Cardroom Expansion Moratorium Reinstated In California

May 26, 2023
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A bill to reinstate a moratorium on cardroom expansion in California has been signed into law by Democratic Governor Gavin Newsom, prohibiting gaming regulators from issuing new cardroom licenses for the next two decades.

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A bill to reinstate a moratorium on cardroom expansion in California has been signed into law by Democratic Governor Gavin Newsom, prohibiting gaming regulators from issuing new cardroom licenses for the next two decades.

Specifically, Assembly Bill 341 prohibits the California Gambling Control Commission (CGCC) from issuing a state gaming license for a new cardroom that was not licensed to operate on December 31, 1999, unless an application was on file with the state Department of Justice prior to September 1, 2000.

In a notice to licensees issued late Wednesday (May 24), the commission said AB 341 also prohibits local jurisdictions and their voters from passing ordinances that authorize legal gambling, or amending their existing ordinances in a way that would constitute an expansion of gambling.

However, the law does allow commercial cardrooms with fewer than 20 tables to add two additional table games in the first year, then two more tables every four years until they reach a maximum of ten additional tables.

According to AB 341, the commission can only grant the additional tables to eligible cardrooms if they are operating all their permitted tables and are current on their taxes and fees.

Newsom signed the bill on Monday (May 22) without comment. The new law, which expires on January 1, 2043, is retroactive to January 1, 2023.

“We are pleased that CNIGA-backed AB 341 is now law, stopping a potentially reckless and devastating expansion of commercial gambling in California,” said James Siva, chairman of the California Nations Indian Gaming Association (CNIGA).

“This legislation was the result of hard-won compromise between stakeholders and speaks to the power of negotiation and cooperation.”

The moratorium was first established by the Gambling Control Act of 1997, which prevented new cardrooms from opening and existing ones from expanding. The moratorium has been repeatedly extended by the legislature before being allowed to expire on January 1 of this year.

Siva made it clear that the CNIGA’s support of this legislation was not a “tacit endorsement of illegal gaming being offered at the state’s commercial cardrooms.”

CNIGA and tribal casino operators believe cardrooms violate their exclusivity over house-banked games by using third-party vendors to offer such games as blackjack.

However, without a moratorium, California tribes faced more competition from an expansion of cardrooms, as cities and counties across the state would have been allowed to approve expansion of existing cardrooms and potentially new gaming locations.

Newsom’s signature on AB 341 also invalidates any proposals that might have been submitted during the year without a moratorium.

“We have not wavered from our firmly held position that commercial card rooms offering house-banked card games are in clear violation of the California Constitution,” Siva said. “Just as tribes acted in good faith to negotiate this law, we call on the state to justify our good faith by cracking down on illegal activity at the state’s commercial cardrooms.”

In a statement on Wednesday, Kyle Kirkland, president of the California Gaming Association, did not address CNIGA’s concerns about house-banked games but instead he praised Assemblyman James Ramos for sponsoring the legislation.

“This legislation allows for an increase in tables for existing small cardrooms while reinstating a license moratorium that has helped provide stability in the industry for decades,” Kirkland said.

Ramos, a Democrat, is the only Native American in the California legislature. The bill received near unanimous support from lawmakers with the Assembly voting 68-1 and the Senate 32-0 to approve AB 341.

No Way San Jose

The new law also includes a carve-out for two San Jose cardrooms to expand by 30 tables.

Seventy-three percent of voters approved Measure H in November 2020, allowing Bay 101 and Casino M8trix to expand by 15 tables each, from 49 to 64. Both cardrooms are also paying a 16.5 percent tax rate, which was increased from 15 percent in 2020.

Since the measure passed, the commission denied their first request for more tables in 2021, and by a 4-1 vote again on April 20. That decision caused Maureen Harrington, an attorney with Greenfield representing Garden City Inc., parent of Casino M8trix, to warn that “we are going to end up in court.”

Harrington did not respond to multiple requests for comment.

It is also unclear how long the cardrooms will continue to pay the higher tax rate, or if San Jose will have to refund the additional tax dollars, estimated at $15m annually, at some point.

Sutter Place Inc., parent of Bay 101 Casino, sued the commission in response on April 25 asking a Superior Court judge in San Francisco to overturn the commission’s decision to deny their application. A CGCC spokesman confirmed that both cardrooms “are able to re-submit an application.”

According to the 20-page lawsuit, San Jose officials approved the applications for each cardroom to operate 15 additional tables, but the Bureau of Gambling Control (BGC), which is part of the California Department of Justice, and commission denied their applications.

The BGC and CGCC ruled the ballot measure did not comply with state gaming law.

Specifically, they concluded that the language of Measure H did not satisfy a requirement that a ballot measure for an increase in gambling should “substantially” have a particular form, to make clear to voters that they are deciding to increase gambling.

That was even though Measure H said in pertinent part, “[S]hall an ordinance be adopted … increasing card tables by 30,” which made the issue clear, according to the lawsuit.

Richard Patch, an attorney with Coblentz Patch Duffy & Bass in San Francisco, argued in his filing that the commission does not have jurisdiction to invalidate the outcome of an election, calling their decision an “abuse of discretion.”

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