Internet poker, fantasy sports gambling coming to California?

The discovery of gold in California 168 years ago ignited a fabled rush of gold seekers from every corner of the globe. Those who sought gold usually failed. The big money was made by those who catered to miners’ needs and desires.

After the Gold Rush faded, the state cracked down on vices of all kinds. For most of the 20th century, legal gambling was restricted to horse racing and poker parlors.

Over the past 30 years, legal gambling has exploded and now generates $20 billion in annual revenues – including a state-operated lottery, 70-plus tribal casinos and a growing poker parlor sector.

It will expand by billions more if the Legislature and Gov. Jerry Brown legalize online poker and fantasy sports wagering.

The Assembly has approved Assemblyman Adam Gray’s fantasy sports bill with just one negative vote, and Gray’s internet poker bill moved to the Assembly floor last week.

The Merced Democrat chairs the Assembly Governmental Organization Committee, has spent months in private negotiations over both, particularly with casino-owning tribes, poker parlor operators and horse racing interests, which are leery about having new competitors. He argues that Californians are already risking their money on fantasy sports and poker websites, and legalizing and regulating them is consumer protection. “This is an activity that goes on every day,” Gray said at one hearing. “It’s important we get our arms around this.”

Poker is already legal in parlors and efforts to legalize the online version have been going on for a decade. But fantasy sports wagering is a recent development. It’s the high-dollar version of “hot stove” leagues that used to involve only friends, who picked virtual teams from real-life players then competed for a pool of money based on their stats in real game.

The online versions allow teams to be assembled day by day. Advocates claim it’s not really gambling, but a game of skill in choosing players.

Mark Levine, the Marin County assemblyman who cast the only negative vote on Gray’s Assembly Bill 1437 contends not only that it’s gambling but that it would take a constitutional amendment to approve it.

Levine asked Attorney General Kamala Harris to engage, but unlike attorneys general in other states, who have cracked down on the two big fantasy sports sites, Harris has remained aloof. Running for U.S. Senate, she has shunned involvement in controversial issues, even those involving her agency.

New York Attorney General Eric Schneiderman is threatening to prosecute fantasy sports operators and its legislature this month approved a fantasy sports bill, though it’s uncertain whether Gov. Andrew Cuomo will sign it.

The two big sites, DraftKings and FanDuel, spend millions on TV and radio advertising, mostly during sports broadcasts. They want legalization in California and have powerful allies in some major professional sports teams, which see the activity as building fan interest.

Under Gray’s bill, Harris’ Department of Justice would license operators of “internet fantasy sports games” after being satisfied they are legitimate. The Department of Justice would also vet applicants for licenses under AB 2863. Licenses would be issued by the California Gambling Control Commission, and they wouldn’t be cheap.

Applicants would have to make a one-time $12.5 million deposit, and the state would tax their revenues. Much of the tax reveneues would go to the horse racing industry to bolster its declining activity, essentially compensating it for not seeking internet poker licenses, and to fairs.

Internet poker has been, politically, a tougher slog for Gray than fantasy sports because it has a more direct effect, at least theoretically, on the state’s existing gambling industry and because of a decadelong history of failed attempts to legalize it.

AB 2863 was temporarily stalled in the Assembly Appropriations Committee as Gray worked out some kinks, principally involving whether PokerStars and other online poker sites that had been hammered by the federal government for operating illegally would be eligible for California licenses.

Opponents have described PokerStars et al. as “bad actors” who would enjoy an advantage because they already have massive lists of Californians who want to play from their days of illegal operations.

“This is a highly charged, controversial issue,” Gray told the committee this month, adding that complete bans on “bad actors” that opponents sought “could create more problems than they solve.”

Gray’s latest language allows PokerStars and other similar sites to apply for licenses if they stopped operating in the U.S. after 2011, when the federal prohibition took effect, though they could be forced to delay entry into the California market or pay hefty fines if they operated during a “gray period” from 2006 to 2011.

Major card clubs and horse racing interests are backing the bill. The tribes that own casinos are still sharply divided – largely, it appears, on whether they intend to become involved in online poker licenses themselves. For example, two Sacramento casinos, Thunder Valley (for) and Cache Creek (against), are on opposite sides.

In a way, both the fantasy sports and online poker operations now seeking legitimacy are emulating what the tribes did a generation ago to gain their lucrative monopoly on casino gambling, particularly tens of thousands of slot machines calibrated to be profitable and generate most of their gambling revenues. California’s Indian tribes were mired in abject poverty until a few, claiming sovereignty as separate nations, began opening bingo parlors.

It touched off a legal war, resulting in a 1987 Supreme Court decision that tribes could not be denied the right to offer gambling that was legal elsewhere in the state.

Tribes began opening very modest casinos and offering games, particularly slot machines, that state authorities said were illegal. But they staved off a crackdown long enough to amass enough money to build even larger casinos – and later elaborate resorts – and buy their way into full legitimacy with a 1998 ballot measure.

Fantasy sports and online poker operators that operated in legal gray areas now crave the same legal status, giving Californians new opportunities to spend – or perhaps waste – their money on new amusements.

However, it’s not yet certain Gray’s efforts will succeed. His poker bill needs a two-thirds vote to advance. He admits he still must tweak its “bad actor” provisions even more.

Even if it makes it through the Assembly, both measures could easily be chewed up in the cross-Capitol rivalry with the Senate during the final, hectic days of the session. If they survive, they also need approval by Brown. And he’s never easy to predict.

This story was originally published June 27, 2016 at 11:40 AM with the headline "Internet poker, fantasy sports gambling coming to California?."