Issues like daily fantasy sports, online poker remain open in California as well

Tribes Take Shots At California Cardrooms, Regulators At Conference About Sports Betting, Expanded Gaming

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American Indian tribes meeting last week in Southern California say they are “fed up” with what they perceive to be the state’s inability to regulate cardrooms they contend are operating illegal games, a six-year-old dispute tribes threaten will end in a lawsuit.

The politically powerful tribes also say they plan to oppose sports betting and other expanded gambling in the state unless and until their concerns about cardroom games and other issues are resolved.

“It’s time to quit messing around with these guys,” Bo Mazzetti, chairman of the Rincon Band of Luiseño Indians, said of the California Gambling Control Commission (CGCC) and its enforcement agency, the Bureau of Gambling Control (BGC).

“Tribes need to get together, file a lawsuit and be done with it,” Mazzetti told a cheering crowd at the California Nations Indian Gaming Association (CNIGA) meeting at Harrah’s Resort Southern California. There were some 400 attendees.

What the cardrooms are doing now

Tyler Burtis, a BGC supervisory agent attending the conference, said the bureau “is doing, as agents, the best job we can for the industry, both the tribal industry as well as the cardroom industry.

“That’s what we’re focused on,” Burtis said of investigations and enforcement efforts tied to cheating, money laundering and other industry criminal activity.

But he declined to discuss regulatory policies on game rules and the use of third-party proposition player (TPPP) banking firms that are enabling cardrooms to offer high-stakes versions of blackjack, pai gow poker and what are known as California/Asian table games.

“We follow orders,” he said. “My understanding is that the new Attorney General (Xavier Becerra) has met with the cardroom industry as well as tribal leaders. I am not privy to what transpired.”

Tribal leaders said Becerra told them the issue of banked games will be reviewed when a new bureau chief is appointed to replace Wayne Quint, who recently left the agency.

What to do on cardrooms moving forward

Meanwhile, the CGCC said it is exploring regulatory methods to achieve more financial transparency in TPPP-cardroom contracts.

Officials with Gov. Jerry Brown’s office, the CGCC and BGC last week again declined requests from Online Poker Report to discuss the issue.

Tribes contend the cardrooms are violating provisions in the state constitution and tribal-state compacts giving the state’s 62 tribal government casinos the exclusive right to operate banked and percentage card games.

“A number of tribes are saying, ‘time’s up,’ and looking at pursuing affirmative litigation,” tribal attorney Scott Crowell said. “That is probably what is going to happen. But it’s because we’re fed up.”

Tribes have “great appreciation” for Brown’s efforts on behalf of Indian tribes, Crowell said, particularly with respect to compact negotiations and economic issues.

“But on this issue, they (state officials) dropped the ball,” Crowell said. “And we can’t depend upon the Brown administration to correct the situation. So the tribes are going to take this into their own hands and do something about it.

“The exact form of the lawsuit … the defendants in the lawsuit; those things are all being ironed out,” Crowell said. “But it’s going to happen.”

CNIGA principles frown on sports betting

CNIGA Chairman Steve Stallings said the group intends to “expand” a set of principles stating its opposition to sports wagering, in part because tribes contend regulators are allowing the state’s 87 cardroom to operate banked card games in violation of the state constitution.

The principles were drafted in August after Assemblyman Adam Gray introduced legislation to amend the state constitution to allow sports wagering should the US Supreme Court strike down the Professional and Amateur Sports Protection Act (PASPA). A ruling is expected this spring.

Amending the California constitution would require a two-thirds vote of the state legislature and voters in a referendum.

CNIGA contends it is premature to consider sports betting before the nation’s highest court has ruled on the matter. Congress may also enact legislation.

Lots of issues in play in California

CNIGA, composed of 34 casino and non-casino tribes, also is seeking resolution of “related issues that are currently unresolved,” listing them as:

  • Potential legalization of daily fantasy sports (DFS);
  • Use of TPPP banking/dealer firms in California cardrooms;
  • Failure of cardrooms to perform “continuous and systematic” rotation of the dealer position as required by law; and
  • Internet poker.

Legislators last year tabled a Gray bill calling for legalizing DFS. Online poker has been deliberated by state and tribal officials and other industry stakeholders for a decade.

TPPPs and dealer rotation are regulatory issues related to cardroom games.

“It’s a fundament issue,” Stallings said of the Proposition 1A ballot initiative in 2000 that gave tribes the exclusive right to operate banking and percentage card games in California. “But equally important is the slippery slope.”

He said allowing cardrooms to operate banked games along with the growing prospects of legalized sports betting, internet wagering and daily fantasy sports could result in cardrooms evolving into casino-style operations, violating voter-approved limits to gambling in California.

“If this proceeds,” Stallings said, “what’s the next thing the card rooms do to expand gaming? Most of the tribes are against expansion of gaming in the state.”

The debate on cardroom games is far from settled

Cardroom attorneys contend the games are legal. But officials with the California Gaming Association and Communities for California Cardrooms, lobby groups representing the industry, decline to discuss the dispute over game rules.

Industry advocates claim banked games are legal if the cardroom utilize TPPPs. But Crowell said the constitutional amendment and previous federal court rulings on tribal gambling prior to Proposition 1A prohibit all banked games, not just those operated by the house, or proprietor.

Dispute termed ‘political and economic’

Cardrooms emerged in California more than a century ago as businesses offering poker games. Players wagered against each other with the cardroom operator receiving a collection fee, or “rake” for each hand played.

The industry has since evolved into operations employing TPPP player-banking firms allowing the businesses to offer what are known as California/Asian games, or versions of blackjack, pai gow poker and baccarat similar to games offered in Nevada casinos.

State law and the Proposition 1A constitutional amendment approved by 64 percent of the voters prohibit banked and percentage card games other than those offered by tribal governments in accordance with a tribal-state compact.

Cardrooms no longer require players participating in California/Asian games to pay collection fees. Operators instead profit from financial arrangements with the TPPPs. They often sit at the games with stacks of chips totaling tens of thousands of dollars.

State law prohibits cardrooms from having “any interest, whether direct or indirect, in funds wagered, lost or won.”

California law also requires that the dealer position be continuously and systemically rotated among the players. The deal is seldom, if ever, rotated in California/Asian games.

The evolution of cardrooms

Game rules and regulations have enabled cardrooms to evolve into a $1 billion industry employing some 22,000 workers. Some operations have more than 250 tables with hotels and restaurant facilities, providing the bulk of tax revenue to several cities.

Industry advocates contend walking back CGCC and BGC regulations to comply with state law and the state constitution would cripple the industry, causing a loss of jobs and municipal tax revenues.

“Every cardroom has an assemblyman and senator in their district,” Stallings said. “Then they have the cities and the impact on tax revenues and employment.

“The fact this has gone on for so long and the fact they have built bigger facilities and hired more employees creates a political and economic justification to let this go on.”

“It’s gotten to the point that some of these cardrooms are constructing large casinos,” Crowell said. “They’re advertising themselves as casinos. They’re advertising the games as blackjack.

“And the cannibalization is no longer an insignificant issue. This is revenue being driven away from tribal gaming.

“The difference between 21 and blackjack may have regulatory and statutory implications. But even if you accept that 21 is a different game, it’s still a banked card game, which the California Constitution says can only be played on tribal lands.

“The constitution supersedes inconsistent statues,” Crowell said.

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Regulatory system failures

Much of the tribal criticism takes aim at the state’s bifurcated regulatory system with a CGCC under Brown and a BGC under AG Becerra.

The BGC has historically been poorly funded and largely staffed with sworn law enforcement officers lacking experience in gambling compliance. Union and Civil Service rules prevent hiring from outside the Department of Justice.

Former CGCC Chairman Richard Lopes, onetime commissioner Richard Schuetz, tribal regulators, industry consultants and academicians have been critical of the lack of trained, experienced regulators.

But Burtis contends the agency has stepped up its game.

“We had issues,” Burtis said. “We all knew we had issues. There was always talk that we were knuckle-dragging narcotics agents that don’t know about gambling.

“We’ve had a solid crew of people for several years now. They’ve all gone through training. It used to be when we first started we were hiring people on the way out. We now have a full staff and a list of people waiting to get in now. We’ve come a long way.”

Cardroom issues vs. tribal casinos

But the California cardroom industry has been the target of far more federal money laundering, skimming and loan-sharking raids than the nation’s nearly 1,000 tribal government and commercial casinos combined.

Ray Patterson, gaming commissioner for the Yocha Dehe Wintun Nation, said he witnessed a “complete lack” of internal operating controls in cardrooms he has visited.

“I’ve seen quite a few things that just shock me,” said Patterson, speaking at a panel titled, “Why isn’t California Properly Regulating the Cardroom Industry?” “Fellow (tribal) regulators in this room would never allow those things to happen in their facilities.”

“When you look at the gaming industry in California, where’s the black eye?” Crowell asked. “Where’s the corruption? Where’s the money laundering?

“It’s all in the cardrooms. The track record is pretty damn poor.”

- Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law.
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