Category

Tribal Gaming

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