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Regulation of Online Gambling Could Be a Good Bet for California
By: Stuart Waldman



The California Legislature has been looking for ways to boost the state economy and get the budget back into the black. While much of the legislation passed by our elected officials looks toward regulating and taxing California businesses, the Valley Industry and Commerce Association (VICA) encourages the Legislature to use the 2013 session to pass bills that will restore the California economy. One way to spur growth is to legalize and regulate online gambling.

California is the single largest market for online poker with more than 2 million players logging on throughout the state. This is equivalent to 60 percent of the country’s players. We can expect the market for online poker to grow by more than 10 percent each year according to a study by the Innovation Group.

California has a unique opportunity to legalize and closely regulate an industry that is not currently regulated in the state. The online gambling sector has the potential to create a large number of jobs and bring in more than $1.4 billion in revenue for the state.
VICA recommends that any legislation written towards this goal follow five principles necessary for successful online gambling regulation:

1. Poker Only: By requiring that licensed websites only offer poker games, California will avoid the risks of infringing on state-tribal compacts, time-consuming litigation and startup delays. Poker in brick-and-mortar establishments is already highly regulated in California for these reasons. Previous legislation, which failed to pass through the Legislature during the 2012 session, did not specify gambling games permitted. The inclusion of undefined games, including currently unregulated social games can cost California in the end.

2. Upfront Fees: Applicants for operating licenses must pay reasonable fees to the state to cover estimated future tax payments of the licensee and the cost of suitability determinations.  Typically in other jurisdictions that have adopted such regulations, these fees for online gambling websites range between $20 million and $40 million. Such fees will be instant revenue for the California General Fund—important and needed during such fiscally turbulent times.

3. UIGEA-Compliant Subcontractors: Websites and technology subcontractors must not have accepted wagers from within the United States after the effective date of the Unlawful Internet Gaming Enforcement Act (UIGEA).  Congress passed this act in 2006 to declare the operation of and participation in inter-state online gaming activities with actual money to be illegal. California cannot afford to contract with companies in violation of this act as it may force the state to be party to any prosecution pursued by the U.S. Department of Justice (DOJ).

4. California-Based Operations: The licensees’ servers, website management, and the licensees’ and players’ bank accounts must be located in California. Requiring as such will create much needed in-state jobs and allow the DOJ to easily audit poker servers to verify compliance. Any legislation without these standards will enable out-of-state and foreign interests to serve as “false fronts” operating in California.

5. Consumer Protections: It is imperative that Californians be afforded the same protections against villainous business practices online that they would otherwise receive at brick-and-mortar casinos. Any legislation should include strong regulations to help problem gamblers and ensure that unhealthy behavior is not supported for financial gain by gambling websites.

The state has the potential to bring in more revenue while still being protected from superfluous lawsuits such as those the state may be party to when the DOJ prosecutes violators of UIGEA. Written to follow these five principles, legislation legalizing online gambling will protect California consumers from fraud and create jobs for the state’s currently unemployed residents—nearly 11 percent.

Considering the state’s current fiscal crisis, it is imperative that online poker legislation be passed during the 2013 session and that the operative date is within the next budget year. Doing so will allow the state to begin accepting upfront licensing fees almost immediately. VICA encourages the state Legislature to pick up where they left off in the 2012 session and pass legislation that will legalize online gambling, protect the state, create jobs and build the California economy. If California can begin collecting the revenue from online gambling websites, it will be able to reduce the cuts to public safety, education and other vital state programs.