all sorts, there just are not enough troops to keep 150 operations in business,” Owens said. “So there are going to be winners and there are going to be losers. And that has led to some very intense behind-the-scenes efforts. “So everyone is out there, with enough money to block each other in the state leg- islature,” Owens explained. “Now you have people trying to exclude each other,” Owens said. “There are some really deep-seated rivalries. That’s what’s kept Internet gaming from moving for- ward at the state level. There are too many people whose main interest is making sure someone else doesn’t get a chance. “One thing (the legislature) was special- izing in was poison pills,” Owens added. “These were calculated measures to keep certain people from entering the market. “These measures particularly targeted smaller tribes and smaller cardrooms,” Owens said. “The first poison pill was anyone that wanted to set up an online poker room had to be self-financing. Most of the smaller tribes and cardrooms are not rich. They were counting on people coming in from the outside and helping them with things like software, marketing and the investment. “It’s not the law yet,” Owens said. “But that would stop a lot of people.” This political climate, combined with the Santa Ysabel’s need for money, explains the decision to launch now, Owens said. “Word got out the larger tribes and card rooms were going to support this poison pill,” Owens said. "This was the crack of doom for the little guy. “If something containing that poison pill goes into effect, they won’t be able to par- ticipate in the Internet market,” Owens said. “And that in turn will mean the end of their operations because even now, a lot of these smaller operations are run- ning into trouble.” Another poison pill added to the sense of urgency for the Santa Ysabel. “Most of the legislation contained some language saying that in order to be con- sidered for a California Internet gaming li- cense, you had to have a brick-and-mortar license,” Owens said. “In order to gain po- litical support, that was in there because they didn’t want people to just come in (to California) and scoop the market.” The Santa Ysabel had to close its brick- and-mortar casino in February, so they needed to launch before California passed enabling legislation for online poker. But launching an online poker room wasn’t a hasty decision by the tribe. “They approached me about this 10-to-12 months ago,” Owens said. “It was use it or lose it,” Owens said in terms of the Santa Ysabel launching be- fore California passed legislation. “If you have existing operations, they’ll find a way to grandfather you in,” Owens said. “If you don’t, shame on you.” Owens isn’t alone in both his legal and political assessment of the California on- line poker market. “Of course it's a gray area of the law,” said Joe Kelly, an expert in gaming law and professor of business law at SUNY Col- lege at Buffalo. “I think they have a pretty good chance of being a success. “As long as they stick to intrastate (online poker), the problems are much fewer than if they accept a player from out of state, like Washington, where's it's a class C fel- ony to play online poker,” said Kelly, who at present does not have any interests in California. “California is a circular firing squad (po- litically),” Kelly added. “The (legislative) deadline is coming up in August. Califor- nia is losing millions of dollars as players play on sites outside of California. And here you have some degree of regulation.” Owens says it is unlikely that Califor- nia or the DOJ will try to shut down the Santa Ysabel. “The state of California is completely out of the picture here because the com- pact with the Santa Ysabel tribe — which dates to 2003, by the way — is about Class 3 gaming. It’s not about Class 2,” Owens said. “The Indian Gaming Regulatory Act al- lows gaming that takes place on the res- ervation,” Owens explained. “In other words, you are talking about people who are substantially compliant from the get-go. “There are other tribes interested in this as well,” Owens said. “If under the In- dian Gaming Regulatory Act and existing tribal sovereignty, you can open up online Class 2 gaming, then that doesn’t apply to just California. That could apply across the nation, depending on the state and de- pending on the tribe. “And if that goes forward, it will change the face of Internet gambling in America for good.” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vin Narayanan is the editor-in-chief of the GPWA Times Magazine and has been covering the online gambling industry for the last eight years. He’s also an expert on the legal and regulatory landscape of online gaming in the U.S. 20 “Use it or lose it.”