Amid tribal lawsuit, California cardrooms could be further rocked by new proposed regulations
Beginning in 2023, California Attorney General Rob Bonta and the state’s Bureau of Gambling Control set out to change two sets of regulations for the state’s cardrooms, pertaining to blackjack rules and the use of player-dealers.
A round of proposals for both sets was published in early February, but were subsequently withdrawn to give more time for public comment. A second round was published on 11 April, with the period for comment having closed at 5pm Thursday.
Two public hearings were held on the proposals this week by the BGC and, according to PlayCA, the majority of input came from cardroom supporters who were against the proposed changes. The new rules would essentially eliminate blackjack in its known form and add several new requirements for player-dealers.
There are various scenarios of enactment, but any would have massive impact on cardrooms. According to the state’s own impact assessment from last August, possible outcomes would likely include hundreds of millions in lost revenue and a considerable depletion to cardroom jobs. Many small towns throughout California rely heavily on the tax revenue from cardrooms to fund necessities like fire and police services.
Lawsuit ongoing
As the state moves ahead with its rulemaking process, cardrooms are also squarely in the middle of a massive lawsuit from state gaming tribes. As sovereign nations, legal action is typically unavailable to tribes, but state lawmakers passed SB 549 last November, an unusual measure that carved out a one-time opportunity for the lawsuit.
The suit was subsequently filed in January by a coalition of tribes against all state cardrooms and is being heard by the Sacramento County Superior Court. Currently, the next hearing is set for 8 August.
Issues outlined in the suit relate directly to the rule changes promulgated by the BGC, although it is unclear how one might impact the other. Given the complexity of the case, with dozens of plaintiffs and defendants, the consensus is that the suit could drag on for years.
It should be noted that the rulemaking started well in advance of the lawsuit and is not related to those proceedings.
How did we get here?
In California, tribes have exclusivity for Class III casino gaming, meaning there are no commercial casinos offering house-banked games. The Golden State is the tribal mecca of the US – per the National Indian Gaming Association, California tribal gaming posted $12 billion in gross gaming revenue in FY23. That figure was easily the highest of all regions tracked by the NIGC.
However, instead of commercial casinos, there are dozens of legal cardrooms, which allow for player-to-player gameplay. This framework is technically compliant, although several years ago cardrooms began employing the use of third-party providers of proposition player services, referred to as TPPPS.
The providers are independent contractors licensed by the state that offer player-dealer services in the cardrooms. Most recreational players are seeking Class III-style gameplay and do not wish to play as the dealer. Instead, the third-party providers help facilitate that action. Because of this, they often serve as the dealer for the entirety of a game.
Tribes, meanwhile, have long contended that this is simply a workaround to state laws and therefore a violation of their exclusivity. By law, the player-service providers are also supposed to be completely independent from cardrooms. Over the years, though, the relationships between the two have become increasingly intertwined. The January lawsuit was the culmination of nearly two decades of back-and-forth between the two sides.
Duelling statements
In their suit, tribes contended that “cardrooms and their partner third-party proposition players have ignored the law and refused to recognise tribes’ exclusive rights” and thus have “reaped illegal windfalls” by utilising the services to offer the games.
In response, cardrooms have always maintained that TPPPS are legal and licensed by the state.
“Cardrooms have legally operated these highly regulated games for decades, each of which has been approved by the California Department of Justice,” Kyle Kirkland, president of the California Gaming Association, told iGB earlier this month.
“We remain confident the legal process will uphold what’s right for the tens of thousands of Californians who depend on cardroom jobs to support their families as well as for the communities that count on their local cardroom’s economic activity and tax revenue to fund essential services.”
Unrecognisable blackjack
Bonta’s proposed rule changes to blackjack would essentially strip the game of its known characteristics. If enacted, all existing blackjack games would be banned. Rooms would have to make changes and reapply each game to have them reapproved.
These changes include:
- Games would no longer be able to have a “bust” feature, where a player or dealer automatically loses if their point total exceeds 21. Rather, wins and losses “shall be determined solely by whether the total points of a player’s hand is closer to the target point count when compared with the total points of the player-dealer’s hand”.
- The target point cannot be 21.
- With the absence of a 21 target, players or dealers would no longer automatically win a hand with that combination.
- In the event of a tie or “push”, players would win, instead of the usual non-action.
- No games shall feature the words “21” or “blackjack” moving forward.
Cardrooms would have a 60-day window after enactment to submit a request for reapplications.
Player-dealer restrictions
The proposed changes to player-dealer requirements are extensive and seem to mirror many of the issues raised by tribes. Under the proposal, games with player-dealer roles must adopt the following:
- The player-dealer must be seated at the table at all times and the position must be offered to all players before every hand. This offer shall be “visible to surveillance cameras”.
- Each table must post the following notice: “Any player can assume the player-dealer position when it is offered. The player that assumes the player-dealer position cannot win or lose more than the amount they wager.”
- The role of player-dealer must rotate to “at least two players other than the TPPPS every 40 minutes or the game shall end”.
- If the TPPPS is serving as the player-dealer, the next rotation must be to another player.
- Additionally, TPPPS would only be allowed to accept and settle wagers when they are serving as player-dealer.
- Only one TPPPS would be permitted per table.
As with the blackjack rules, cardrooms would have 60 days to apply for modification requests.
Battle for respect
Overall, California’s gaming landscape is at a crossroads. Tribes are more powerful than ever, having amassed several victories in a row – in addition to passing SB 549, Indian Country also defeated a high-priced push from commercial sportsbooks to legalise sports betting in the state during the 2022 election. A ballot measure backed by the nation’s largest commercial sportsbooks lost decisively. To this day, bookmakers are still attempting to mend fences and lick their wounds.
Cardrooms, by contrast, appear to be losing ground. Local officials are now voicing concern for the sector, which is a huge source of tax income. The city of Hawaiian Gardens is home to Gardens Casino, the second-largest cardroom in the state. Mayor Dandy de Paula laid out just how important the casino is to the city, per PlayCA.
“We rely on our cardroom not only to provide high-quality jobs but for the tax revenue generated that makes up over 60% of our city’s general fund,” he said. “We strongly call on the attorney general to not move forward with these punitive and needless regulations.”
That said, cardrooms do still have ample sway in the state, which was showcased after the November election. In response to the passage of SB 549, cardrooms spent $3 million lobbying against four lawmakers who voted in favour of the bill. Three of the four ultimately lost their respective races, per CalMatters.
“We really don’t want to be the sort of, you know, the Rodney Dangerfield of industries. We want to be respected,” Keith Sharp, a lawyer for Hawaiian Gardens, told the outlet.