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David M. Fried

Gaming in California

By | Cardrooms, Casinos, Gaming

People are often skeptical of the claim that California generates more gaming revenue than Nevada, but then nod with understanding when they hear the components—California Lottery (aka the numbers racket) $3 billion, tribal casinos $8 billion, cardrooms $1+ billion and another $250 million from horseracing—over $12 billion total. In comparison, Nevada casinos generated $10.8 billion of gaming revenue in 2016.

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Cardroom Importance to Local Communities

By | Cardrooms

“Service to others is the rent you pay
for your room here on earth.”

– Muhammad Ali

As of June 2017, there are 77 active cardrooms in operation throughout the state of California. Most are relatively small, family operations with fewer than 10 tables that contribute to their communities by offering living wage jobs to locals and boosting the local economy. There are, however, a number of larger cardrooms that are critical components of their communities by providing the majority of budgeted tax revenue supporting essential services such as police and fire response. For example, the Gardens Casino is a 225-table operation in the City of Hawaiian Gardens provides over 70% of that city’s budget, an $11 million annual contribution. Similarly, the Commerce Casino (270 tables, the world’s largest cardroom) and the Bicycle Casino (185 tables) in Bell Gardens provide 25-35% of their respective city budgets.

Many other California communities also benefit from local cardroom(s) with significant contributions to their host city’s general fund—Gardena (Hustler Casino and Lucky Lady Casino), San Jose (Bay 101 Casino and M8trix Casino), Fresno (Club One Casino), Colma (Lucky Chances Casino), Emeryville (Oaks Card Room) and San Bruno (Artichoke Joe’s Casino). In fact, two of the five largest cities in California benefit from cardroom table tax revenues (San Jose and Fresno) and the largest metropolitan areas (Los Angeles, San Diego, San Francisco) each benefit from the employment and economic contributions of cardrooms in their areas. Statewide, the cardroom industry generates over $2 billion of economic activity and employ over 23,000 people in productive, living wage jobs.

California cardrooms also offer a variety of non-gaming entertainment and support of local non-profits through direct contribution and on-property fund-raising. Of course, as participants in the local economy, cardrooms provide other secondary benefits to the community in the form of property and payroll taxes and are often large customers of local vendors, such as food and beverage distributors.

The graphs below show the extent of cardroom contribution to city budgets in several Southern California cities. The implication is that any changes which affect cardroom operations and revenue can have a significant impact on the operating budget of the host jurisdiction.

About the author

Kyle Kirkland is the current president of the California Gaming Association, the 501(c)(6) non-profit trade association that represents California cardrooms.  Mr. Kirkland is President and General Manager of Club One Casino, a 51-table cardroom in Fresno and holds the same positions for two smaller cardrooms.  Mr. Kirkland’s background includes work in the consulting, finance, music and gaming industries, and he has served on the boards of several public companies.  Mr. Kirkland holds an A.B. degree from Harvard College magna cum laude in Economics and an MBA degree from the Graduate School of Business at Stanford University.  He can be contacted at kyle@calgaming.org.

Gaming Regulation in California

By | Uncategorized

“In Vegas, everybody’s gotta watch everybody else. Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I’m watching the casino manager. And the eye-in-the-sky is watching us all.”

Ace Rothstein, Casino

There’s a misperception that California cardrooms are under-regulated and bad practices pervade the industry. In fact, California cardrooms are subject to a wide-range of state and local gaming regulations and public licensing and enforcement hearings. That said, the state’s regulatory scheme is still relatively young—the Gambling Control Act was enacted in 1998—and unusual relative to that found in other gaming jurisdictions.

California cardrooms are regulated by two state agencies (the Bureau of Gambling Control and the California Gambling Control Commission) and must adhere to all federal, state and local laws, including extensive regulations on all aspects of their operations. The California Gambling Control Commission (CGCC) is a five member panel appointed by the Governor and charged with the overall regulation of the industry including licensing and adjudication of gaming related issues. The California Department of Justice Bureau of Gambling Control (Bureau) is charged with the investigation of potential licensees and enforcement of regulations. The Bureau is under the jurisdiction of the Attorney General.

California cardrooms are also subject to detailed local ordinances and additional licensing consideration and enforcement by local law enforcement agencies. No other segment of California’s gaming industry is as thoroughly monitored and regulated.

The regulatory oversight to which cardrooms are subject includes:

• Compliance with CA’s Gambling Control Act and specific local gaming ordinances
• Public licensing and disciplinary hearings by the CGCC
• Compliance and enforcement actions by the Bureau and local law enforcement
• State-mandated minimum internal control standards covering all operations
• Bureau approval of game rules, advertising and promotions
• Approval of capital investments and ownership changes by state and local regulators
• Required participation in state Responsible Gambling programs
• Payment of federal, state and local taxes, including specific gaming taxes and fees
• Adherence to California minimum wage and other California labor laws

In contrast to California cardrooms, California’s 62 active tribal casinos are self-regulated in non-public forums and not subject to many of the items listed above. Tribal casinos are covered by compacts with the state, but much of the day-to-day regulation is conducted by self-appointed tribal regulators in non-public forums. As a result, much of the regulatory oversight is not subject to scrutiny by the general public or law enforcement bodies. Further, tribal casinos enjoyed “sovereign immunity” which shields them from most civil litigation challenges. As a result, the checks and balances to which tribal casinos are subject is less than that on other gaming activity in the state.

About the author

Kyle Kirkland is the current president of the California Gaming Association, the 501(c)(6) non-profit trade association that represents California cardrooms.  Mr. Kirkland is President and General Manager of Club One Casino, a 51-table cardroom in Fresno and holds the same positions for two smaller cardrooms.  Mr. Kirkland’s background includes work in the consulting, finance, music and gaming industries, and he has served on the boards of several public companies.  Mr. Kirkland holds an A.B. degree from Harvard College magna cum laude in Economics and an MBA degree from the Graduate School of Business at Stanford University.  He can be contacted at kyle@calgaming.org.

Taxation of Gaming

By | Cardrooms

Ah, Leona Helmsley…such a charmer.  In 1992, the wife of billionaire hotelier Harry Helmsley did a 19 month bit in federal prison for running renovations of her Greenwich mansion through the company books, but her real crime was hubris against the little people.  Known for bullying staff contractors and treating everyone not named Harry like gum on the bottom of her Manolo Blahniks, the chain-smoking Queen of Mean had no shot before a jury of her non-peers.  But for clever lawyering by Alan Dershowitz (presumably better treated than us), Leona would’ve died in the pokey.  Americans tolerate those who amass extreme wealth, but play us for chumps?  Uh, that’s not gonna work.

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Evolution of Non-Gaming Activities

By | Casinos, Gaming

“Whosoever desires constant success must
change his conduct with the times.”

Niccolo Machiavelli

Traditionally, non-gaming amenities like food and beverage and hotel rooms were giveaways to attract gamblers to venues with the hope of capturing their gaming activity surrounding their visit. That all changed in 1989 when Steve Wynn opened the Mirage Resorts—the Strip’s first new resort in almost two decades—with a functioning volcano, white tigers and an over-the-top Polynesian motif. In the three decades since, gaming in Las Vegas has evolved beyond slots, craps and card games to a full recreational escape with world-class shows, dining, spa, nightclub and shopping activities. In fact, most of the growth in the gaming industry has come from non-gaming amenities such as these. For example, in 2016, MGM Resorts saw 75% of its revenue from non-gaming sources. Wynn Resorts boasts three (XS, Tryst, Surrender) of the top-grossing nightclubs in the United States, generating over $150 million per year in annual revenue.

While gaming has expanded in California over the last two decades, the non-gaming experience at casino resorts in the state has lagged that offered in Las Vegas. California casinos and cardrooms still generate most of their revenue from gaming activities and, although many have upgraded their facilities and offer dining and other spa/resort amenities, they still don’t offer the full complement of amenities offer by Las Vegas properties. For example, there are seven unique Cirque du Soleil shows in Las Vegas, yet none at California gaming resorts. Likewise, there are multiple world-class restaurants and retail shopping venues affiliated Las Vegas resorts; a world class chef has yet to connect with a California casino and the typical retail experience is limited to gift shops and outlet malls.

There’s a reason why 43 million visitors attended Las Vegas in 2016—Sin City resorts invest in the amenities that guests demand. Given the proximity to California, it’s not surprising that residents of the Golden State make up the largest percentage of out-of-town visitors to Nevada. In 2016, over 20% of those guests arrive from a California point of origin;11 almost 45,000 cars a day cross the California-Nevada state line on US Route 15 at Primm Valley Casino Resorts. It follows that there’s a huge opportunity for California casino resorts to retain those 8 million casino patrons (and their spending) by adding the non-gaming amenities enjoyed at Las Vegas resorts. At some point, expect California gaming operators to wake up and realize that they’ll have broader appeal (and higher revenue) if they offer a complete recreational experience to today’s gaming patrons.

11Las Vegas Visitors and Convention Authority.

About the author

Kyle Kirkland is the current president of the California Gaming Association, the 501(c)(6) non-profit trade association that represents California cardrooms.  Mr. Kirkland is President and General Manager of Club One Casino, a 51-table cardroom in Fresno and holds the same positions for two smaller cardrooms.  Mr. Kirkland’s background includes work in the consulting, finance, music and gaming industries, and he has served on the boards of several public companies.  Mr. Kirkland holds an A.B. degree from Harvard College magna cum laude in Economics and an MBA degree from the Graduate School of Business at Stanford University.  He can be contacted at kyle@calgaming.org.

Player-Dealer Games

By | Cardrooms, Gaming, Player-Dealer

“Baby, you’re so money and you don’t even know it!”

– Trent Walker, Swingers

State-licensed California cardrooms offer a variety of poker games and variants of other casino standards like blackjack and baccarat and other novelty games Fortune Pai Gow®, Three Card Poker® and Spanish 21®.9 Cardroom table games are operated pursuant to long-standing court decisions and statutes adopted by the state legislature which permit such games provided the games are offered using a “player-dealer” position.10 All player-dealer games are approved by the California Department of Justice Bureau of Gambling Control prior to being offered by a state-licensed cardroom to the general public.

In Nevada-style commercial casino and California tribal casinos, the casino plays the dealer’s hand and invites all the other players to compete against it. All player wins are paid by the casino (aka the house) and all player losses are collected by the casino. In contrast, California cardrooms cannot act as the “house” or supply the funds against which other players wager. Instead, cardrooms offer variants of table games with a unique player advantage—players have the opportunity to act as the “player-dealer” and wager on the dealer’s hand. In other words, in table games at California cardrooms, one or more players compete against the others, playing the dealer’s hand, paying winners and collecting from losers from the money at risk on the table.

In California, the opportunity to act and wager as the player-dealer is an advantage to players given the odds offered on the dealer’s hand. Despite the advantage, not all opt to act as the player-dealer, nor are they required to do so. To keep games in continuous operation, cardrooms employ state-licensed, third party proposition players to accept the player-dealer position in the event that the other players at the table decline to do so. That said, every player in the cardroom variants of blackjack and baccarat has the opportunity to act as the player-dealer every two hands. Next time you’re at a cardroom, try it. It might seem counter-intuitive based on your experience at other casinos, but your bankroll will love you for it!

9Three Card Poker and Fortune Pai Gow are registered trademarks of Scientific Games Corporation. Spanish 21 is a registered trademark of Masque Publishing.
10Court rulings that upheld player-dealer games are:
• Sullivan v. Fox, 189 Cal.App.3d at 678
• Bell Gardens v. City of Los Angeles, (1991) 231 Cal.App.3d 1563, 1568
• Huntington Park v. County of Los Angeles, (1988) 206 Cal.App.3d 241, 250
• Walker v. Meehan, (1987) 194 Cal. App. 3d 1290

About the author

Kyle Kirkland is the current president of the California Gaming Association, the 501(c)(6) non-profit trade association that represents California cardrooms.  Mr. Kirkland is President and General Manager of Club One Casino, a 51-table cardroom in Fresno and holds the same positions for two smaller cardrooms.  Mr. Kirkland’s background includes work in the consulting, finance, music and gaming industries, and he has served on the boards of several public companies.  Mr. Kirkland holds an A.B. degree from Harvard College magna cum laude in Economics and an MBA degree from the Graduate School of Business at Stanford University.  He can be contacted at kyle@calgaming.org.