Online Poker to Be Legalized, Taxed

Gale Courey Toensing
4/4/11

While a fiercely contested debate over proposed online gaming bills continues in California, federal lawmakers have introduced a bill that could regulate Internet poker nationwide and trump any state Internet legislation. U.S. Rep. Barney Frank (D-Massachusetts) introduced the latest incarnation of his Internet gaming bill to the House Financial Services Committee on March 17, with bipartisan support from U.S. Rep. John Campbell (R-California), who co-authored the proposed legislation.

The Internet Gambling Regulation, Consumer Protection, and Enforcement Act is identical to Frank’s earlier bill, H.R. 2267, which passed the House Financial Services Committee last July by a two-to-one margin after Indian leaders requested—and Frank added—amendments to protect tribal sovereignty and provide a level playing field between Indian casinos and commercial casinos. That bill died quietly in the full House during the lame-duck session of the 111th Congress without being brought to the floor for a vote.

The bill would legalize, regulate and tax online poker and other non-sports betting other than pari-mutuel racing and undo the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. The UIGEA prohibits the use of banking instruments such as credit cards, checks or fund transfers for interstate Internet gambling. While online gaming sites are prohibited in the U.S., millions of Americans gamble on the Internet at sites hosted offshore.

It’s hard to nail down exactly how much the online Internet gaming industry generates in revenues in the U.S. Malcolm Graham, the chief executive officer of the online poker company PKR and chairman of the U.S. Online Gaming Association, told Capitol Weekly that he estimates daily revenues at PokerStars alone—the biggest, most successful online poker room in the world—to be between $7 million and $8 million, of which about 40 to 50 percent is from the U.S. “PokerStars’s business does net nearly $2 billion in revenue,” he said. “It is probably the most profitable business, relatively, in the world. It is more profitable than the oil companies, it’s more profitable than Apple, in terms of the size of its business, because it pays no tax. It will pay them in Europe after March.”

Frank’s bill gives Indian nations equal status with states and protection for tribal sovereignty. Key provisions include thorough vetting of potential licensees, the creation of a list of illegal operators and mandatory implementation of technologies to protect against underage gambling. The measure prohibits the use of credit cards, limits deposits and losses, and has provisions to protect consumers from cheating and fraud. It also has measures to thwart money laundering and tax evasion, and allows the Treasury Department to investigate potential operators.

The Poker Players Alliance (PPA), a poker advocacy group with more than one million members nationwide, was quick to commend Frank’s Internet Gaming Regulation bill. “Given that millions of Americans currently play online poker, states across the country are recognizing the value in licensing and regulating the game and many are introducing their own laws to allow for residents to play in a safe, regulated market while collecting millions in tax revenue,” said PPA Chairman and former New York Senator Alfonse D’Amato.

Some states are currently considering online gaming legislation, including Iowa (S.S.B. 1165), Florida (S.B. 812), California (S.B. 40 and S.B. 45), and most recently, Nevada (A.B. 258). New Jersey Republican Gov. Chris Christie vetoed that state’s online gaming bill on March 3.

Robert MArtin Morongo

But it is California where the online gaming issue is being debated most vigorously. Driven by a $26 billion deficit and an unemployment rate of 12 percent, California legislators are debating two bills that would make California the first state to legally sanction online gaming. S.B. 40, introduced by State Sen. Lou Correa (D-Santa Ana), would allow Indian casinos to partner with card clubs and horse tracks for a state license to offer Internet poker games. S.B. 45, introduced by State Sen. Rod Wright (D-Inglewood) would allow not just the tribes and card rooms to compete for a California license, but pretty much anyone—including Nevada casinos and offshore firms—and would allow gaming other than poker.

California Online Poker Association (COPA), led by the Morongo Band of Mission Indians, supports S.B. 40, and the California Tribal Business Association (CTBA), an alliance of three tribes, opposes both S.B. 40 and S.B. 45.
COPA has a coalition of around 30 tribes and 15 card rooms, and an advocacy website—AllinforCalifornia
.org—to lobby on behalf of S.B. 40. COPA says S.B. 40 will give California a much-needed infusion of more than a thousand jobs and $1 billion in revenue without raising taxes.

Morongo Chairman Robert Martin said there are crucial differences between S.B. 40 and S.B. 45 which account for COPA’s support of S.B. 40:

• S.B. 40 would legalize only online poker, while S.B. 45 is not limited to any specific class of games. Online poker is a Class II game under the Indian Gaming Regulatory Act (IGRA). Class II games are not exclusive to tribes and are not part of any tribal compacts;
• S.B. 45 includes specific language requiring California tribes to waive sovereignty when applying for a license. S.B. 40 has no such requirement;
• Unlike offshore operators who have skirted the law, tribes have consistently abided by the provisions of UIGEA and IGRA. S.B. 45 would allow those offshore operators who have ignored the law to operate online gaming without penalty;
• S.B. 45 allows offshore companies to take profits out of the country. S.B. 40 does not.
CTBA was formed in 2004 to advance the diverse business interests of its founding tribes—the Lytton Band of Pomo Indians, the Pala Band of Mission Indians, and the Paskenta Band of Nomlaki Indians. In March 2010, CTBA wrote to Frank asking that he consult with the association in developing any proposed Internet gaming legislation. “We remain opposed to state legislation of intrastate Internet gambling of any kind because it would violate the exclusivity provisions in our compacts that give tribes the sole right to operate ‘gaming devices,’ which are broadly defined and which include personal computers,” the former CTBA chairwoman and current vice chairwoman Leslie Lohse wrote. “State government and tribal governments have relative sovereign parity and... have reached agreements together controlling the operation of tribal gaming establishment. If this relationship is to be broken through state legislation of a new form of gambling that has the potential to undo the Indian Gaming Regulatory Act by authorizing crippling competition to tribal gaming, then this is an issue that needs to be discussed at the federal level.”

The controversy has attracted an army of lobbyists, the Sacramento Bee reported, pitting groups seeking to gain financially against others protecting their turf—turning some tribes against others, and Indian casinos willing to team with card clubs against those that are not. Given those tensions, Correa expressed a sense of urgency for moving his S.C. 40 forward.” I think if we blink at this moment, we’ll lose a golden opportunity,” he said. “Internet poker is an area that’s growing, and for us to ignore it, to say we’re not going to address or regulate it, that’s really ignoring the facts.”

With the support of Sen. Harry Reid (D-Nevada), the federal Internet Gambling Regulation, Consumer Protections, and Enforcement Act could be voted on by late April, according to the Wall Street Newscast. If that happens, California’s moment will have passed.

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