California Card Room Troubles Traced to One Thing

The answer is stronger regulation. Would someone please ask the question? Richard Schuetz, a former member of the California Gambling Commission, gives his views on what went wrong in the state’s card room industry and how it can be fixed.

On December 9th of this year more than 200 agents were involved in raids that targeted two California card rooms. If one starts counting on January 1, 2011 and takes a piece of paper, drawing a line down the middle of it, putting the number of California card rooms that have been raided by federal agents and state regulators and closed on one side of that line, and the number of legally licensed casinos in all of the other states that have been raided by the feds and state regulators and closed on the other side of the line, I believe that California would have the larger number. And there are only 75 operating California card rooms.

Having spent a bit of my time watching the California card room scene, I would like to offer my predictions as to what will happen now:

  1. Any politicians who have taken contributions from these recently raided card rooms will scramble to return them. None of these people will make a statement supporting stronger regulation.
  2. The issue about getting the card rooms reopened will be all about jobs. The owners can misbehave and it is this behavior that jeopardized these jobs, but the owners will not say this, or apologize to their employees. They will parade their employees and their employees’ children and make an emotional plea to save these jobs and families. This is a new version of Moral Hazard. An owner can involve himself in all kinds of mischief. If no one notices he gets rather rich, but if he is caught the employees are played as a reason to keep the card room open. None of these people will make a statement suggesting that the better way to protect these jobs is stronger regulation.
  3. The politicians who need these card room revenues to support their jurisdictions tax revenues and their political contributions, and the unions that are threatened by the loss of tax revenues to the cities that employ them, will lobby hard to get these card rooms open. None of these folks will stand up and say California needs stronger regulation.
  4. There will be those folks involved in the card rooms who will point a finger at the tribal casinos that have nothing to do with the raids on the card rooms. When the subject is the misbehavior of the card rooms, it is always good to try and change the subject, even if it has nothing to do with the topic under discussion.
  5. The rogue card rooms may introduce criminal enterprises into California communities, support and allow money laundering which can be a tool to finance crime syndicates and terrorist activities, facilitate the exploitation of women through prostitution, facilitate the corruption of sports through illegal bookmaking, and allow for tax evasion – all because the politicians failed to address the core issues of the problem, which is better funding and training for the regulators. All of these points will be neglected in the debate. It will be all about the jobs, and no one will push for better regulation. Oh, and absolutely no one will mention the names of the ex-regulators who are getting wealthy advising these card rooms that are getting raided and closed.

California has a core of people within its regulatory bodies who are very talented. The commission could not have better leadership with its new executive director and chairman. The bureau has an incredible asset in its Southern District special agent in charge. The lawyers who handle gaming matters for the California Department of Justice are the hardest working people in the state. But the politicians in the state continually refuse to give these people the help they need. The answer is simple… more people and more training.

There is an addiction to gambling problem in California, and the people suffering this addiction are the politicians. They are addicted to the revenues that their cities receive, and the political contributions that they receive. And this addiction has made them blind to a systemic problem in the state, and the data points to that problem are the ever-growing list of raided card rooms. If these politicians really care about tax revenues, and really care about jobs, they will make the industry sustainable—and the best way to make it sustainable is to work for stronger regulation.

Articles by Author: Richard Schuetz

Richard Schuetz started dealing blackjack for Bill Harrah 47 years ago, and has traveled the world as a casino executive, educator and regulator. He is sincerely appreciative of the help he received from his friends and colleagues throughout the gaming world in developing this article, understanding that any and all errors are his own.