This week’s announcement by the cash-strapped Santa Ysabel tribal nation of an imminent rollout of real-money online poker for Californians, despite no formal state regulation, has added an interesting new twist to the neverending saga of the attempts to introduce and regulate the online game in the Golden State. Whether or not the Santa Ysabels — also known as the Iipay Nation — move forward with their plans remains to be seen.
What’s for sure, however, is that an already-tipsy legislative apple cart in California’s state capital of Sacramento now has another element in play. Regardless of the Santa Ysabels nation’s small financial size, the question now posed is a doozy: Do United States-based tribal nations even need federal or state approval to offer online poker, if they’ve already been cleared via the Department of the Interior to offer gambling on their own tribal lands?
As legal rabbit
holes go, this one’s deeper than most. And despite the fact that many industry and legal observers are dismissing the Santa Ysabel’s announcement as a negotiating ploy, the legal arguments supporting the possible Santa Ysabel move have been there all along. It’s just more likely now that these legal arguments will come to a head sooner rather than later.
The Background
On Monday, the Santa Ysabel Gaming Commission (sycommission.net) announced the introduction of a new online-poker site, PrivateTable.com. The announcement appears to have been designed to attract maximum exposure within the poker world, timed as it was to coincide both with continuing play in the World Series of Poker main event and the start of the three-day 2014 GiGse (Global iGaming Summit & Expo).
GiGse is annually one of the world’s largest discussion gatherings on business and political matters connected to online gaming, with the possible regulation of California online poker one of the symposium’s hottest topics. It’s also a grand publicity tradition to co-opt such major events as this or the WSOP for making such announcements. it wasn’t even three months ago, for example, that California’s Morongo tribal nation and PokerStars timed the announcement of their prospective software deal to steal the thunder from an ongoing California state legislative hearing on online poker.
As for the Santa Ysabel plans, the earliest statements indicated that real-money play could have begun as early as Monday, within hours of the announcement itself going public. That didn’t happen, however, and it appears that promises that the site -might- begin real money play that soon were just an attention-grabbing bluff.
While all the necessary components for real-money play appear to be available to the the Santa Ysabels and their PrivateTable.com website, it soon became apparent that a lot of the structure simply isn’t in place — an active cashier system, to name one example, isn’t even live on the site as it currently exists.
But that doesn’t mean it couldn’t happen sooner than some people expect. The PrivateTable.com domain is registered in the UK, via SafeNames, which has demonstrated an historical unwillingness to cooperate with US-based attempts to interfere with online-gaming domains. Likewise, the software and hardware appears to be planned as “offshore” as well. The Santa Ysabel Gaming Commission (SYGC) states on its website that online infrastructure will be provided via Canada’s Kahnawake Gaming Commission, presumably via its related backbone service provider, Mohawk Internet Technologies.
The KGC/MIT operation, based just outside Montreal, remains the world’s largest conduit for online-gambling support and services, despite its close connection to two of the largest online gambling scandals ever to impact the unofficial US market, involving Absolute Poker and UltimateBet.
The PrivateTable software is similarly positioned. Preliminary screenshots of the site’s lobby and sample tables were quickly identified as being identical to that used on the Winning Poker Network. This does -not- mean that PrivateTable is going to be launched as a WPN skin. Rather, the software that supports the WPN has also been provided for use on what would likely be a standalone PrivateTable site. That software is produced by IG Soft, which is itself the latest incarnation of the long-running software firm known as DobroSoft.
The Possible ‘Weak Links’
The payments system, likewise, has at least been planned for. The PrivateTable framework already contains references to online payment processor FinPay as being the site’s future cashier, though as noted, no real-money processing services are currently available. FinPay itself has US roots and is being cited by some at the possible weakest link in this equation.
FinPay, short for the Financial Payment Network, was quickly traced to a Pennsylvania man named Chris Wolfington, who appears to have established the operation in just the last couple of months — quite likely as part of the PrivateTable deal coming together.
However, Wolfington is no stranger to either payment processing or tribal gaming. He’s also operated Money Centers of America and its subsidiary, Check Holdings LLC, which has involved in clearing check payments for roughly 60 land-based casinos, including tribal ones, particularly in the upper Midwest. Of special note is that Wolfington tried to put Money Centers of America into bankruptcy protection in order to evade over $10 million in legal judgments owed in disputes over his processing to the Minnesota-based Mille Lacs tribe and the Wisconsin-based Ho-Chunk operation, which runs six casinos in the central part of the Badger State. (Your interpid reporter has been in all of them.)
Several early reports have questioned how viable Wolfington’s new FinPay system will be as the cashier component for PrivateTable, given his existing legal and financial concerns. There’s also the matter of whether or not state or federal authorities would attempt to shutter FinPay’s services, particularly as they relate to the United States’ UIGEA-protected ACH (Automated Clearing House) network. (For the record, Vinko Dobrosovic, the founder and controlling force behind IG Soft, is also based in the US.)
It’s going to be interesting, but to the extent that the operation is based on Santa Ysabel tribal lands — including a direct conduit to the KGC/MIT provided services that gives some form of legal support to the concept that the wagering is being done on tribal lands — and it’s not a legal battle that will be resolved through a couple of phone calls.
Financial Motivations
It’s hard to overestimate the extent to which the risk being accepted by the Santa Ysabel tribe equates to the financial difficulties they face. The Santa Ysabel tribe formerly operated a small casino with about 350 slot machines over an hour northeast of the San Diego metroplex, quite a bit east of Escondido, up into the San Jacinto Mountains. The casino’s remote location was the primary reason it failed, closing this past February and leaving the tribe owing $50 million on its investment. Other tribal casinos are larger and closer to the major metro areas in southern California.
The Santa Ysabels, apparently, are also among several dozen California tribes not really accounted for in the ongoing state legislative discussion regarding online poker. As a statement from the SYGC declared:
“There are currently two pending legislative proposals being considered by the California Legislature. Santa Ysabel and other California tribes have significant concerns regarding both legislative proposals. The current proposed legislation excludes all but the wealthiest gaming tribes from engaging in state-regulated online gaming. Smaller or remotely located tribes, like Santa Ysabel, would not be able to meet the financial prerequisites for participation in online gaming as currently proposed, in spite of their years of experience conducting and regulating brick-and-mortar Class II and Class III gaming.” — sycommission.net
That license fee as called for under the twin bills which are currently stalemated in Sacramento is $10 million a license — up front. Even more, that $10 million is offset against subsequent gross revenues, so it really does stand as evidence to the Santa Ysabels’ assertion that the current licensing fee is set up as a barrier to entry for the state’s smaller and poorer tribes.
$10 million might be a drop in the hat to the Pechangas and Agua Calientes and Palas, some of the major tribes backing SB1366 and AB2291, the latest versions of the Pechanga-funded bill. But to many other tribes, it’s a big deal, and there’s really no reason why the Palas for example, should have an easy road to a protected market while dozens or hundreds of other potential online-poker site licensees — tribes or otherwise — do not.
Exactly Who is Going ‘Rogue’?
Several of the early pieces on the Santa Ysabel declaration and PrivateTable.com launch have declared that the site is going “rogue” in following this path. Such arguments and headlines appear to be self-serving, and it’s hard not to read them while wondering at the financial incentives some of these sites might be fronting.
First, the entire basis for the Santa Ysabel rollout is that poker is a Class II form of gambling, rather than Class III, which is separate gaming category that includes slot machines and the like. Whether or not poker is Class II or Class III is an argument that is likely only to be settled by a US federal court decision, since Class II is reserved for bingo and Class III is a catch-all for house-banked forms of casino gambling. Neither description really applies to poker.
It’s interesting to note, however, that lawyers for the Pechanga-led coalition now trying to push through SB1366 and AB2291 did a flip-flop on this very same issue within the past three years, just in time to craft a favorable viewpoint favoring their tribal-only legislative efforts. These same tribes declared a few years that online poker couldn’t be regulated via state-level compact because it was Class II, not Class III, then simply switched their collective interpretation when popular support for the regulation of California online poker began to grow.
If it sounds like hypocrisy, well, it is.
There’s also the question of some of these news reports quickly slapping a “rogue” label on the Santa Ysabels while utterly ignoring some of the other already established business connections. The Pala tribe, one of the major components of the Pechanga-led faction, has already created a new entity called Pala Interactive, in which it partners with former Excapsa (UltimateBet) CEO James Ryan. Pala Interactive also has some shared rights to the extant UB software, which means that years after UB itself failed amid scandal and tens of millions of dollars of internal theft and fraud, the old UB software could reemerge again, via Pala Interactive.
One could also note that the Pala tribe itself is also mired in major legal controversy over the forced disenfranchising of hundreds of former tribal members, many of whom are political opponents of the group currently in power. The net effect is to distribute the massive proceeds from the Palas’ profitable gaming operations to a smaller group of official tribal members.
It’s hard to look at the sum of what the Pala nation would bring to online poker, and not toss in the word “rogue” somewhere. Even if it doesn’t have quite the same meaning.
The Payday Loan Precedent
Truth be told, there are lots and lots of legal questions in play in California that have yet to receive serious consideration. If the Santa Ysabel gambit erupts into a major controversy, some of those issues will naturally expand, such as the possibility that dozens or hundreds of tribes, both in California and elsewhere, could serve as virtual “rent-a-tribes,” generally referring to the use of tribal sovereignty and autonomy as a front for other forms of businesses to operate without proper oversight.
Such things have already happened, with the noxious payday loan industry and its usurious interest rates on short term loans being one of the most prominent examples. (One should look up the brief history of the “Western Sky” payday-loan operation as an example, though it’s not the only one.)
US-facing “offshore” online poker almost found its financial processing through such a rent-a-tribe operation in the days preceding Black Friday, a tale one can find within James Leighton’s book on the rise of Intabill payment processor Daniel Tzvetkoff, “Alligator Blood.” Such use of a tribal front for online-poker processing almost happened five years ago, and it’s somewhat surprising that it didn’t. Whether or not such processing would be judged legal when accompanying a tribe’s own legal gambling operations is a question that remains very much open.
The promise by the Santa Ysabels to offer real-money online poker to California players in the very near future isn’t as easily dismissed as some people may thing. Even the supposed weakest link, the FinPay processing operation, might turn out to be viable, or a true offshore, international replacement could be found. One of the arguments made by those who dismiss FinPay as a barely solvent startup ignores the greater truism: Major firms such as PayPal or Optimal (NETeller) would more likely enter the California space via a deal with some of the state’s major players. A FinPay or something similar is exactly the type of new processor that would be willing t take the necessary independent risk. Established or not, it fits the greater picture.
We’ll see what the next weeks and months hold. The longer PrivateTable operates as a play-chip site with no indications of real-money play, the more likely it is that this is a marketing or negotiating play. Still, the pieces of this puzzle indicate that more than just that is going on.
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