Analysis: Striking the right balance in California poker
Barbara DeMarco, VP of Porzio Governmental Affairs, on whether or not the current deal between the California horseracing industry and tribal communities could set precedent nationally
Barbara DeMarco is a governmental affairs consultant specializing in gaming, education reform and agricultural policy as well as procurement and corporate development issues.
One of the great guessing games for those involved in internet gaming is: what state will authorize some form of internet gaming next?
Naturally, the bulls-eye is California because it is has the largest population – 38 million people. The problem with California and all states where gaming is a significant part of the economy is that you need to wrap all of the existing land-based interests into the discussion. Neglecting to do this will make getting a bill signed into law nearly impossible.
In my view, California has one of the toughest compositions of vested land-based gaming interests. It includes over 73 tribal communities who have ratified tribal-state gaming compacts as well as 14 horseracing tracks offering live racing, advanced deposit wagering and simulcasting. These two industries are very concerned that the addition of internet wagering, even poker only wagering, will pull players from their existing wagering pool. Their fears are not unfounded.
By way of example, when convenience gaming proliferated in the landscape in the northeast, Atlantic City, which held the eastern monopoly on casino gaming, it went from a $5bn plus market to half that. The reason: although the gaming pie gets a little bit larger because new technology does bring in new players, the existing money pie generally just gets cut up into smaller pieces.
Let’s look at it from the perspective of an elected official. Land-based gaming and live racing is the source of thousands of jobs for constituents (voters). They may not all be high end jobs but they are jobs nonetheless. Now take the number of land-based jobs and compare it to the number of jobs created with the addition of internet gaming and you see “why” the elected officials who represent these constituents are extremely cautious when adding gaming via the internet into the mix. They do not want internet gaming impacting land-based interests too much or undoubtedly jobs will be lost.
The net result is the right balance must be achieved in order to get a law passed.
The sponsor of the current internet poker bill in California is trying to get this balance correct. The most recent version of the bill gives the licenses to conduct internet poker to tribal gaming interests only. Horseracing venues do not get to hold internet poker licenses but they do get $60m a year from licensing fees and taxes.
This $60m a year for racing will not only provide increased benefits to workers and jockeys, it also provides a huge cash infusion into the purses (prize money) a horse wins. For the California horsemen, the $60m is not negotiable and I predict that they will withhold support until they are absolutely sure the amount of money slated to be collected from licensing fees and taxes will cover the $60m on a yearly basis.
I must give the California racing industry props for demanding a dollar figure be put into the bill as opposed to a percentage. Percentages fluctuation often resulting in less money for the intended percentage recipients; whereas, an exact number is a guarantee.
This is actually my fear for racing in the upcoming constitutional referendum being considered as a ballot question in New Jersey this fall. The referendum states that after numerous other interest groups receive revenue from the proposed two new casino resorts slated for NJ’s northern region, horseracing will get at least a 2% of what remains. The problem is what remains may be close to nothing and 2% of nothing is nothing.
One stateâs experience will never be exactly the same as another state. Nevertheless every state who has a law on the books is worthy of study. The reason: there are always elements that can be pulled from each individual state’s lobbying effort to help guide new states that have yet to come on board. The caveat is that these borrowed ideas must fit into the individual dynamic that makes each gaming state unique whether it is population base, current land-based interests, the lottery etc. Firms must remember it is an elected officialâs first responsibility is to take care of his/her constituents. If what you are proposing is going to take jobs and not replace them, they will be wary of adding internet gaming to their states menu of gaming offerings. None of this is easy but if you achieve the right balance, success is much more likely.