A California judge has struck down new cardroom regulations that would have financially crippled several Los Angeles County cities that rely heavily on taxes derived from an industry that generates billions in revenue.
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San Francisco Superior Court Judge Richard Darwin ruled on Tuesday, June 30 that Attorney General Rob Bonta and the state’s Bureau of Gambling Control exceeded their authority by adopting new regulations targeting California’s cardroom industry.
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The challenged regulations would have outlawed or heavily restricted popular table games that licensed cardrooms across California have lawfully operated for decades.
The loss of these games threatened to cut the cardroom industry’s revenues in half, forcing many cardrooms to close or downsize, and triggered a state of fiscal emergency in the communities that rely on cardroom tax revenues to fund essential government services.
Local governments where the cardrooms operate were so rattled by possible losses of tax revenue generated by the casinos in their communities that some adopted sales taxes to make up for the losses. Prior to the ruling, voters in Bell Gardens and Commerce approved local sales tax hikes to offset potential revenue losses.
“The survival of the industry was premised on this ruling,” said Kyle Kirkland, president of the California Gaming Association, in an interview with the Southern California News Group. “The regulations would have eliminated blackjack and really changed how we offer our other popular table games in the cardroom industry.”
The new rules would have forced the cardroom industry to close down all blackjack-style games in California and pull back on card game tables generally. The shift would have meant layoffs of nearly 13,000 statewide, Kirkland said.
He said the regulations, had they been approved by the judge, would have affected about 70% of the industry’s $2 billion in annual revenue generated.
At stake in Los Angeles County was $300 million in sales tax revenue generated by cardrooms throughout cities including Bell Gardens, Commerce, Compton, Gardena and Hawaiian Gardens, Kirkland explained. Those Los Angeles-area communities all have major cardroom casinos, including the Commerce Casino & Hotel, Crystal Casino, the Gardens Casino, Hustler Casino, Lucky Lady Casino and Parkwest Bicycle Casino — which together make up a bulk of the multibillion-dollar industry in the state.
It’s unclear how the court ruling will affect recent tax measures passed in Bell Gardens and City of Commerce.
Measure PC in the City of Commerce was to raise $4.5 million on a quarter-cent sales tax.
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“The city is reviewing the recent court ruling with its city attorney and leadership team,” wrote Katherine Tong, spokeswoman for City of Commerce, in a statement to SCNG. “Although the preliminary injunction is significant, litigation is ongoing and fiscal uncertainty regarding cardroom regulations and long-term revenue remains.”
Measure BG in Bell Gardens was to raise $1.2 million annually on a quarter-cent sales tax. The city was looking at a $17 million hole in its budget but was restricted by Los Angeles County law as to how much it could raise.
Manuel Acosta, acting city manager of Bell Gardens, was not immediately available for comment on Thursday, July 2.
The cardroom rules, which were submitted by Bonta and the Bureau of Gambling Control and approved by the state’s Administrative Law Office in early February, were to go into effect April 1. They gave cardrooms until May 31 to report how they’d modify their card games — but the industry maintained in legal filings that it couldn’t comply because of the rules’ “vagueness” and belief that they don’t line up with their interpretation of what are permissible card games.
California has two different kinds of gaming systems that operate side by side — one for tribal casinos and the other for cardrooms.
Tribal casinos operate under federal law and offer casino-style gaming on tribal land, granted by Proposition 1A. That proposition amended the state constitution to allow federally recognized Indian tribes to operate slot machines, lottery games and banked card games.
A banked card game is a type of gambling game in which players place bets against a central dealer, known as the banker or house, rather than directly against each other.
Cardrooms are state-licensed venues that, under state law, may only offer player-banked or peer-to-peer games — or tables where players play against each other, not the house.
Earlier this year, the California National Indian Gaming Association pointed out that Bonta had sided with their gaming group, and that California laws on banked games must adhere to the federal Indian Gaming Regulatory Act of 1988 and California Proposition 1A passed in 2000.
Neither Bonta nor James Siva, chairman of the California Nations Indian Gaming Association, were available for comment.
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