Online Poker in California

The latest way to balance the budget of California is to go back to the Native American tribes that operate the 60 plus legal casinos in California and give them online poker and ask for more money from them.
I know Arnold already made this play once. Under the compacts tribes may exceed the 2000 limit on the number of slot machines, but must pay increasingly more to do so. I think the tribes are paying around $175 million per year. I am going to say Native American casinos in California are generating about $5 billion a year in profits. Most of the money comes from a few of the larger casinos located in urban areas.– the Pechanga, Morongo Band of Mission Indians, Sycuan Band of the Kumeyaay Nation, and the Agua Caliente Band of Cahuilla Indians. In exchange for giving the state government a higher percentage of their gross slot machine revenues, the tribes were allowed to install a total of 17,000 additional slot machines. All four measures were approved by California’s voters on February 5, 2008.

Pechanga Band of Luiseno Mission Indians

Money to state under 1999 compact

$29 million

# of slots under 1999 compact

2,000 machines

Tribe Minimum payment to state under new compact

$44.5 million

# of slots under new compact

7,500

Morongo Band of Mission Indians

$29 million 2,000

$38.7 million 7,500

Sycuan Band of the Kumeyaay Nation

$5 million 2,000

$23 million 5,000

Agua Caliente Band of Cahuilla Indians

$13 million 2,000

$25.4 million 5,000

Totals – – $76 million 8,000 $131.6 million     25,000

The money the State thinks the Tribes will pay in taxes is just not there. The online poker market is much smaller than the casino market.
Online poker generated billions of dollars per year for online poker websites all over the world until the United States government began to mingle in the industry and try to enforce questionable laws. This action by the federal government caused many sites such as Party Poker to no longer allow US players to play. The mechanism for getting cash into and out of the sites has become very cumbersome and the banks are running scared from Big Brother. Now that the government has ruined online poker they want to make a U-turn and now embrace and tax it??? I am sorry; I have no faith in you!

Yes California would like to legalize intrastate online poker and tax it to death. I will start to deviate from facts and share my opinions at this point. Poker saw its peak a few years ago before the government got involved. Poker in general has been in decline or at very least stagnant the last three years. Online poker has been doing even worse over the last three years. Online poker in the United States is probably less than 20% of what it once was in its heyday.

California is thinking of setting up a network that only allows players actually located within California to play on the California online poker network. Just to make it even slimier they are going to get in bed with a tribal government and have them run the show. The tribe of course promises to do everything right and send some money to the State of California. California is facing a budget shortfall of around twenty billion dollars. $20,000,000,000.00 that is a big number and it is not going away anytime soon. Online poker is not going to fix the budget.

What follows is the Victor Shaw crude estimating method of how many dollars California can expect from this new poker game. I will start with the roughly 30 million people living in California and make a guess that 60,000 will actually get on the new site and open up an account. Will the tribe and the State use competitive marketing strategies to get players to sign up? Probably in some weak fashion that falls just short of the industry norm. These 60,000 players will generate about 300,000 hands of play a day. The rake will be somewhere in the neighborhood of $750,000 per day. Here is where things get sticky. I will be generous and say that half of that is profit. $375,000 per day in profit is generated by the new poker web site. What can the State expect to see from the Tribe? I am going to guess around 20% if we get a good deal. That leaves us with $75,000 per day or less than $30 million a year. Even if I am wrong and the thing is ten times bigger than I think’ and it will not be that big, the money generated is still very small in terms of the California budget.

I have to say that an online poker game will take away customers from existing poker rooms and casinos and therefore lower the taxes paid by those facilities. I did not try to take time to make arguments against this online intra-state poker game because it just seems to be such a non-starter. Legalize marijuana and tax that if you want to make some money. I am sure that will generate at least twice as much as poker will.

These are desperate times and the government is looking for easy places to find money without having to raise taxes but the truth is there is no magic bullet for fixing the budget.

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