Convoluted ‘California Blackjack’ battle may finally go to court

A long-simmering and incredibly convoluted fight over “California Blackjack” may finally be decided in court, thanks to a bill pending in the Legislature.

Senate Bill 549 by Sen. Josh Newman, D-Fullerton, would give California’s gaming tribes legal standing to sue California cardrooms over an arcane system they employ to offer Blackjack, which the tribes insist is in violation of state law.

Tribes have attempted to sue cardrooms over this before, but the issue was dismissed over a lack of standing by the tribes. As sovereign nations, judges have ruled, the tribes aren’t eligible to sue in courts. SB 549 would change that, but just one time and just for this one issue, which has been a major bone of contention in California’s balkanized gaming community for years.

The dispute centers around a basic tenet of California law: Native American tribes have the exclusive right to operate card games using house money. That means cardrooms are barred from “banking” table games, like the ever-popular Blackjack, which pits gamblers against the house in the race hit 21.

However, cardrooms – which, unlike tribal gaming operations, are just typical businesses owned by ordinary Californians – found a loophole that they say legally allows them to offer card games that employ a house, too.  The tribes argue the cardrooms’ workaround blatantly violates the intent of California law, but they’ve never been able to get the issue heard in court because of their legal standing issue. Hence Newman’s bill.

As sovereign nations, judges have ruled, the tribes aren’t eligible to sue in courts. SB 549 would change that – but just one time and just for this one issue.

California cardrooms say they’re able to offer Blackjack (and other card games in which the house plays, like Baccarat) thanks to an obscure figure in the California gaming community, the third-party proposition player.

Despite the name, third-party proposition players, or TPPPs, are not individual players, per se, but rather special, licensed businesses that work within California cardrooms. TPPPs contract with the cardrooms where they work, but they’re supposed to be financially independent from them. In that regard, TPPPs provide a service in California cardrooms in that they volunteer to act as the house or bank, and they have the financial means to cover the action.

Here’s how it’s supposed to work: Before a cardroom dealer deals a hand of Blackjack, the dealer offers all of the players at the table the opportunity to serve, for every hand or every other hand, as the house or bank. Most cardroom players don’t have the financial wherewithal, or the desire, to volunteer for such a role.

But a TPPP employee does.

So, a licensed TPPP, contracted to work in a cardroom, has employees at tables where the role of the house will be made available to the players. For example, at Blackjack tables. The TPPP employees – often wearing a badge identifying them as working for a TPPP and not the cardroom itself – volunteer for the opportunity to play the role of the house or bank every chance they get, which often is every hand dealt.

Cardrooms insist this system does not violate California law, because they themselves are not serving as the house or bank – the TPPPs are, and they’re independent from the cardrooms. Furthermore, cardrooms say they’re not relying solely on TPPPs as a means to circumvent the law because their dealers offer every player at the table the opportunity on every hand to serve as the house or bank. It’s not their fault, cardrooms say, that TPPP employees just happen to be the players who most frequently – if not always – elect to take on that role.

This system, where cardrooms offer Blackjack players the option of serving as the house or bank, is where the term “California Blackjack” comes from. Blackjack players aren’t offered that option in California tribal casinos or in Las Vegas. It’s a quirk specific to California cardrooms.

It’s not their fault, cardrooms say, that TPPP employees just happen to be the players who most frequently – if not always – elect to take on that role.

And just to be clear, in practice, Blackjack players in California cardrooms aren’t always overtly offered the option to bank. If you, as a player, don’t know what’s going on or how or when to ask, you may miss the “offer” entirely, it happens so quickly and so subtly – if at all. Likewise, it’s been reported that at least some TPPP representatives at some cardrooms don’t even bother to play in the games – they just stand to the left or right of the cardroom’s dealer and serve as the bank.

Further complicating matters, TPPP employees also sometimes play table games where a house or bank isn’t required, like in poker. In those instances, TPPP employees are just another player at the table, where the role of the dealer shifts from hand to hand. For this reason, cardrooms and TPPPs argue that TPPPs aren’t merely entities invented to circumvent state law, but rather niche businesses designed to enhance the play at cardrooms, to keep the action moving.

The tribes contend that’s nonsense – and that it’s costing them serious money.

“We believe California cardrooms have been violating tribal-exclusive gaming rights for more than a decade by illegally operating banked games,” said John Christman, chairman of the Viejas Band of Kumeyaay Indians, in a July 5 hearing before the Assembly Committee on the Judiciary, where the bill passed 6-0.

During the COVID pandemic, California cardrooms were closed while California’s tribal casinos remained open.

“Economic studies and data revealed during the COVID pandemic outbreak these illegally operated banked card games are taking away from gaming tribes over $100 million each year,” Christman told the committee.

“Of course,” he added, “California cardrooms disputes that their gaming activities violate California law or tribal gaming exclusivity. SB 549 will give them the opportunity to prove it.”

Newman’s bill would give California tribes a three-month window to file a lawsuit challenging the legality of TPPPs, beginning in January 2024.

Cardrooms, however, say SB 549 could ultimately result in much of their business being outlawed, if not put them out of business entirely. That, in turn, has made some municipalities that rely on cardroom tax revenues nervous. San Jose, for example, home of the cardrooms Casino M8trix and Bay 101, opposes the bill.

“SB 549 is an attack on local cardrooms, which are a significant source of tax revenue for city and county general funds,” wrote Keith A. Sharp, president of the California Cardroom Alliance, in a June 29, 2023 letter to Assemblyman Brian Maienschein, D-San Diego, the chairman of the Assembly Committee on the Judiciary. “The measure could easily force cardrooms out of business and result in a loss of $500 million in tax revenue statewide – meaning less revenue for education, public health, homelessness services and infrastructure. California and local communities will lose $5.6 billion in economic output generated by cardrooms.”

The cardrooms’ opposition to SB 549, however, does not rest solely on the potential economic impact it would have on them and their host cities – although that is projected to be quite severe. Cardrooms estimate that eliminating Blackjack and other banked table games could eliminate as much as three-fourths of their business, which would cause a corresponding reduction in revenues to cities like San Jose.

But just as bad, cardrooms argue, is the inherent inequity baked into SB 549. Cardrooms say they aren’t afraid to argue in court that the system they employ is legal, but they are afraid that SB 549 stacks the decks in the tribes’ favor.

For example, SB 549 specifically states that if sovereign tribes are given legal standing to sue on the issue of TPPPs, the legal review “shall be conducted de novo.” De novo is Latin for “from the beginning.” It’s a legal concept in which an issue is decided without reference to any previous legal conclusions.

Newman has said he’s not interested in refereeing this fight between the cardrooms and the tribes. He just wants it to end.

Cardrooms say that legal standard is unfair because they and the games they offer are already heavily scrutinized by California gaming regulators. That scrutiny, they say, should count for something. What’s the purpose of even having regulators, they contend, if their views on the issue won’t be considered at all?

Cardrooms also argue that SB 549 is unfair in that it gives the tribes legal standing to sue the cardrooms, but it doesn’t give cardrooms the ability to sue tribes, which, of course, are sovereign nations and immune to lawsuits from cardrooms or anyone else. What’s more, cardrooms bristle at the argument that their games horn in on tribes’ profits. Indian casinos, they point out, have slot machines. Cardrooms don’t – and slot machines are widely known to be the top revenue generators in casinos.

“It’s completely disingenuous,” said Kyle Kirkland, owner of the Club One Casino cardroom in Fresno. “The vast majority of their wealth creation and revenue has come from slot machines. … A small amount of their income comes from table games.”

Newman has said he’s not interested in refereeing this fight between the cardrooms and the tribes. He just wants it to end.

“SB 549 does not take a side in this dispute,” Newman said at the July 5 hearing. “Its passage would neither vindicate nor amplify the arguments of the tribes, and its passage will not declare or imply that the cardrooms are in violation of the law.”

The only thing SB 549 would do, Newman told the committee, is make it possible for the matter to be heard by a judge.

“If and when the matter comes before a court, there is no guarantee as to how a court may rule,” he said. “It’s important to note, however, that if the legislature refuses to grant the legal standing needed for the courts to weigh in, we will remain no closer to a resolution of this long-standing dispute.”

The bill awaits action in the Assembly Committee on Rules, where it was referred after the July 5 hearing.