Online Poker's High Stakes Game in California

Casino moguls and their powerful interests are feigning moral outrage to crush competitors.

SACRAMENTO — My favorite way to explain the regulatory process, at least when it comes to regulating vices, harkens back to Prohibition. The two groups that lobbied most heavily to keep alcoholic-beverage sales illegal were the "Baptists and the bootleggers" — the former for moral reasons and the latter for financial ones.

A similarly odd alliance has emerged as the California Legislature moves forward on a bid to legalize online poker. Various groups, from online poker companies to Indian casinos to a billionaire owner of a Las Vegas casino company, have been taking positions that they say are based on protecting the public.

We're dealing with pros who have mastered their poker faces, so they will no doubt feign shock at the suggestion that this debate really is about using the government to carve out market share.

Currently, online poker faces a prohibition in California. New legislation would legalize the game, but with myriad restrictions. The always cash-starved state wants to profit — and sees a potential $800 million in additional revenues by 2020, based on a recent study circulated by a pro-poker group.

Advocates for online poker argue that people are making wagers on poker sites now, but they are doing so on unregulated offshore sites. Allowing poker in California, they argue, would expand government oversight and consumer protections. But different groups — mainly Indian casinos, card-rooms and their online partners — argue over how the law should be structured.

Some of the "Baptists" are funded by a Las Vegas casino mogul, Sheldon Adelson, who has enlisted the help of flamboyant former Assembly Speaker Willie Brown. Their website makes a moral argument: "Targeting the young, the poor and the elderly where they live, Internet gambling takes gambling too far."

No doubt, Prohibition-era rum-runners were appalled by the evils of drunkenness, too.

On Tuesday, a group of 12 tribal leaders announced a deal with one member offering this statement: "We are proud to announce that we have reached a consensus that builds upon the pillars of previous legislation. It provides strong consumer protections against fraud, ensures that no one under the age of 21 can play and bars those who have violated federal online gaming laws from offering Internet poker." The letter says the groups support a bill that "safeguards consumers and the vulnerable from dishonest and unsuitable operators."

That "consensus," however, doesn't include one major tribe, the Morongo Band of Mission Indians, or a handful of Los Angeles-area card clubs, or their partner, PokerStars, an Isle-of-Man-based company that says it is the largest online poker site in the world. The bottom line: The bill's language would cut PokerStars out of the market.

At issue is what is called "bad actor" language. As the proposed bill explains, "There shall be a rebuttable presumption that an applicant for a service provider license is unsuitable if the service provider or any corporate or marketing affiliate of the service provider, accepted any wager or engaged in transactions related to such wagers from persons in the United States in any form of Internet gaming after December 31, 2006 … ."

That date is far from arbitrary. It's when the federal Unlawful Internet Gambling Enforcement Act went into effect. The law didn't ban Internet gambling but restricted companies from accepting online gambling payments. PokerStars argues that the law only applied to already banned games of chance, not to games of skill such as poker.

But the U.S. Department of Justice then indicted three online poker companies including PokerStars and some of their executives for violating the new law. The two sides reached a $731 million settlement, in which PokerStars admitted no wrongdoing.

In a statement following the announced "consensus," the group that includes PokerStars called the bad-actor language "nothing other than a blatant attempt to provide certain interests with an unfair competitive advantage by arbitrarily locking out trusted iPoker brands.…"

We'll see how this all plays out — but you can always bet that the most financially well-heeled and powerful interests will get the most say in how to "protect" the public.