Proposed changes to gaming regulations spark outrage from both cardrooms and tribal casinos

California’s competing gambling interests – cardrooms and tribal casinos – are once again preparing battle over “California Blackjack.”

On September 11, the California Department of Justice’s Bureau of Gambling Control (one of the state’s two gambling regulators) announced its intent to promulgate new regulations concerning Blackjack-style games in cardrooms and the operations of third-party proposition players, which are special, licensed businesses that help cardrooms offer games like Blackjack.

The proposed regulations are an attempt by the Bureau to mediate a long-simmering and bitter feud between California’s two flavors of gaming establishments over so-called “banked” table games.

As Native American tribes in California see it, 1999’s voter-approved Proposition 1A gives them the exclusive right to operate banked card games like Blackjack and Baccarat that pit gamblers against the house.

Cardrooms – which, unlike tribal gaming establishments, may be owned by any ordinary Californian (and have, in fact, been operating in the state since the mid-1800s) – see it differently, insisting they employ a workaround that legally allows them to offer banked card games through the use of third-party proposition players, otherwise known as TPPPs.

Under this convoluted workaround, TPPP representatives working contractually within California cardrooms volunteer to act as the house or bank at every table where banked games are played. Before a dealer deals a hand of Blackjack, he or she offers all of the players at the table the opportunity to serve for a hand or two as the house or bank.

Most gamblers don’t have the means to cover that kind of action. But the employees of TPPPs do. So TPPP workers, who often wear badges identifying themselves as working for a TPPP and not the cardroom in which they are based, volunteer to play the role of the bank every chance they get.

Cardrooms say partnering with TPPPs allows them to legally offer banked games because they are not serving as the house or bank, the TPPP is. But tribal casinos say it is illegal – and that by offering banked games cardrooms are not only trampling on their exclusive rights but also stealing gambling profits that should be theirs.

That contentiousness is only about to get worse because the Bureau is now proposing to change things, and both the cardrooms and the tribal casinos are not happy.

The Bureau has unveiled the “draft language” of two proposals to change the way it regulates banked games like Blackjack and the “rotation of the player-dealer position,” which is the role TPPPs play under the cardrooms’ banked-game system.

That contentiousness is only about to get worse because the Bureau is now proposing to change things, and both the cardrooms and the tribal casinos are not happy.

The Bureau made clear, however, that it “has not yet initiated the formal rulemaking process” for either regulation and only presented the “concept” proposals “for the benefit of stakeholders and other interested persons” so that they may comment on them.

All sides seem to agree that without directly saying so, the agency has implied it will take significant time to consider any changes to cardroom regulations.

But that hasn’t stopped the cardrooms or the tribal casinos from getting incensed over the Bureau’s proposals, which, based on the comments received, satisfied absolutely no one.

The Bureau’s five-page, draft proposal for “Blackjack-Style Games” seeks to outlaw “any game of blackjack” at cardrooms unless the game is modified so that so that players cannot “bust,” the target point “is not 21 or any point value greater than 20 or less than 22,” a hand will not automatically win if a player “receives an ace and a 10, jack, queen, or king on the initial deal” and that players win in the event of a tie. Any such modified games also cannot have “21” or “blackjack” in their name.

The Bureau’s draft proposal for Blackjack-style games also seeks to revoke the Bureau’s previous approval of all table games currently offered at cardrooms that don’t meet this new standard. This would eliminate TPPP-enabled California Blackjack currently available at cardrooms as well as other permitted games.

The Bureau’s two-page, draft proposal for the “Rotation of Player-Dealer Position” calls for the role of the house or bank to be offered to every player at a banked table before every hand and stipulates that “(t)he player-dealer position shall rotate to at least two players other than the TPPPS every 40 minutes or the game shall end.”

Combined, the two proposals would dramatically change the way California cardrooms operate, eliminating wide swaths of already approved games and altering the dynamics for casual gamblers who would face increased pressure to act as the house or bank for at least a hand.

It’s not at all a stretch to say the Bureau’s proposals, if implemented, would transform California cardrooms to such a large degree that they would be very different businesses than what they are today, with fundamentally different pressures and needs and margins.

Not surprisingly, cardrooms think the Bureau’s proposals go way too far, while tribal casinos think they don’t go nearly far enough.

The Bureau gave “stakeholders” until October 26 to submit comments on the two draft proposals. In all, the Bureau received 30 letters totaling 218 pages of comments and attachments.

Eleven of the letters came from tribal gaming interests, including comments from:

• The Agua Caliente Band of Cahuilla Indians, which operates three Coachella Valley (Riverside County) casinos in Palm Springs, Cathedral City and Rancho Mirage;
• The Elk Valley Rancheria, which operates the Elk Valley Resort & Casino in Crescent City (Del Norte County);
• The Federated Indians of Graton Rancheria, which operates the Graton Resort & Casino in the Bay Area;
• Mooretown Rancheria, which operates the Feather Falls Casino & Lodge in Oroville (Butte County)
• The Pala Band of Mission Indians, which operates the Pala Casino Spa Resort an hour north of San Diego
• The Pechanga Band of Indians, which operates the Pechanga Resort Casino in Temecula (also Riverside County);
• The Picayune Rancheria of the Chukchansi Indians, which operates the Chukchansi Gold Resort & Casino in Coarsegold (Madera County);
• The Rincon Band of Luiseño Indians, which operates Harrah’s Resort Southern California in north San Diego County; and
• The Yocha Dehe Wintun Nation, which operates the Cache Creek Casino Resort, an hour west of Sacramento.

The Tribal Alliance of Sovereign Indian Nations (TASIN), an association of Southern California tribes, also submitted a letter on its own as well as a second letter it submitted with the California Nations Indian Gaming Association, also known as CNIGA, which is dedicated to “(p)rotecting the sovereign right of California tribes to operate gaming on their lands.”

Nineteen of the letters came from interests representing the cardrooms. Among those, of course, were letters from the cardroom trade groups the California Gaming Association, Communities for California Cardrooms and the California Cardroom Alliance, as well as Elevation Entertainment (the operator of three cardrooms, Seven Mile Casino in Chula Vista and The Saloon at Stones Gambling Hall and The Tavern At Stones Gambling Hall, both in Sacramento), the Artichoke Joe’s Casino cardroom in San Bruno, prominent cardroom lobbyist Jarhett Blonien and Steven Wright, the creator of trademarked Blackjack-derived games “Pure Blackjack” and “Pure 21.5 Blackjack.”

Also submitting letters in support of the cardrooms were the cities of Bell Gardens, Commerce, Compton, Gardena and Hawaiian Gardens, which are all dependent on cardroom revenue for budgets. Two joint-powers authorities, the California Cities for Self-Reliance Joint Powers Authority (composed of the cities of Bell Gardens, Commerce, Compton, Cudahy and Hawaiian Gardens) and the California Cities Gaming Authority (composed of Gardena, Inglewood, Colma, San Jose and Bell) defended the cardrooms turf as well.

Taken together, the letters – often striking for their bluntness and occasional pettiness – offer a window into the motivations of the cardrooms, the tribal casinos and their allies, and clearly show how entities on both sides are aligned for or against one another.

“Our cardrooms and these games as played today collectively serve as local, vital wide-impacting economic engines.”

“The City of Gardena submits this letter to the Bureau to express its disbelief that the Bureau, an agency within the Department of Justice, is proposing regulations that will eliminate or greatly restrict the play of most card games that are lawful, and that the Bureau has approved since the adoption of the Gambling Control Act,” wrote Gardena Mayor Tasha Cerda in an October 19 letter to Yolanda Morrow, director of the Bureau of Gambling Control.

Gardena is home to two cardrooms, Larry Flynt’s Lucky Lady Casino and The Hustler Casino, on which the city is “heavily dependent” for revenues, Cerda wrote.

With that in mind, Cerda wrote that her city wants to understand “why the Bureau proposes regulations that are likely to devastate the play of card games in card rooms across California, impose huge financial deficits on City of Gardena funds and other card room cities, cause card rooms to shut down and eliminate the card room workforce in California.”

Letters from the California Cities Gaming Authority (also chaired by Cerda) and the town of Colma’s city manager, Daniel Barros, use the same outraged language. Similar letters were sent by the California Cities for Self-Reliance Joint Powers Authority and its member cities Bell Gardens, Commerce, Compton and Hawaiian Gardens.

“Our cardrooms and these games as played today collectively serve as local, vital wide-impacting economic engines,” wrote Juan Garza, California Cities executive director.  Garza noted that revenue just from the casino in Hawaiian Gardens “represents 70% of the City’s total general fund revenues.” He further noted similar dependence on casino revenue in cities like Bell Gardens, Commerce and Compton, saying they “stand to be devastated should all related efforts not consider our perspective, our needs and our voice.”

All five of those letters say they’re “pleased that as part of the potential rulemaking process, the Bureau will complete a Standardized Regulatory Impact Assessment (SRIA) to understand the economic impacts of these proposed regulations.” Under SRIAs, California rulemaking entities have to assess the impact proposed regulations would have on the elimination of jobs and existing businesses. These assessments can take a while to complete, furthering the notion that the bureau does not intend to act quickly on these proposals.

The pro-cardroom advocates also attacked the bureau’s plans from legal and historical perspectives.

“The concept regulations are completely unsupported by law and serve no legitimate purpose. They far exceed the Bureau’s statutory authority under the Gambling Control Act (the “Act”), and are unsupportable by either statute or existing case law,” wrote Heather U. Guerena, Elevation Entertainment’s vice president and general counsel in an October 25 letter about the Blackjack proposal.

In a second letter, about the player-dealer proposal, Guerena called on the Bureau to “provide the actual reasons for the need for these new regulations, its statutory authority to move forward, and an explanation regarding why these regulations are the least restrictive means for achieving its goal.”

Jarhett Blonien, the cardroom lobbyist, wrote about the proposal in almost apocalyptic terms, calling the proposed changes, “an existential threat to cardrooms.”

In his eyes, the proposed changes would also decimate the state’s regulatory fee revenues as well.

“As revenue falls and companies close, the Bureau and CGCC will be faced with what to do with state employees with property rights in their jobs when there is little to regulate and insufficient collections in the Gambling Control Fund to continue the departments,” he wrote. “The Bureau cannot simply downsize without finding these workers new jobs. The proposed regulations threaten State jobs as well as the private sector.”

Blonien also inferred they would spark a legal battle, writing, “The draft language implicates Constitutional issues that will surely result in expensive and protracted litigation.”

He also tellingly reveals that “most revenue” generated by cardrooms comes “from blackjack-style games.” Cardrooms can’t afford to let these proposals move ahead.

Tribal casino representatives were equally blunt in their negative assessment of the bureau’s proposals, but for a wholly different reason.

“As revenue falls and companies close, the Bureau and CGCC will be faced with what to do with state employees with property rights in their jobs when there is little to regulate and insufficient collections in the Gambling Control Fund to continue the departments,”

Greg Sarris, chairman of the Federated Indians of Graton Rancheria (and who was recently profiled in Capitol Weekly), called the proposed rules “inconsequential alterations in existing cardroom practices” that would “allow cardrooms to operated banking games in violation of the California Constitution, state statutes and judicial decisions.”

Many of the tribes complained that cardrooms offering banked games like Blackjack through the assistance of TPPPs infringe on their executive rights.

“The Bureau is to be applauded for finally recognizing that the banked games currently being offered by the cardrooms are illegal, but the problem will not be fixed with poorly-designed bandaids [sic], as represented by the Concept Language,” wrote Bo Mazzetti, chairman of the Rincon Band of Luiseño Indians. “Rather, the problem will be truly fixed by enforcing a ban on banked card games at cardrooms.”

Mazzetti contends the cardroom games are illegal and “wrongly deprive the California Tribes of tens of millions of dollars (and according to the California Gaming Association, two billion dollars) per year in tribal governmental revenue, and wrongly coopt thousands of jobs that would otherwise be available at properly-regulated tribal casinos.”

Anthony Roberts, chairman of the Yocha Dehe Wintun Nation, complained that the state has taken too long to end banked games at cardrooms.

“California tribes have complained about this illegal gaming since the April 12, 2012 Tribal-State Association meeting,” Roberts wrote. “It is long past time for the Bureau to take affirmative action beyond issuing conceptual language. Moreover, no regulation is necessary to stop the play of most blackjack games in cardrooms.”

Comments from the California Nations Indian Gaming Association, the Tribal Alliance of Sovereign Indian Nations, the Agua Caliente Band of Cahuilla Indians, Elk Valley Rancheria and the Pechanga Band of Indians all employed similar language, pointing out deficiencies in the bureau’s plan to end games after 40 minutes if the player-dealer role doesn’t rotate to other besides TPPP representatives and touting tribal casinos’ economic impacts on the state.

In their joint letter, the California Nations Indian Gaming Association and the Tribal Alliance of Sovereign Indian Nations reminded the bureau how much tribal casinos contribute to state’s economy by “providing the means to deliver essential services such as housing, education, healthcare, environmental protections, cultural preservation, elder care, fire services and more,” while generating “124,300 jobs and $3.4 billion in taxes and revenue sharing payments to federal, state, and local governments.”

The situation is clearly problematic for the Bureau. California’s gaming tribes have made it abundantly clear they view the cardrooms as horning in on their territory and not only do they have some legal grounds to stand on (Proposition 1A), but they’ve also shown they’re willing to spend millions to defend their turf. (See how they defeated the sports gaming measures last year.)

The cardrooms, on the other hand, can rightfully argue that the Bureau has permitted them to offer Blackjack and other banked games for years with the help of TPPPs, and the cities where they’re located (often populated by marginalized communities) have grown dependent on the revenue they generate.

What’s more, Blackjack and other banked games apparently are the economic drivers of cardrooms, which makes the cities even more fearful of the potential impact of these changes.

With the Bureau stuck between politically powerful, deep-pocketed tribes and marginalized cities reliant on cardrooms to meet their annual budgets, it is a fight that isn’t going away anytime soon.