California offered piece of the action from Internet poker

Some states are scrambling for a share of online gambling revenue.
(Karen Bleier / AFP/Getty Images)

SACRAMENTO — As state leaders sweat over another possible round of cuts from schools and social services, casino operators are offering officials a cut of the action if they will legalize Internet poker in California.

After two years of hearings and study, the proponents — who are also generous political contributors — say the stars may finally be aligning for them. The California Senate leader this year is co-sponsoring legislation that he hopes will put hundreds of millions of dollars into the state treasury.

Further improving the operators’ odds, the Obama administration said in December that federal law does not prevent states from allowing some forms of Internet gambling.

“It gives California lawmakers a green light,” said Whittier Law School professor I. Nelson Rose, an expert on the gambling industry.

The opinion by the U.S. Department of Justice has given impetus to states scrambling for a share of online poker wagers. Experts estimate that such bets add up to more than $40 billion annually in the U.S. — all on sites run by overseas companies not regulated or taxed by the states.

Bills to legalize online poker have been introduced in Iowa, New Jersey, Hawaii, Mississippi and Florida. Nevada passed legislation to allow Internet poker as soon as it can get specific federal permission.

“We’re seeing a momentum building,” said John Pappas, executive director of the Poker Players Alliance, a national gamblers group.

The gambling industry sees California as the big prize in web-based wagering. An estimated 2 million state residents play Internet poker, according to the California Online Poker Assn., a coalition of 46 casino operators that is leading the charge for legalization.

“Today, the state of California is the leading Internet gaming market in the world,” said Sen. Roderick Wright (D-Inglewood), coauthor of the legalization bill, during a USC conference on gambling in March. “The only thing is, we make no money and we have no [consumer] protections for our citizens who play.”

Senate leader Darrell Steinberg (D-Sacramento) said their joint proposal aims to raise at least $200 million for the budget year that begins in July. Legalization “is worthwhile only if it’s a means to generate significant revenue for the state,” Steinberg said.

In the last year, casino operators have poured $1.36 million into the Democratic State Central Committee of California, which Steinberg will rely on for his campaign to increase his party’s control of the Legislature in this year’s elections.

In the two years since Wright first proposed legalization, the six largest operators in the online poker association have spent $7.7 million on political contributions, gifts to officials and lobbying in Sacramento. The group includes Hollywood Park Casino, in Wright’s district. Fifteen Indian tribes that own casinos, including the Morongo and San Manuel bands of Mission Indians, are also members.

Ryan Hightower, a spokesman for the online poker group, declined to comment on its contributions.

Wright, chairman of the Senate committee that oversees gambling, has received 85 contributions totaling $170,000 from gambling interests since he ran for election in 2008. Those included money from a fundraiser hosted by Leo Chu, owner of Hollywood Park Casino.

In addition, four casinos that founded the online poker association have anted up $11,500 for a legal defense fund for Wright in his ongoing battle against criminal charges of voter fraud and perjury. Los Angeles County prosecutors allege that Wright registered and voted using the address of an Inglewood property he owned but actually lived outside the district that elected him.

Wright and other members of his committee received $5,000 in gifts from gambling interests last year, including lodging at the Barona Luxury Casino Hotel in San Diego, tickets to a Tower of Power concert at the Chukchansi Casino near Yosemite, rounds of golf at the Rolling Hills Casino in Tehama County and VIP entry to the Del Mar horse-racing track.

Casino interests have also contributed to Gov. Jerry Brown, who has not taken a position on the Steinberg-Wright bill.

Nevada casino operator Caesars Entertainment Operating Company Inc., Kentucky Derby host Churchill Downs and the U.S. subsidiary of the British firm Betfair all have lobbyists working the Capitol in the legalization effort.

The measure, SB 1463, would allow nearly 150 card clubs, Indian casinos and horse-racing tracks that operate in California to apply for 10-year licenses to run gambling websites open only to state residents. The businesses would each have to put up a $30-million advance for any poker website they were awarded. After two years, the state could legalize other games, such as pai gow and 21, for Internet wagering.

Wright and Steinberg are now considering changes that the poker association has demanded as a condition for supporting the bill, including stronger barriers to out-of-state gambling interests. The group’s Indian casinos, as well as the 33-tribe California Nations Indian Gaming Assn., are insisting that the bill be limited to poker.

A separate small group of tribes is lobbying to kill the legislation, saying it would violate their exclusive right to operate certain electronic games and take customers away from their brick-and-mortar casinos. Wright is not proposing that Internet slot machines be legalized.

“This is … a harsh slap in the face to California Indian tribes,” said Leslie Lohse, chairwoman of the California Tribal Business Alliance, which consists of three tribes with casinos.

Lohse’s group has donated $278,000 to Brown’s effort to qualify a tax hike for the November ballot. A tax increase that closes the budget gap could reduce the need for Internet gambling proceeds.