CMC California Online Poker Study Estimates Jobs, Revenue Growth

A study commissioned by an informal coalition of five California tribal nations and produced by state lobbying group Capitol Matrix Consulting (CMC) estimates that formal regulation of online poker in the Golden State would produce about $845 million in state revenues for the five-year period 2015-2019, should California legalize online poker in the coming year.

CaliforniaThe study’s estimates assert that $503 million of the $845 million five-year total would come directly from the online sites’ gross gaming revenue (GGR), to be taxed at 10%.  The remaining $342 million would be derived from indirect taxes related to the expansion of the new online industry, such as taxes on corporate profits and employee income.

However, as the study duly notes, the indirect revenues would not necessarily represent true fiscal growth for the state.  Many of the potential jobs created in the new industry would likely be filled by employees transitioned into the industry from other lines of work, though the study estimates Year One (2015) jobs growth of nearly 2,000, with a five-year total of more than 2,600 jobs in a California online poker industry.  Additionally, tribal income from online, estimated to be more than half of the overall total, would not be subject to any California state corporate tax.

Of casual interest is that the study references fiscal specifics from two California bills — SB 51 and SB 678 — as the basis for the study’s estimates, which also draws on information from other industry-monitoring sources.  However, neither SB 51 nor SB 678 are the current iterations of bills backed by tribal lobbyist Jerome Encinas, who played a coordinating role in obtaining the study from CMC.  This may also indicate that the CMC study is also significantly dated, perhaps by six months or more, before being released to the public.

SB 51, introduced earlier by State Sen. Roderick Wright, was abandoned in the wake of Wright’s legal problems in other matters, while SB 678 is the recurring measure introduced by State Sen. Lou Correa.  The Correa bill now exists as SB 1366, while the old Wright measure was reworked and expanded into the AB 2291 bill sponsored by State Rep. Reggie Jones-Sawyer.

Both those bills maintain the 10% tax rate from the earlier bills, while the CMC study presumptively assumes that the exclusivity California tribes claim over many forms of gaming within the state will automatically extend to cover online poker.

That assertion is one of the secret sticking points of the latest CMC study, which was obtained in full by FlushDraw.  The study’s bill presumes the Correa or Jones-Sawyer (formerly Wright) bills will pass in its current form, and that the Morongo-PokerStars battle will be resolved against those entities, whether or not the Stars brand name would have a positive impact on the California consumer marketplace.

It was Encinas, the tribal lobbyist who helped pull together this study, who told Gambling Compliance two months ago, “We can roll Morongo, no problem.”

Encinas did not timely respond to a media inquiry regarding the identities of the five tribes who funded the study, but they are likely among the most prominent backers of the Jones-Sawyer and Correa bills.  Among the likeliest financiers of the study are the Pechanga, Agua Caliente, and Pala bands, with others such as the Paskentas, Baronas and San Manuels among other possibilities.

The declaration of exclusivity regarding tribal gaming rights is itself an open question, and one which the CMC study took careful steps to assert was based solely on revised information received from tribal gaming lawyers.

From the study:

The Special Case of Exclusivity

Genest Consulting [CMC’s earlier name] relied on legal advice from its client to the effect that legalizing internet poker would violate the exclusivity clauses in existing Indian Gaming compacts. To the extent that exclusivity is violated, it would automatically free up the gaming tribes to cease making the payments to the state that the compacts require. In 2010-11 those payments totaled $365 million.

Obviously, the potential loss of that amount of revenue would have dwarfed any state revenue gain from legalization. However, a more recent legal opinion provided to us by our client indicates that internet poker would not violate the exclusivity clauses in the compacts. While exclusivity remains an issue for further legislative consideration, given the most recent legal opinion, we do not assume in this analysis that [the bills] would result in any revenue losses to the state.

The tribes themselves have not issued any clarification as to why the legalization of California intrastate online poker would violate existing Indian Gaming compacts in 2010, but not in 2013 or 2014.  As such, the study cautiously delineated that its estimates were based on those legal assertions being proven out.

The reason for that becomes clear when one realizes that Michael Genest, the primary author of the CMC study, was also the author of an earlier 2010 study that asserted that online poker would result in a $300 million decrease in revenue for the state.  That was the earlier “Genest Consulting” report referenced in the latest study.

Genest himself clarified the about-face between the two studies, while reaffirming that it was the switch in the tribes’ own legal opinions that invalidated the earlier study.

Genest told FlushDraw, “As this report indicates, the analysis I did then is no longer relevant, primarily because (1) the bill I analyzed then set up a single, monopolistic provider and would not therefore have created a competitive market, (2) that was pre-Black Friday and (3) the legal analysis of the exclusivity issue has changed 180 degrees since then (I relied then and I rely now on counsel provided by the clients for legal analysis).”

In general, the study remains pro-poker, while admitting that it rests on some untested legal assertions.  Whether the realities of California politics derail the most optimistic timelines, and thus negatively impact such revenue projections, remains to be seen.


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