Hardline Tribal Letter on California Online Poker a Machiavellian Diversion? (Part 2)

In part one of this two-parter on the ongoing sad state of affairs regarding California online poker legislation, we touched on this past week’s release of a letter co-signed by the chairmen of a half dozen of the state’s tribal nations.

The letter was rigid in its adherence to idealized tribal demands that would make any future California online poker reality the monopolistic playground of the Golden State’s most politically powerful tribes, at the expense of both other interested service providers and California’s poker consumers themselves.

CaliforniaWe then looked at the previous history of some (but not necessarily all) of these hard-line tribes regarding online poker regulations, and detailed a surprising flip-flop in their official stance.  At issue: The possible impact of 1988’s federal-level Indian Gaming and Regulatory Act (IGRA), and how it plays into the legal reversal some of these tribes claim to have made.

The IGRA situation doesn’t necessarily impact all of online gambling’s future in California, but it does impact all of that portion of online gambling’s future in California as it applies to tribal gaming — at least as long as IGRA itself remains on the books.

And that returns us to a story recently in the news: the short-circuited attempt late in 2014 by southern California’s Iipay Nation of Santa Ysabel to launch an online bingo site, with the promise that real-money online poker was also soon on the way.  The Iipay Nation’s Desert Rose Bingo site briefly accepted real-money action in November before halting play in the face of both state and federal injunctions.

The Santa Ysabels, in defending the launch of the site, continue to maintain that under IGRA, both bingo and poker are Class II games under IGRA — this despite language in IGRA that seems to specify, even before the advent of the Internet, that remote/electronic enhancement or reproduction of said games would elevate them to Class III, making them fall under the types of games governed by compacts with the state.

But here’s the odd thing about the whole Iipay Nation of Santa Ysabel situation: It doesn’t appear as if any of the parties directly involved in the site had the money involved to launch or market the site properly, or to defend the tribe and the online operation against the inevitable state and federal lawsuits that would follow.

After all, in the brief period the Desert Rose Bingo site was operational, they offered bingo for quarters and dollars.  Maybe the site grossed a few hundred dollars, barely enough to pay for the electricity running the online site’s servers.  Given that the site never had any real marketing or advertising, it never even had a chance to garner more than a few paltry bets?

So why would an already bankrupt tribal-gaming operation risk guaranteed state and federal lawsuits?  To rake in a few hundred bucks in exchange for an uphill legal battle that could drag on for years?

It makes no sense.

Unless, that is, the launch of the Santa Ysabel operation was being funded by other parties, with one of the possible long-term goals being to back California’s legislature into a legal box regarding online-gambling regulation and availability.

To be clear, the Santa Ysabels’ gaming operations are broke.  The tribe’s brick-and-mortar casino was shuttered in February of 2014, leaving the tribe millions of dollars in debt.  The tribe also attempted to walk away from those millions in debt by having the casino’s ownership entity file for bankruptcy, to relieve the tribe of a $9 million judgment granted to Arizona’s Yavapai Apache Nation, one of the casino’s financial backers.  The casino owed at least another $3 million in unpaid state taxes, and the casino’s total indebtedness, according to California media reports, may run as high as $50 million.

The Santa Ysabels also failed to have their debt to the Yavapai Apache discharged, but the casino’s never going to reopen, and the tribe itself doesn’t have any money.

As for the Desert Rose Bingo online site, the software provider has just about the same amount of money — none.  The site’s parent entity, PrivateTable, traces back to a down-on-its-luck tribal payment processing entity called FinPay, and its owner, Chris Wolfington.  And Wolfington’s payment processing business, Money Centers of America, also went through its own failure and bankruptcy not too long ago, leaving millions in debt to still other tribal gaming operations in the US.

The Santa Ysabels?  They’ve got no money?  Their software partner?  He’s got no money, either.  And together they’ve launched a process designed to chew through, oh, several hundred thousands or a few millions of dollars in legal fees alone.

The only way it makes sense is if some other tribal nation or group of tribal nations is footing the bill.  One can count out the Arizona Yavapais for two reasons: They have no short-term dog in the California online poker fight and they’re already owed millions.  No need to send good money after bad.

However, the cases being made against the Santa Ysabels’ Desert Rose online operation rest squarely on IGRA, and the language dictating that the use of an electronic medium moves the bingo — as it would for poker — from Class II to Class III.  Class II gaming is subject to lighter regulation and falls outside the revenue sharing that’s the centerpiece of state-tribe gaming compacts across the US.

In order to win its case, the state and federal authorities have to prevail in their belief that online bingo (and online poker) would be Class III under IGRA.  And in doing so, that would strengthen these previous assertions that many of the same hardline California tribes have previously made, that online poker should thus be a tribal-only enterprise in California.

It’s not necessarily true, in purely mathematics and logic terms, that even if online bingo/poker were declared to fall under IGRA for the tribes, then all of California online poker would have to be left only to the tribes to develop.  But it doesn’t hurt the tribes to build and strengthen that apparent relationship.  That it’s not necessarily and not always true doesn’t mean that it’s always false, either.

In this case, the courts will have to eventually decide.  IGRA itself might even fail to stand up to a legal challenge of this type in the Internet age.

Meanwhile, anything that delays the onset of any form of regulated online gambling or online poker in California can be interpreted as good news for some of these non-compromising tribes.  Tribal nations in states such as Washington and New Mexico have been quite aggressive in attempting (and succeeding, in Washington State), in having online gambling banned under the pretense of it being a financial threat to brick-and-mortar casinos.

There’s no doubt whatsoever that some of California’s tribes share the same view.

California is quite liberal, progressive, and deeply in debt.  This makes online poker a viable regulatory opportunity.  A few years back, a number of Cali tribes were quite open in their efforts to block the process.  But when one considers the Genest research and legal flip-flop we detailed last time out, the fact that these many of these same tribes rushed to get idealized, tribal-only legislation filed in Sacramento may be a giant ruse.

Who’s really backing the Santa Ysabel legal fight?  No one really knows.  We’re not going to name a specific tribe or group of tribes as being the Santa Ysabels’ legal backers, because, simply, we don’t know.  Yet the whole situation stinks.

Don’t be surprised if it some point in the future the entire Desert Rose Bingo sideshow turns out to be a fronted attempt by other, richer tribal nations to leverage the state of California to accept tribal-only online poker, or risk having none at all.  The threat of several hundred million dollars in withheld gaming-compact revenue lurks just outside wider public view.

California state legislators have already declared that for online poker, progress in 2015 or 2016 might be optimistic.  In light of all the factors in play, several more years and a handful of legal battles might erupt.  It’s not going to be pretty.

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