Gambling in California and

Multi-State Gambling Law Survey

by Donald Leonhardt & Elaine Paplos

Introduction

This paper addresses the issues that, given the trends in California gambling growth, are ripe for the state legislature. The discussion includes existing expansion of cardroom gambling, as well as the turmoil surrounding the growth of and disputes over Indian tribal casino operations. The discussion also introduces new forms of gambling, yet to be regulated.

The second part of this paper is a comprehensive survey of gambling law in the United States. The survey compiles in table format how each state handles a variety of gaming matters, such as card clubs, bingo, and "Nevada-style" gaming. The authors have also attempted to note those provisions of state law that are noteworthy or unique.

Growth in Gambling

Legalized gambling has become a $300 billion a year industry. [1] The last two decades evidenced growth from new gambling options, such as off-track betting, river boat gambling, and state lotteries. Most states permit legal state lotteries and racetracks, accepting wagers on horse races, dog races, and jai alai. In addition, the majority of states have decriminalized social, low-stakes gambling, though mostly in practice, not in law. [2] Currently, only the states of Utah and Hawaii do not permit some form of legalized gambling. [3] Additional legalization proposals to expand legitimate gaming have inundated all of the other states. Trade publications such as Casino Gaming and International Gaming & Wagering Business report when new forms of gambling become legal, but they are unable to keep track of the numerous bills proposed to state legislatures, nationwide. [4] The most prevalent growth in the gaming industry reflects the expansion of state lotteries, cardrooms, and Indian tribal gambling. [5]

Trends in Gross Wagering in the United States (In Billions): ⁶

As the third largest state with respect to gross wagering, [7] California's gaming activities comprise a large impact on the above national statistics. Only Nevada and New Jersey, with their comparatively permissive (though regulated) gambling out-wager California. While California's position may seem high, this estimate does not even include revenues from Indian tribal casino operations in the state.

California Trends in Gross Wagering (In Billions): ⁸

As casino-style gaming is prohibited in California, future growth potential is limited primarily to card rooms and Indian reservations. The other forms of legitimate gaming in the state (as listed above) have shown negligible changes in growth of revenues. For example, California's state lottery remains sixth in the nation in terms of gross ticket sales. The California State Lottery remains one of the largest, if not the largest, purchaser of radio advertising in Los Angeles, [9] however, the sales are comparatively less than when the lottery was introduced in 1985-86. [10] Also, California's revenues as the second largest pari-mutuel betting state (New York being the largest) reflect a national recession in wagering in the horse racing industry. Since 1989, revenue for pari-mutuel betting in California horse racing has only grown by less than one percent. [11] With respect to bingo gaming, the California Attorney General's Registry of Charitable Trusts reported a trend of consolidation in 1993. [12] Although gross revenues for bingo operations increased, the number of organizations reporting to the Registry of Charitable Trusts decreased by over 20% to 333 charities. These statistics indicate that bingo is not growing so much as an industry, but consolidating into big businesses.

Accompanied with the growth of cardroom gaming and Indian tribal casinos is the need for regulation. The California Horse Racing Board staffs fifty-eight employees and twenty-five investigators to regulate nearly three billion dollars in gross annual wagering. The State Lottery Commission retains 800 employees and thirty agents to oversee $1.79 billion in gross ticket sales. Cardroom revenues, accumulating seven and one-half billion dollars annually, overshadow these two forms of gambling put together. Shockingly, only three permanent positions in the California Department of Justice are delegated to the Gaming Registration Unit. [13] These three employees in the state Attorney General's office conduct background checks for applicants attempting to build or expand cardroom operations in the state. Other regulation of operating activities and enforcement of cardrooms is left to local authorities. [14] And, no state regulatory agency oversees Indian gaming in the state. [15]

Current Issues in California Gambling

I. Cardrooms

If left unchecked, cardroom growth is expected to quadruple the number of tables in California over the next few years, from 1774 to 5429. [16] The latest statistics estimate the existing cardroom industry to be a $8.4 billion business. [17] Part of the increase in revenues is attributed to the introduction of Asian card games. Beginning in 1985, cardrooms introduced high-stakes, Asian games, such as Pai Gow and Super Pan. [18] These games are played rapidly, allowing cardrooms increased revenue production, with more hands played in a time period, compared to conventional poker.

Lax regulation in the cardroom industry has created a "vacuum," as described by Attorney General Dan Lungren, ripe to attract criminal activity. [19] For example, Los Angeles Sheriff's Department recently uncovered evidence from Bell Gardens Bicycle Club's security cameras, recording a $60,000 money-laundering transaction. [20] Last year, the club's manager of Asian card games was indicted for federal loan-sharking and racketeering offenses. Also, many card clubs contribute a large share of revenue to local municipalities. This fiscal influence translates to political clout as well, as the clubs wield influence over local politicians and law enforcement authorities. [21]

The concerns over crime and corruption have provided the impetus for legislative reform to bolster regulation. However, for over three years of efforts in the California legislature, internal politics have nipped the bud of reform. The latest attempt at regulation, Assembly Bill 11, sponsored by Assemblyman Phil Isenberg, would have repealed the (current) Gaming Registration Act in favor of the Gambling Control Act. [22] The bill called for the creation of a new California Gaming Control Commission. The five-member commission would be chartered to limit any perceived opportunity of organized criminal activities associated with cardroom gaming. The commissions duties would chiefly include approval, denial, and revocation of gaming licenses. However, this Nevada-style commission would have expanded duties, beyond screening applications for cardrooms, which only entails background checks and financial reviews of operators. The legislative measure would have also granted the commission authority to monitor gaming operations, look into complaints and violations, conduct audits, and seize gambling assets when necessary. [23] The bill also imposed a per table fee of up to $4,200 and an annual licensing fee of $3,700. The bill, however, failed to clear the California Senate Committee on Rules as of September 6, 1995.

The contest over this years gambling reform legislation centered around numerous financial interests and public policy concerns. Some believed the proposed regulatory body would open the door to expand gambling operations in California. Others feared regulation may be used to keep expansion out of the state. Still, other critics, such as Senate leader Bill Lockyer (D-Hayward) viewed the proposal, backed by Dan Lungren, as a new, "empire building," tax scheme to increase the attorney general's authority in office. [24]

Several business interests have monitored and lobbied on the issue of cardroom gaming reform. Over the past four years, the gambling industry spent over $5 million in campaign contributions and lobbying efforts. [25] This is not surprising considering the amount of revenue cardroom wagering generates. One of the interest groups, wary of regulatory reform similar to the Gambling Control Act, are the established card clubs. Their primary concern is fear of competition, especially from new, larger facilities. Isenberg and Lungren's regulatory schemes over the last four years give the green light to allow publicly-traded corporations own and operate cardrooms. [26] Currently, out-of-state corporations may not own stock in California card clubs. With the exception of existing pari-mutuel tracks, only individuals, not corporations, may possess card club licenses. [27] Large entities such as Bally's, Las Vegas Hilton and Caesar's have sought access to California cardroom ownership, as out-of-state ownership is permitted in Nevada. Another concern of existing cardroom owners is the inclusion of radius limitations. Radius limitations would prohibit new card clubs form being built within a specified radius of existing clubs. [28]

The horse racing industry is another strong lobby interested in the scope of cardroom gaming reform. Under current law, all California pari-mutuel race track facilities are permitted to hold a card club operator's license for card clubs located at their track property, at least until January 1, 1999; [29]the state law permits existing pari-mutuel race tracks to pursue new cardroom licenses subject to local authorization. Tracks with existing clubs advocate measures to protect their entrenched enterprises. Others involved with horse racing fear that regulation may open or close the door to future "full-blown" casino gambling. [30] In anticipation of gambling expansion, the new Hollywood Park facility constructed and wired its card club to include the capacity for electronic gaming devices, such as video poker and slot machines. Yet, other tracks without cardroom licenses believe the threat of casino gambling will usher in their financial demise.

A third interested group are out-of-state gambling enterprises who want to limit California gambling. Large companies with casino investments in Las Vegas, Reno, and Lake Tahoe do not want expanded gaming operations in California, rather, these casino operators want Californians to continue to travel to Nevada with their gambling dollars. [31] For these companies, regulatory legislation can check undesirable legitimization of gaming devices, such as slot machines and video poker. Other concerns for large, out-of-state casino operators have been to allow investment into the California market, to build new clubs or buy into existing establishments.

A fourth group of interested players is the Indian gaming establishment. Indian gaming would not be directly affected by cardroom legislation, as tribes are federally regulated [32], though expansion of card clubs would create competition for existing Indian tribe casinos. As Indian casinos are located on tribal lands, mostly outside of metropolitan areas, urban cardrooms would seemingly infringe on the Indian casinos revenue. Many tribes, however, support state regulation of cardrooms.

II. Indian Gaming ³³

A. Legal Framework

Of the $15.174 billion dollars wagered nationally on Indian gaming, the Attorney General's office believes that tribal casinos in California contribute a sizable portion of that total. [34] Over twenty of the 104 Indian tribes and bands in California have turned gambling into a profitable business. [35] The Sycuan tribe, east of San Diego, used its gambling revenues to construct new homes, a health clinic, police and fire departments, and a tribal center. [36]

The seminal case opening the door for Indian gambling was California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987). [37] In Cabazon, the Court was looking at bingo laws in California. The Court found that where the state permitted even restricted bingo (i.e. limited stakes, gaming hours, etc.), its laws were "regulatory" and not "prohibitory." The latter could be applied against tribes, the form could not. The result was that if a state permitted any type of bingo, the tribes could also offer the game, free of state interference.

As a result of Cabazon, Congress enacted the Indian Gaming Regulatory Act (IGRA) in 1988. [38] IGRA divides gambling into three classes: [39] Class I gaming consists of "social games played for prizes of minimum value or traditional forms of Indian gaming engaged in by individuals as part of, or in connection with, tribal ceremonies or celebrations;" Class II gaming, which includes nonbanking games in which players do not bet against the house, Bingo and card games which are not expressly prohibited by the state are permitted; Class III gaming is defined as games not included in Class I or II, including "electronic or electromagnetic facsimiles of any game of chance or slot machines of any kind."

IGRA allows unencumbered Class I gaming, regulated by the tribes themselves. Tribes may conduct class II gaming if the state permits any similar game, and they regulate themselves subject to National Indian Gaming Commission oversight. The class II provisions essentially codify Cabazon. Class III gaming may only be conducted if the state permits similar games, and then only if the tribe and state enter into a compact to establish a method of regulation.

B. Current Issues

Current controversy has surrounds the use of gaming devices similar to slot machines in California's tribal casinos. Indian tribes in the state operate an estimated 8,300 gaming devices on their reservation casinos. [40] These devices resemble traditional one-armed bandit slot machines, but operate slightly different: players feed paper bill currency into the machines' and push buttons. When a player cashes out, they push a button on the machine and a redeemable receipt emerges, exchangeable for cash. [41] The games include video poker, video keno, and a variation of a matching game, similar to the typical three-object slot machine. California does not allow banked or percentage card gambling, which falls under Class III. With the uncertain exception of video lottery machines (video keno), slot machines are prohibited under California law. [42]

This case was recently decided by the U.S. Court of Appeals for the Ninth Circuit. In Rumsey Indian Rancheria v. Wilson, 64 F.3d 1250 (9th Cir. 1994), the court ruled that the "fact that California allows games that share some characteristics with banked and percentage card gaming . . . is not evidence that the State permits the Proposed Gaming Activities." [43] The court also rejected the argument that if the state lottery is not technically a slot machine, it is functionally similar to one.

The Ninth Circuit further defined the contours of state-tribe compact requirements. Rumsey held that IGRA does not mandate a state to negotiate over a form of Class III gambling, even if it has legalized another, similar form of gaming. [44] Currently, the Rumsey decision is pending United States Supreme Court appeal. The court followed a similar case decided in the U.S. Court of Appeals of the Eighth Circuit. [45]

However, given the illegal status of many of the gaming devices, and the uncertain legitimacy of the video keno devices, law enforcement issues remain a problem for tribal casinos. The Ninth Circuit has recently held, in Sycuan Band of Mission Indians v. Roache [46] that California lacks jurisdiction to enforce its laws against proscribed Class III gaming activities on tribal lands. [47] IGRA grants exclusive jurisdiction to the federal government, to be enforced by the U.S. Department of Justice. Past attempts by the state to shut down casinos operating the devices have been aborted by injunctive mandates. [48]

C. Possible Legislative Developments

Pending legislation in Congress may result in a plethora of regulation options to control the present, multi-billion dollar tribal industry. A pending bill sponsored by Senator John McCain (R-Arizona) would federalize tribal gambling: a new, independent tribal gaming commission would be created with the power to create and enforce regulations. [49] The commission would be similar in power and in scope to Nevada's gaming commission. Also, the Department of the Interior appropriations bill proposes to reduce the budget to the Bureau of Indian Affairs by twenty percent; tribal gambling will take up the slack in appropriations. [50] Another bill in Congress would impose a thirty percent tax on Indian gaming profits. These measures, as viewed by some Native Americans, may constitute an attack on Indian sovereignty; tribes contend that treaties ceded land in exchange for services and the freedom to pursue economic opportunities on reservation land.

California may undermine tribal gaming operations by legalizing Class III activities in metropolitan areas. California may choose to compete with Nevada casinos directly. Indeed San Francisco mayor Willie Brown initially backed a proposal to open casino operations on Treasure Island, in the San Francisco Bay during his campaign. [51] However, this action would require passage of a Constitutional amendment similar to the state lottery amendment. Three Initiatives to regulate and/or expand gaming in California are pending state Attorney General review. [52] Legalizing expanded operations in California will have two effects: First, the tribes will be able to offer any of the games allowed under the new state laws, and second, state licensed casinos would cut sharply into tribal gaming revenues, offering a convenient alternative to current gamblers driving out to reservations or traveling to Nevada.

III. New Forms of Gambling

A. "900" Number Telegambling Services

Nurtured by technological developments, new forms of gaming promise to create expansive growth in future state gambling. One of the more established technologies augmenting gaming activity is the business of toll, "900" telephone numbers. Legal gaming operations in states such as Nevada provide these toll numbers to facilitate bookmaking. However, the service numbers, legal in the state of operation, are accessible to Californians where the offered services are not permitted. This unregulated activity raises issues of undetermined jurisdiction. One of the pertinent questions is where the gaming activity is taking place when Californians call out-of-state bookmakers. Bookmaking operators argue that the wagering takes place in Nevada, where it is legal. These calls may be analogous to physically traveling into Nevada to conduct legal gaming. However, the fact that communication originates and continues back and forth from a jurisdiction prohibiting the activity presents a problem. Although the subject is yet to be decided by a court of law, the out-of-state wagering may constitute wire fraud. Other related issues may include the extent to which bookmakers solicit business outside of the legal jurisdiction. However, the fact that bookmakers advertise their activities in California is not necessarily illegal. For example, several Las Vegas casinos currently advertise gambling activity in California.

While not regulated at present, laws could be enacted to curtail Californians from using the "900" number services, if the practice is deemed illegal. Interstate regulation could require the bookmakers to inquire as to the call's point of origin, and bookmakers could be required to refrain from taking prohibited wagers. Also, given the fact that phone companies have the ability to block "900" services for callers, California could require its Public Utility Commission to coordinate a state-wide blockage of these numbers.

B. Internet Virtual Casinos

A larger source of unregulated gambling growth stems from the development of the Internet. The Internet creates a world information marketplace with little existing regulations on gaming activity. As with telegambling, gambling providers may develop activities where they are legal. However, the scope of activities extends far beyond bookmaking services; enterprises have created virtual casinos for Internet subscribers all over the world. [53] Last year world gambling revenues passed $450 billion; financial forecasters are predicting $10-$20 billion per year for Internet gambling within the next five years, with most of the revenue accruing from Europe and Asia. [54]

Confusing the legal implications of these services is the notion of where informational transactions occur. The intrinsic nature of the Internet creates a global communications network for information transfer, obfuscating state and national jurisdictions. Information passes around the world through numerous network conduits. Transactions take place in cyberspace, an abstract, omnipresent location spanning the entire network. Therefore, it is confusing as to who may enforce laws restricting activities conducted on the Internet; no single state entity exercises control or dominion over the Internet.

Technology has created other obstacles to enforcement. Even if California enacts laws to prohibit its citizens from Internet gambling, the development of encryption programs will limit enforcement capabilities. The ability to encrypt data secures the identity and transactions of clients patronizing gambling sites on the Internet. For example, Sports International, one of the world's largest offshore sports and gaming enterprises, provides licensing of its patented encryption and security technology in association with its upcoming Internet Gaming and Internet Global Casinos programs. [55] Recently, a San Francisco-based company, Venture Tech, announced its intent to enter into a licensure agreement for operations in Asia and Europe) with Sports International. Sports' president, Mike Simone, guarantees the confidentiality of client activities and transactions via an encryption process. Thus, even if consumers were gambling illegally, law enforcement may never be privy to the gambler's identity or the nature of their transaction.

Given the unregulated nature of the Internet and the huge potential for profit, the future of gambling regulation in the electronic realm leaves many unanswered questions as to how and if this medium may be controlled. [56]

C. Public Opinion Related to Gambling Opportunities

A recent Field Institute report indicates that California public opinion reflects a tentative affirmation to expand legalized gambling activities in the state. [57] While nearly two-thirds of Californians surveyed approve of allowing more gaming activities to generate increased tax revenue, the public remains equally divided as to extending Nevada-style casinos, more card rooms, or sports booking to California. [58] Over half of the surveyed residents endorsed the creation of a state commission to regulated cardroom activities as well as any permitted Nevada-style casino gaming. Also noted from the Field Institute survey is the countervailing concern by nearly two-thirds that legalized gambling encourages fiscal irresponsibility, tempting people to gamble away resources they need to support their families. Thus, while Californians would permit more gaming to glean more tax revenue, expansion is contingent on increased state regulation and public interest.

Conclusion

To effectively regulate gambling activity in California, legislative reform must adapt to current growth trends in gaming activity. Given the increased growth in cardroom and Indian Tribal casino operations, and the emergence of a new electronic marketplace, legislative reform may take an active role to enlarge its regulatory and revenue generating capacity. This would seem to coincide with public opinion trends as well. While cardroom growth has been placed in temporary stasis for the next three years, electronic and tribal gaming remain unregulated in the wake of legal uncertainty.

Multi-State Gambling Survey

The following survey compares the legislative measures currently adopted to regulate state gaming activities. It also highlights distinguishing characteristics of the surveyed states.

Legalized Gambling Throughout the United States: ⁵⁹

State-By-State Summary of Gambling Laws ⁶⁰

Alabama Gambling Provisions

Alaska Gambling Provisions

Arizona Gambling Provisions

Arkansas Gambling Provisions

California Gambling Regulation

Colorado Gambling Regulation

Connecticut Gambling Regulation

Delaware Gambling Provisions

Florida Gambling Regulation

Georgia Gambling Provisions

Idaho Gambling Regulation

Illinois Gambling Regulation

Indiana Gambling Regulation