Sandwiched between a Grocery Outlet and Interstate 5 in Oceanside, California, and with a peekaboo view of the Pacific Ocean, Ocean’s 11 Casino is relatively full at lunchtime on a September Wednesday.
A card tournament is going on in the poker room, while on the main floor, players are trying their hands at several kinds of poker, blackjack, and EZ baccarat. Baseball games play on monitors around the room.
Not all of the 50 tables are in play, and while there is a low buzz in the space, it’s nothing like the glitzy lights and sounds of a Las Vegas casino. Ocean’s 11, one of about 70 card rooms in California, has a bar and lounge where customers can get away from the action in a quiet space.
As owner Haig Kelegian takes all of this in, his face registers some concern. The future of his business could be at stake, he says, if Proposition 26 passes. That’s not because he’s worried that if California’s tribes can offer sports betting or roulette or craps, those games will cut into his business. What he’s worried about is a legal provision in the initiative that would allow private citizens to sue card rooms, a major departure from how the process now works.
If that happens, he said, there could be enough of them that even if the lawsuits are dismissed, he and his fellow card room owners could go bankrupt trying to defend themselves. And if a judge were to rule against the card rooms in even one lawsuit, it would drastically change the way they operate and potentially put some out of business.
Tribal casinos can have sports betting
Proposition 26 is one of two legal sports betting initiatives on California’s November ballot. The other is Proposition 27, backed by seven commercial sports companies, that would allow for statewide mobile wagering with platforms tied to tribal casinos. The state’s tribes have been lobbying hard against Proposition 27, fearing it will take control of gambling in California away from them.
The fight over sports betting in California has seen the most interest group spending on a state referendum in U.S. history, with those for and against Propositions 26 and 27 staking their campaigns with a total of $400 million. Spending has already surpassed $300 million.
Proposition 26, backed by the state’s tribes, would make it legal to offer in-person sports betting at tribal casinos and four horse racetracks. It would also allow for some additional ball and dice games, but according to Kelegian, he and his fellow card room owners are happy to let the tribal casinos have all that.
“The card room industry has never been against tribal gaming,” Kelegian told Sports Handle. “The industry has never come out and said anything negative about tribal gaming. [Tribes] do worry that if gaming became legal and they had spent hundreds of millions on their places on the outskirts, that the places in the city would take their business. But that isn’t going to happen.”
The main issue, he said, is the legal provision that would change how card rooms could be sued. The card rooms and tribes have different views on how the legal provision could or would be used.
According to the text of Proposition 26, if “any person or entity becomes aware of any person engaging in any conduct made unlawful by Chapter 10 (commencing with section 330, but excluding sections 2335 and 337) of Title 9 of Part 1 of the Penal Code may file a civil action for civil penalties and injunctive relief as provided in subdivision (a), if prior to filing such action, the person or entity files with the Attorney General a written request for the Attorney General to commence the action.”
Under current law, the tribes, as sovereign nations, don’t have standing to bring lawsuits against the card rooms, and multiple cases have been dismissed because of this. Proposition 26 would give “any person or entity” standing.
The card rooms say this provision would allow virtually anyone to sue them. They also say they don’t see the tribal casinos as direct competition, as the card rooms offer a different product and fewer gaming options. But if Proposition 26 passes, they fear they won’t be able to survive the potential onslaught of lawsuits. The proposition allows for penalties of up to $10,000 per violation, but it does not define if a violation would apply per hand, per table, per day, or some other parameter.
“The tribes believe our gaming is illegal — we know that it is legal,” Kelegian said. The provision “allows for anyone to sue a card room for illegal gaming. We’re not concerned about the outcome [of the lawsuits], but how much money they will cost us.”
Here’s the current situation
The tribes have long contended that the card rooms are operating illegally. In simple terms, only tribes have the legal right to offer house-banked games in California. As such, card rooms offer player-banked games, meaning that the players at every table are offered the opportunity to bank — and deal — a hand.
But following a 2007 letter from Robert Lytle, then the state’s gaming chief, the term “player banked” was broadened. The letter states that while players must be offered the chance to deal, the game is still legal even if the dealer doesn’t rotate. In the current landscape, players are not required to deal or bank, but the card room is required to make the offer to do so.
Card rooms, including Ocean’s 11, offer players the chance to be the bank, but for the most part, it is a “dealer-banker” who takes the risk. Dealer-bankers are third-party providers of player services, are licensed by the California Gambling Control Commission, and contract with card rooms. There is a separate dealer who works for the card room. The offer to bank happens every two hands, and players must act to refuse the opportunity.
Shortly after creating the workaround that allows dealers to stay put, Lytle left the Bureau of Gambling Control to work as a card room consultant. He has since been been banned from working for or with card rooms. When serving as California’s attorney general in 2016, Kamala Harris rescinded the Lytle Letter and offered up a new set of guidelines, but card rooms have continued to operate as they had in the past.
Traditionally, the Bureau of Gambling Control has been slow to enforce changes or rules, and some say that is because of the powerful lobbies on both sides — both the card rooms and the casinos are massive political donors — but tribes unequivocally believe card rooms are breaking the law.
“I think the goal of what tribes want is that we just want the entire gambling industry, including card rooms, to follow the law,” James Siva, California Nations Indian Gaming Association chairman and vice chairman for the Morongo Band of Mission Indians, told Sports Handle. “This issue with the player-banked games and the rotation issue, tribes have asked multiple AGs to deal with it. We’re not looking to put the card rooms out of business or force them out of the industry at all. We want the exclusivity given to us from the voters of California to be respected.”
It was put more forcefully in 2016: “Not only do card rooms not have a constitutional right to do what they are doing — as tribes do — the California constitution forbids their play of house banked games,” Anthony Roberts, representing the Yocha Dehe Wintun nation, told The San Diego Union-Tribune. “So this should not even be controversial. It is black and white.”
How to file a lawsuit
In the past, the tribes have filed multiple lawsuits against card rooms, but most have been dismissed because the tribes, as sovereign nations, don’t have standing in California courts. Any participant in a lawsuit must have standing for a case to be considered. If Proposition 26 passes, the tribes won’t directly sue, but a lawyer or representative of the tribes would file the case.
While card room owners fear widespread litigation, both Siva and tribal attorney Jeff Butler of Dentons US LLP said the proposition is written in such a way that multiple lawsuits would not be encouraged. In fact, whoever files a lawsuit would not be entitled to recover attorneys fees. Moreover, if a judgement is recovered that money is earmarked for the California Sports Wagering Fund created by the proposition. The process of filing a suit could also take months. The proposition requires that anyone filing a civil action first take a complaint to the California attorney general. If no action is taken by the AG’s office within 90 days, then a civil suit could be filed.
Should Proposition 26 pass, a representative could then sue on behalf of the tribes. There are, according to Butler, multiple violations that could be part of a lawsuit, but the “most obvious issue with regard to the illegality of gaming is the banked-games issue, Section 330.11 of the penal code. ‘The game is not made illegal as long as the player-dealer position rotates continuously and systematically through the players.’ You would have a lawsuit over 330.11, which is the failure to rotate.”
"Midterm ad spending—California sports betting bill leads the way" https://t.co/hoMLq0PyWO
— S.H.E R.E.P.O.R.T.S (@she_reports) September 29, 2022
If a judge were to find in favor of the tribal representative, the card rooms would not specifically be forced to shutter, but they would have to completely revamp their businesses. Historically, card rooms have charged players a commission or collection for the privilege of playing.
Kelegian said that for every hand played at Ocean’s 11, “the players have to pay a fee per wager.” They could also rely more heavily on poker, where players traditionally play against each other and not the house, begin offering more games where players do take on the “player-dealer” risk, or offer other games in which there is no dealer.
“Card rooms existed long before this,” said Butler, the tribal lawyer. “They can play poker like they used to or charge a collection, but for card rooms, it doesn’t suit them to charge a collection. You’d have to bone up on your poker business, and then offer games like California Aces on a rotation basis.”
Is it really worth it?
At least one gaming lawyer says the inclusion of this new legal provision in Proposition 26 has stymied the tribes’ attempt to legalize sports betting at their casinos. There is no recent polling available around Proposition 26, but political consultants believe neither it nor Prop 27 will pass because voters are confused.
“So, in writing their initiative to give themselves an oligopoly on a multi-billion-dollar sports betting business in a state with a population greater than Canada, the tribes added a provision which would expressly allow tribes, or anyone else, to sue cardclubs for illegal gambling,” I. Nelson Rose, a specialist in gambling law, wrote on GamblingandtheLaw.com. “Just defending the inevitable lawsuits would put the clubs out of business. And if they lost, they would be fined $10,000 per violation, which might apply to every hand dealt.
“Cardclubs could only come up with $41 million to oppose Prop. 26. Any one of a dozen gaming tribes could write a check for that amount. But if you use a bomb to kill a gnat; you might end up killing yourself. For the clubs have politically powerful allies.”
Rose went on to say that the tribes should view the card clubs as “weak economic competitors” rather than enemies.
It appears CA Prop 27, which would legalize sports betting on mobile apps, is gonna be defeated.
There's no poll on Prop 26, which would legalize it on tribe-owned lands.
I don't blame the tribes for wanting all the betting loot for themselves, but damn, their ads are annoying. pic.twitter.com/05GPE0C8xU
— P.J. in Downtown L.A. (@BlastPascal) September 15, 2022
Besides the obvious result of a lawsuit that would require the card rooms to change how they do business, there will be other collateral damage should card rooms have to shutter or downsize. There is the potential for lost jobs, empty commercial space, and an overall change to the fabric of some neighborhoods.
Some California cities say they could lose as much as 70% of their tax base if card rooms close. That tax base pays for essential services, including safety and health care, and it’s unclear how or if that revenue would be replaced.
“If passed, the total economic impact lost to Prop 26 in the Central Valley will be more than $452 million, and nearly 2,700 middle-class jobs paying $120 million in annual wages will also disappear. Bakersfield alone stands to lose more than 300 jobs,” Clint Olivier, CEO of the Central Valley Business Federation, wrote on Bakersfield.com earlier this month. “Looking statewide, Prop 26 will result in a loss of $500 million in local tax revenue paid by card rooms and $5.6 billion in economic output.”
Siva says the tribes have thought about what the cost to communities would be should they have the opportunity to sue and win. Tribes across the country give back to their states, funding everything from educational endeavors to local fire stations to homeless and women’s shelters.
“A lot of those cities use the funds to pay for police, fire, safety,” he said. “We understand the importance of that. That particular part of the issue becomes complicated, because we don’t want to negatively impact communities.”