Expanded gambling not in the cards for California tribes

California Dreamin’: Tribes Say Cardrooms Still A Deal-Breaker For Expanded Gambling

In recent years, more liberal states have generally been more inclined to consider gambling expansion in the US. And yet California, perhaps the country’s most left-leaning state, always seems to face an uphill climb.

It’s not for a lack of demand, nor of political will. The state already has plenty of options for land-based gambling, and the electorate is generally pro-regulation and anti-prohibition on most topics.

Rather, the issue relates to the complexity of the landscape and the vagueness of existing cardroom laws. Legal largely by virtue of never being expressly outlawed, policy surrounding these gaming establishments is ill-conceived and incomplete.

Separate stories with a common thread

Two big stories have brought California onto the front page of gambling news once again.

First is the newest proposed gambling expansion, this one tailored to omni-channel sports betting. The bill from Sen. Bill Dodd and Assemblyman Adam Gray recently passed out of committee and is now up for consideration in the Senate.

The second is the civil lawsuit against King’s Casino Management, tournament director Justin Kuraitis, and poker player Mike Postle. The suit, brought by 88 alleged victims of Postle’s cheating, was recently thrown out of court by a federal judge.

The two stories might seem mostly unrelated apart from involving gambling in California. Both issues, however, are made more complicated by the murky laws surrounding the state’s cardrooms.

Cardrooms illustrate issues with hands-off regulation

Player-banked card games such as poker have never been illegal in California. For most of the state’s history, they weren’t regulated either.

The state’s penal code, which dates back to 1872, outlawed any games banked by a gambling establishment along with some specific types of casino games. Poker and other forms of player-versus-player gambling continued to exist in an unregulated gray area for more than a century.

In 1984, however the legislature enacted the Gaming Registration Act requiring the Attorney General’s office to provide some level of regulation.

Oversight remained limited until the late 1990s when the state placed a moratorium on the opening of new cardrooms and created the California Gambling Control Commission to regulate them.

By that point, however, cardrooms had already exploited a loophole to expand well beyond poker.

Legal gambling in a regulatory blind spot

Games like Pai Gow and Baccarat are also legal in California when banked by a player instead of the house. Finding a patron willing to assume that financial risk, however, isn’t always possible.

The solution cardrooms found was to pay “proposition players” to act as bankers for games that would traditionally be house-banked. The result is essentially casino gambling but with additional complications that benefit no one except the third-party companies banking the games.

These sorts of ridiculous technicalities can arise when policymakers fail to take necessary and decisive action. A similar example can be found in some states with riverboat gambling, where otherwise illegal commercial casinos can operate legally as long as they are able to float.

Cardroom loophole makes sports betting a no-go

These casino-style games banked by third parties — known as “California games” — are likely to spell doom for legislative efforts to legalize sports betting.

The bill faces stiff opposition from the state’s tribes, as it would formalize the loophole and make it explicitly legal for the cardrooms to offer banked games. The tribes have long held that the state’s failure to close that loophole amounts to a violation of their compacts, which grant them exclusivity over casino gambling.

The fact that cardrooms have become an important source of jobs and tax revenue complicates the matter. The city of Commerce, for instance, reportedly receives 70% of its tax revenue from the eponymous Commerce Casino.

Lawmakers are understandably reluctant to close the loophole if it would mean sacrificing that revenue. Some, including the sponsors, believe sports betting could be a bridge to compromise.

No progress likely until legal battle resolved

The new California sports betting bill does provide for the tribes.

It would give them the authority to operate both retail sportsbooks and online apps while laying out reasonable tax rates and licensing fees. It would also allow tribes to offer craps and roulette at their casinos, both of which are currently off-limits.

The tradeoff, however, is that passage would put an end to the fight against cardrooms and their California games. For the tribes, that’s a total non-starter. So long as a path to victory remains, they cannot support a bill which would bring the battle to a premature end.

The light at the end of the tunnel is that there’s only so long that the litigation can go on.

The US District Court for the Eastern District California dismissed the case last year, though the tribes have since filed appellate briefs with the Ninth Circuit Court of Appeals. That’s the last stop before the US Supreme Court, so the saga is approaching its final chapter one way or another.

Win or lose, the tribes may be more inclined to discuss expanded gambling once the issue has been resolved judicially.

Regulator leaves Postle victims no recourse

The Postle case, meanwhile, involves a series of live-streamed poker games played at one such cardroom — Stones Gambling Hall. The player in question won roughly a quarter-million dollars over the course of these games, drawing extra scrutiny from the poker community.

Live-streaming broadcasts revealed players’ hole cards on a delay, as has become the norm these days. While only the staff in the broadcast booth should have access to hole-card information in real time, evidence compiled by the community seems to show that Postle was accessing that data from the table via his cell phone.

A similar scheme in other states could have resulted in Postle facing criminal charges. In Nevada, for instance, cheating at gambling in a Class B felony. In California, however, the alleged victims can’t even convince the court to hear a lawsuit.

The state’s criminal code took no stance on most forms of gambling for so long that its civil courts adopted a similar policy regarding associated losses. According to Judge William B. Shubb, that applies even in cases of alleged cheating.

The judge did indicate that the plaintiffs could file a new suit against the cardroom, though damages would be limited to the rake Stones charged during the games. By charging a fee to play, the cardroom takes on a responsibility to ensure a fair game.

Even if the suit ultimately succeeds, however, it highlights a major problem with the hands-off approach to gambling law in California. In a state with a stronger framework, it would be the regulator’s duty to initiate such investigations and hand out appropriate penalties.

California gambling standoff continues

Though both of these stories are recent, similar problems are old news in California.

Before sports betting become a possibility, legalization of online poker was a hot topic. Here too, the standoff was largely between the tribes and the cardrooms who all felt they should have the authority to offer the game.

Likewise, Postle is far from being the first accused cheater to find a safe refuge in California’s dysfunctional regulatory system. Regarding a separate investigation into M8trix in 2015, card cheating consultant George Joseph told The Sacramento Bee that the situation in the state is equivalent to “the wild, wild west.”

Unfortunately, it’s hard to imagine at this point what a satisfactory solution would look like.

The tribes will resist any effort to formalize the cardrooms’ ability to offer California games, while politicians whose constituents depend on the jobs and taxes they supply will resist any effort to strip them of that authority. Until someone cuts that Gordian knot, it will continue to be an impediment to expanded gambling proposals.

In the meantime, California has become a cautionary tale for policymakers in other jurisdictions. Sometimes, the worst decision a body can make is refusing to make a decision. In the absence of clear laws and regulations, an ad hoc system of loopholes and policies ends up filling the void.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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