California Prop 26 sports betting bill language could imperil state's cardrooms

Haley Hintze Author Photo
Haley Hintze
Posted on: August 25, 2022 16:34 PDT

California's fall elections could significantly change the state's gambling landscape, with two of seven statewide referendums on November's ballot seeking to expand wagering opportunities, although in contrasting and competing ways. Both Proposition 26 and Proposition 27 are primarily sports-betting proposals, are at odds with each other, and both have received massive spending by their stakeholders. Prop 26, in particular, also includes language that goes beyond sports betting, language that specifically poses possible legal and financial threats to California's cardroom industry.

Prop 26, titled the California Sports Wagering Regulation and Unlawful Gambling Enforcement Act, is a tribal-backed measure that would legalize in-person sports betting at California's roughly 80 tribal casinos, while also authorizing those venues to offer various dice games and roulette. However, it's relatively unpublicized language inside the measure that has the state's cardrooms fighting back. The controversial language renews the tribal casinos' battle against cardrooms offering "third-party proposition player" (TPPP) card games, a long-established process that allows cardrooms to offer alternate forms of traditional house-banked games such as blackjack.

Prop 26 would create new tribal avenue to litigate directly against cardrooms

The battle over California cardrooms offering TPPP games has raged for years. Under California gambling law, house-banked versions of various games are forbidden; since many of these games have a dealer advantage, the deal by law must rotate from one player to the next. In the cardrooms' version of these games, the players agree that a third-party prop player serve as dealer and banker, a workaround that California regulators have affirmed doesn't violate state law.

The tribal casinos have been adamant in insisting that the TPPP games, however, do violate the law, despite their complaints to the state having been rejected on multiple occasions. Prop 26, if enacted, would allow the casinos to circumvent the California Gambling Control Commission's complaint process and instead file civil actions directly against the cardrooms.

The language inserted into Prop 26, in a section titled "Enforcement Against Unlawful Gambling Activities", the tribal casinos and others are authorized to file their own complaints against cardrooms, if the casinos first asks the California Attorney General to take action against the cardrooms and the AG declines to do so within 90 days. The relevant text reads as follows:

(b) Any person or entity that becomes aware of any person engaging in any conduct made unlawful by Chapter 10 (commencing with section 330, but excluding sections 335 arid 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. The request shall include a clear and concise statement of the grounds for believing a cause of action exists.
(1) If the Attorney General files suit within 90 days from receipt of the written request to commence the action, no other action may be brought unless the action brought by the Attorney General is dismissed without prejudice.
(2) If the Attorney General does not file suit within 90 days from receipt of the written request to commence the action, the person or entity requesting the action may proceed to file a civil action.
(3) The time period within which a civil action shall be commenced shall be tolled from the date of receipt by the Attorney General of the written request to either the date the civil action is dismissed without prejudice, or for 150 days, whichever is later, but only for a civil action brought by the person or entity who requested the Attorney General to commence the action....

Two cardrooms sued in March to block Prop 26

Given the deep-pocketed nature of many of the tribal entities seeking to ban the TPPP games, the possibility exists that California's cardrooms could be hit by waves of tribal lawsuits, with the cumulative effect of causing financial harm via excessive legal expense. Two California cardrooms, Hollywood Park Casino and Cal-Pac Rancho Cordova, filed suit in March, claiming the referendum was improper in combining multiple objectives into a single measure.

California election officials, have allowed Prop 26 to move forward as signed by hundreds of thousands of Californian voters, which doesn't preclude the issue again being raised if Prop 26 passes in November. What the cardrooms recognized is that the open language of the suggested "unlawful gambling enforcement" -- itself a debatable claim given the history of the TPPP battle -- is that the measure could open up the state's cardrooms to innumerable lawsuits backed by tribal casinos' very deep pockets.

"What this sports-wagering ballot initiative really does is to surreptitiously destroy competition with California's cardrooms by granting more rights to Tribal casinos, including the right to file a stream of lawsuits against card rooms,'' said Deven Kumar, General Manager of Hollywood Park, when the cardrooms sued to block the process. "This is not what the initiative process was designed to do, and certainly not what this initiative is advertised to do."

Prop 26 backers are hardline anti-online gambling entities

Hollywood Park Casino and Cal-Pac Rancho Cordova identified nine tribal-casino entities as being Prop 26's designers and primary backers: the Pechanga Band of Luiseño Mission Indians, the Barona Band of Mission Indians, the Yocha Dehe Wintun Nation, the Agua Caliente Band of Cahuilla Indians, the Rincon Bank of Luiseño Mission Indians, the Santa Ynez Band of Chumash Mission Indians, the Sycuan Bank of the Kumeyaay Nation, the Soboba Band of Luiseño Indians and the San Manuel Band of Mission Indians.

Many readers will recognize that most of these tribal nations comprise the hardline group that have successfully stymied several online-poker measures in California over the past decade. A slightly wider focus shows that the group is against any form of online gambling in general, unless and until it falls solely within California tribes' control.

The November referendums illustrate this. While Prop 26 would primarily benefit the tribal casinos, Prop 27 is an initiative that would legalize online sports betting in the Golden State. And while the above tribal entities have spent heavily in support of Prop 26, they've advertised just as heavily against Prop 27, which is instead backed by non-tribal gambling concerns including DraftKings, FanDuel, and BetMGM. Overall, more than $350 million has been spent on Props 26 and 27 and the public lobbying effort shows no signs of slowing down. Spending on Props 26 and 27 also accounts for almost 90 percent of the money spent collectively on all seven referendums on the November 7 ballot.

The situation poses difficult choices for most California poker players, who share a heavy crossover with the sports-betting public. A Prop 26 loss eliminates the opportunity for Californians to visit live sports books in tribal casinos (and a select few racetracks) for the foreseeable future, but it does protect the larger interests of the state's cardrooms. Several cardroom officials have testified that the disputed TPPP games are vital to the survival of the rooms, and several local governments in California, such as the City of San Jose, have come out against Prop 26 while citing the potential loss of jobs at these rooms.

All this leads up to November's vote on Prop 26 and Prop 27, with a significant shift in California's gambling landscape at stake in more ways than one.