Category

Cardrooms

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.

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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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.

Fact Check: Global Gaming Business Magazine’s “Gaming the System”

By | Cardrooms, Tribal Gaming

The GGB article “Gaming the System” includes
misleading and inaccurate claims. The article
reflects several tribal advocates’ ongoing efforts to
disparage the California cardroom industry and is
written by an author whose bio states he is “working as
an advocate for several tribes and tribal associations.”
Several quoted sources are affiliated with tribal interests
and lack any cardroom experience.

CLAIM #1

“…worst-regulated segment in the legal gambling industry.”

“Card rooms were largely unregulated prior to the Gambling Control Act of 1997, which designated the GCC and BGC as primary regulators of the industry with limited oversight of tribal gambling.”

FACT #1

False. Cardrooms are regulated by two state agencies and must adhere to all federal, state and local laws, including extensive gaming specific regulations on all aspects of their operations. No other segment of California’s gaming industry is as thoroughly monitored and regulated. Compared to tribal casinos, California cardrooms are subject to greater and public regulatory oversight including:

  • Compliance with California’s Gambling Control Act
  • Public licensing and disciplinary hearings by the California Gambling Control Commission
  • Compliance and enforcement oversight by the California Department of Justice
  • State-mandated minimum internal control standards covering all aspects of operations
  • Approval of game rules, advertising and promotions by the California Department of Justice
  • Disclosure to and approval of capital investments and ownership changes by regulators
  • Required participation in statewide Responsible Gambling programs administered by regulators
  • Payment of federal, state and local taxes
    Adherence to California minimum wage and other California labor laws

Tribal casinos are not required to do any of the above and are “self-regulated” in non-transparent, non-public forums. Given the lack of transparency, no source can claim that tribal casinos are better regulated than other gaming establishments with any credibility. The sources that state otherwise in this article are tribal spokespeople and one regulator who resigned his post as Commissioner and left California under a cloud of misconduct complaints.

CLAIM #2:

“‘The card rooms’ strongest defense is that there are regulations in place that essentially make no sense that are sanctioning illegal activity…It’s not Law School 101, but Social Studies 101 that statutes trump regulations, and constitutional provisions trump statutes.”

FACT #2:

False. For more than 30 years, cardrooms have operated player-dealer games with the approval of the Legislature, courts and Attorney General, with no impact on the steady growth of tribal gaming.

Four Court of Appeal decisions have held that player-dealer games are not banking games. In all of the court decisions, the practice to offer the player-dealer position every two hands in clockwise order to each player position with an active player was upheld. There was no statement that the position had to rotate every two hands. In fact, none of the decisions required that two hands be the legal maximum number of hands required for offering rotation, it is simply the custom and approved practice to offer the opportunity to serve as the player-dealer every two hands. Court 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

CLAIM #3:

“In addition, the card rooms are effectively playing house-banked games. Card rooms no longer rotate the bank in the playing of their games and allow so-called third-party proposition players, essentially a partner of the card rooms, to maintain that bank. This practice directly violates the California Constitution and penal code and the tribal exclusivity granted to tribes by California voters.”

FACT #3:

False. The Oliver v. County of Los Angeles, (1998) 66 Cal.App.4th 1397, 1409 which is often cited by tribal interests does not state that the player-dealer position has to rotate every two hands nor does it define what amount of time is too long for the position to remain with one person. Following the Oliver case, the State Legislature passed Assembly Bill 1416 (2000) to clarify the issue.  The statute confirmed that player-dealer games are legal under the Penal Code and the State Constitution, and the Legislature also provided for the licensing, contracts and regulation of third party companies to take the player-dealer position. Third party companies and their employee/players are licensed by the California Gambling Control Commission.  Third party company contracts with cardrooms are reviewed and approved by the California Department of Justice.

CLAIM #4:

“The California penal code expressly bars the playing of blackjack as a prohibited game…Yet you can drive down streets and highways in our state and see billboards on which card rooms boldly advertise that they play Las Vegas-style blackjack.”

FACT #4:

There is no penal code statute that bars blackjack. The penal code prohibits the game of “21” which at the time was a French card game very different than blackjack. Blackjack did not develop until three decades later. Today, cardrooms offer Bureau-approved variants of popular table games, including blackjack, and feature a player-dealer position permitted under Penal Code section 330.11. Furthermore, promotional activities at California cardrooms are reviewed and approved by the California Department of Justice. Tribal casinos do not have any independent oversight of their game rules, advertising or promotions.

CLAIM #5:

“The high-stakes Asian/California games and TPPPs have helped card rooms compete with tribal government casinos which, since the passage of Proposition 1A, have grown into an $8 billion industry with 63 state-licensed operations.”

FACT #5:

The growth of tribal casinos in California has not been affected by cardrooms. Cardrooms only offer poker and table games, which make up a very small portion of tribal revenue; most of the tribal casino revenue is generated from slot machines. Last year, revenue at California tribal casinos grew by another eight percent and several California tribal casinos have announced multi-million dollar expansions. California tribal casino revenue exceeds $8 billion, which dwarfs the California cardroom industry revenue of about $1 billion.

CLAIM #6:

“Meanwhile, game rules adopted by the BGC appear to violate the intent of California Penal Code 330.11, which states, ‘The player-dealer position must be continuously and systematically rotated’ among players. The code does not mandate acceptance of the deal by every player.”

FACT #6:

False. State law and the decided cases involving player-dealer games have not defined what is meant by “continuous and systematically rotate”, and there is no statute, ruling or standard that states that “continuous and systematic” means “every hand.”  The hour hand of a watch, ocean tides and celestial bodies can all be said to move in continuous and systematic fashion.  Cardrooms do offer the player-dealer position to active players every two hands, something not offered at tribal casinos.

The rotation method proposed last year by the Bureau represents at least one other method that would be considered continuous and systematic. In that proposed method, cardrooms must offer the position at least every two hands as they do now and no participant can occupy the position continuously for more than one hour.

CLAIM #7:

“But tribal casinos have operated virtually free of scandal.”

FACT #7:

False. Tribal casinos are self-regulating, creating an environment with limited, public criminal and civil oversight at their facilities. In contrast, California cardrooms must comply with all federal, state and local laws and have their licensing and disciplinary actions aired in a public forum. Cardrooms are also subject to the same criminal enforcement and civil litigation that all non-tribal businesses face.

Recent examples of scandals associated with California tribal casinos include:

  • 2011: The former chairman of a Northern California tribe was sentenced for bribery and tax evasion related to the operation of that tribe’s casino.
  • 2014: An armed confrontation between two competing tribal factions of a tribal casino in Central California terrorized patrons and employees, resulting in the closure of that casino for fifteen months.
  • 2016: Eleven people were arrested in connection with an undercover drug sting operation at another tribal casino in Central California.
  • 2017: Three casino executives of a Northern California tribal casino were charged with orchestrating a multi-million embezzlement scheme.

The IRS also devotes a full page on its website to the abuses and schemes identified by the Office of Indian Tribal Governments including but not limited to bribery, embezzlement and tax fraud.

Finally, growth in tribal gaming revenue in California has resulted in increased tribal disenrollment, meaning that some tribal members are removed from tribal roles, lose federal benefits and lose their share of gaming revenue.  In a GGB article, “Tribal Gaming’s Dirty Secret” in February 25, 2016, Professor David Wilkins of the University of Minnesota stated:

“The lack of transparency (among tribal governments) has made it difficult for us to verify exactly when disenrollments became an issue…But disenrollments didn’t really come into play until the early 1990s. That coincides with gaming… The number of disenrolling tribes begins to increase as gaming revenues begin to increase… It’s about greed.”…

…”The pattern of disenrollment in California is very different from tribes in other states. In California, you’ve got this massive spiral of disenrollments that’s been going on since the late 1990s.”

CLAIM #8

“The profitable use of TPPPs by card rooms conflicts with Business and Professions Code Section 19984 which states, ‘In no event shall a gambling enterprise or the house have any interest, whether direct or indirect, in funds wagered, lost or won.'”

FACT #8

False. It is lawful to have contracts between cardrooms and third-party players as mentioned in Fact #3 above.  Those contracts are reviewed and approved by the Bureau of Gambling Control prior to implementation. The Legislature and regulators have approved this structure.

CLAIM #9

“Former enforcement chief Rob Lytle issued a December 2007 opinion letter that stated the deal need not be ‘continuously and systematically’rotated as stated in Penal Code 330.11, but merely offered to the various players at the table.  Lytle distributed the opinion—worth millions of dollars to the card rooms—about 10 days before resigning his position to become an industry consultant and club owner.”

FACT #9

False. The letter, issued by the California Attorney General’s office on December 20, 2007 providing guidance to cardrooms on game procedures, is consistent with current laws and court decisions. Further, Mr. Lytle has had no involvement in how the Bureau interpreted and applied that letter over the last decade.

CLAIM #10

“‘There needs to be more transparency,’ says Saverio Scheri, president of White Sand Gaming, which has consulted with card rooms and municipal officials. ‘There needs to be more attention to not only the regulations but accounting practices.'”

FACT #10

California cardrooms and casinos in other states such as Nevada have more transparency and oversight than tribal casinos. Cardrooms are subject to public licensing and disciplinary hearings by the California Gambling Control Commission as a part of the strict regulation and oversight by multiple federal, state and local agencies. Even Nevada gaming establishments must adhere to many regulations, oversight and transparency requirements. Due to their sovereignty, tribal casinos operate with no transparency as described above.

With respect to accounting practices, all cardrooms must keep detailed accounting records on items such as revenues, expenses, assets, liabilities, equity, third parties, player banks, credit transactions, returned checks, jackpots, etc. for at least seven years.  Cardrooms with revenue in excess of $10 million must have their financial results audited by an independent licensed accountant and keep all books and records in accordance with generally accepted accounting practices. Those financial records (and related forms and revenue information) are provided to both the Department of Justice and California Gambling Control Commission every year under penalty of perjury. Even the smallest cardrooms with revenues under $500,000 are required to report their financial results under penalty of perjury and may be required to undergo financial audits. Finally, the Department of Justice routinely audits cardrooms for financial suitability and adequate financing to cover obligations to the gaming public (chips, player accounts, jackpots, etc.).

Note that the source for the claim in the GGB article is Saverio Scheri who has a long history of working with tribal casinos including as general manager at Morongo Casino Resort & Spa in Cabazon, CA.

FACT #11

Sources in this article include:

  • Saverio Scheri, former GM of Morongo Casino
  • Vic Taucer, Casino Creations – Las Vegas (many tribal clients)
  • Richard Schuetz, former California Gaming Commissioner who resigned as Commissioner and left California with two accusations pending against him, including a complaint filed with the California Fair Political Practices Commission.
  • Dave Palermo, author of the article, free-lance reporter, posts articles on Pechanga.net and whose bio claims he is “…working as an advocate for several tribes and tribal associations.”
  • Various tribal chairpersons and tribal attorneys