Assemblymember Lloyd Levine presents online poker study bill to Assembly Governmental Organization Committee

Background:
There has been explosive growth in online gambling sites since the introduction of the World Wide Web in the early 1990’s. Such that there has been an increased presence of these operations, most of which are privately held and located offshore. While Congress did attempt to pass legislation in 1995 to ban Internet gambling, the measure largely failed due to heavy pressure from the interested parties such as Internet service providers, state governments, and other segments of the gaming industry.

In October 2006 Congress passed the Safe Port Act, to increase the security of U.S. ports. Imbedded within the language of that bill was a section called the Unlawful Internet Gaming Enforcement Act of 2006 (UIGEA), which prevents U.S. financial institutions from processing payments to online gambling businesses. In other words, the bill made it illegal for banks, credit card companies, or similar U.S. institutions to collect on a debt incurred on an online gambling site, thus eliminating any assurances for gamblers that they will actually collect on any winnings.

The Act does exempt three categories of transactions: intratribal, intrastate, and interstate horseracing. As defined in the Act, intrastate transactions are bets or wagers that are made exclusively within a single state, whose state laws or regulations contain certain safeguards regarding such transactions, expressly authorize the bet or wager and the method by which the bet or wager is made, and do not violate any provisions of applicable federal gaming statues. The exemption in UIGEA is consistent with the idea that state governments have the primary responsibility for determining what forms of gambling may legally take place within their borders, a right given to them under the 10th amendment of the U.S. Constitution.

What the bill does:
This bill would direct the California Gambling Control Commission to work together with the Department of Justice, to perform a study on authorizing intrastate online poker in California. The findings are to be reported to the Legislature by June 30, 2009.

Specifically the study would look at regulatory oversight and licensing, technological issues, underage and problem gambling matters, methods of play and types of games that could be legally offered, economic benefits to state and local governments, and how online poker would be conducted and operated.

Supporting Facts:
A 2003 Government Accounting Office study estimated that United States players make up between 50 and 70 percent of Internet gamblers worldwide. Many of the online players do not know making bets on the World Wide Web is illegal. A recent study conducted by the American Gambling Association found that despite the passage of recent laws restricting online gambling, there is still a significant portion of Americans who are confused about the legality of the activity – only 47% of the people surveyed knew the financial transactions were illegal.

Thus, regardless of the laws, online gaming is a very lucrative industry. Revenues have been estimated to be $1.5 billion in 2000, $5.7 billion in 2003, $8.2 billion in 2004, $10.7 billion in 2005, and $15 billion in 2006 just in the U.S. alone.

In California, it is estimated that millions currently play online poker at unregulated, unlicensed poker websites offshore. Because offshore gambling websites are not licensed or regulated, Californians who play poker on these sites have no way of protecting sensitive personal information when they use their credit card or provide other financial information to such a site.

AB 2026 would study the ability of the state to protect Californians by licensing and regulating intrastate poker websites. Authorizing online poker would not only allow California to protect its consumers, but it would also allow law enforcement agencies in the state to work with the industry in preventing underage playing, identity theft, and fraud. Furthermore, AB 2026 would look at economic opportunities for the state. In the current fiscal condition the state is in, it is important to look at all possible sources of revenues including authorizing online poker in California.