California lawmakers are scrambling for ways to alleviate the $15.4 billion budget deficit. In their desperation, they should not bet the house on the false promise of riches from Internet gambling.
It wasn't all that long ago that California sanctioned a few poker parlors and horse racing. That changed when Californians approved the lottery in 1984. Next came high-stakes Indian bingo, which led to the 2000 ballot measure legalizing slot machines and other gambling on dozens of Indian reservations in California.
There is no turning back. The industry has become too wealthy and politically powerful. Forces within that industry no doubt will succeed in their effort to legalize Internet poker and other gambling at some point.
But there are many unanswered questions, and there is no need to rush.
Under federal law, Internet poker is illegal. But authorities in California and other states believe federal law permits states to regulate and tax on-line poker within state boundaries.
In Sacramento, Sen. Rod Wright, D-Inglewood, and Sen. Lou Correa, D-Santa Ana, are pushing competing bills. Of the two, Wright's proposal is more thoughtful and probably would be fairer to prospective bidders and to the state.
Correa's bill is stacked in favor of a few Southern California casino tribes and commercial card rooms. That is unacceptable.
The bidding process should be open to all companies. Key employees of the entities that win the privilege to operate what should be multiple hubs in the state must be willing to submit to full background checks.
Internet poker advocates contend that there will be safeguards to ensure that minors won't gamble away their parents' money, that criminals won't infiltrate the industry, and that problem gamblers won't fritter away their rent checks.
But California lawmakers have not shown a willingness to spend much money to regulate the influential gambling industry.
The Morongo Band of Mission Indians, among the biggest advocates of legalized Internet gambling, spent more on political campaigns in California, $82 million, than lawmakers spent on the Gambling Control Commission between 2000 and 2010.
The Internet doesn't recognize borders. So while the federal government banned Internet gambling, numerous sites flourished offshore, catering to U.S. residents.
Underscoring the shady nature of the business, the U.S. attorney's office in Manhattan earlier this month unsealed indictments naming top executives of three offshore sites on fraud and money-laundering charges.
Rep. Barney Frank, D-Mass, one of the leading proponents of legalization, attacked the Justice Department for prosecuting the case, saying agents' time would be better spent focused on mortgage fraud.
But while he and others accuse the feds of acting like a nanny, the charges are not trivial. Prosecutors accuse the operators of laundering billions of dollars through U.S. banks, including one in Utah that they purchased.
As it operated on the outer edges of the law, the Internet gambling industry sought to influence the political process. Some executives who were indicted are among the donors to the Poker Players Alliance, a Washington, D.C.-based lobbying organization and political action committee that has pushed for legalization.
Poker Players Alliance has a branch in Sacramento, retaining the law-lobbying firm Greenberg Traurig LLP, and spending almost $250,000 last year lobbying for legalization in the state.
Thanks to a provision slipped into a recent federal budget measure, the District of Columbia has become the first U.S. jurisdiction to allow such Internet gambling, and betting could start by this summer.
The nation's capital faces two challenges, however. It may not have enough players to make Internet poker viable. It also must demonstrate that it can confine access to D.C. residents – to avoid falling afoul of federal law – a hurdle California would also face.
Whatever your view of the wisdom or morality of gambling, it is here to stay. Indian casinos and card rooms in California will continue to rake in billions each year. For better or worse, Congress and some states in time will legalize Internet gambling.
But California, on this issue, does not need to lead the way.
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