According to a new study from the California Gaming Association, the Golden State’s cardroom industry generates more than 32,000 jobs and almost $5.6 billion every year in the world’s fifth largest economy.
It would be fair to say that Kyle Kirkland, president of the California Gaming Association, and Susan Jensen, executive director of the California Nations Indian Gaming Association (CNIGA), have divergent views over what that means.
“Some of us always knew the impact of cardrooms was bigger than had been previously thought,” said Kirkland in an exclusive interview with GGB News. He favorably compares the industry’s size to the craft beer industry and all the state’s historical societies, museums, zoos and aquariums combined. “I think it’s the size and extent of our industry and its importance to California,” he said.
This does not impress Jensen, who told GGB: “Of course, their methodology seems very straightforward. The biggest comment is no matter the economic impact, they’re generated by illegal gaming and so they are ill-gotten gains—similar to someone paying a certain percentage on illegal drug trade. It’s still illegal and there is no reason to allow this illegal activity to continue.”
The study was done by John Dunham & Associates, whose principal, John Dunham, said in a press release, “The data is clear—the cardroom industry is a vital part of local economies, creating irreplaceable jobs, needed state and local taxes to support local services, and, all totaled, a significant economic impact on California’s economy.”
According to Kirkland, the CGA chose Dunham’s group because they felt it understood the nature of the industry. “We had done a study in 2012 and at the time a number of us thought the numbers were understated and didn’t quite capture all aspects of the industry,” he told GGB. “This recent study was done with higher participation by the cardrooms and by economists who fully understood the nature of our industry.”
Kirkland continued, “We always knew that California’s gaming industry was bigger than Nevada. Well, It’s bigger than we thought. We’re talking $20 billion-plus. If you add up all the gaming revenue in California, it exceeds Nevada. The card industry believes we can peacefully coexist the tribes. Our games are legal and lawful. That’s the nature of the beast.”
He added, “We talked to a couple of different folks, somebody with national expertise. They had done some good studies on the wine industry in California. We like the way they presented their information, including some interactive data. Sometimes reports are presented and put on a shelf. This won’t be. It allows us to show the impact on the different areas of the state. These people were highly competent, understood what we were talking about and we liked how they presented their results.”
Jensen says most cardroom revenues are of the “ill-gotten” variety: “I would assert that a large amount of cardroom gains comes from their illegal house-backed games and blackjack. Quite a lot of it. It would be hard to raise the kind of money they are asserting out of player pools.”
Kirkland countered, “There is some difference of opinion between the cardrooms and the tribes. Our games are legal. There have been several ‘generations’ of attorney generals who have said that. We operate our cardrooms without complaint from the public. Legal challenges support our position. The tribes might not like the competition, but we’re legal.”
Card Counting
He points to the June 18 decision by a federal judge in the U.S. District Court for the Eastern District of California in a case brought against the state of California and Governor Gavin Newsom by three gaming tribes—Yocha Dehe Wintun Nation, the Viejas Band of Kumeyaay Indians and the Sycuan Band of the Kumeyaay Nation.
U.S. District Court Judge John Menendez dismissed the case in which the tribes objected to the cardrooms offering traditionally house-banked games like blackjack. Cardrooms argue that the games are player-dealt because the clubs only collect a per-hand fee.
“The judgement was favorable,” Kirkland said. “The games are approved by the California Gambling Control Commission. They are different from tribal games. That the tribes are trying to bully people into saying that our games are illegal doesn’t make them illegal. The study shows that the industry is bigger than people think and the tribes’ operations are bigger than they publish. We are not going to be bullied out of existence because it is politically expedient for the tribes.”
Jensen calls the judge’s ruling “more of a technicality,” adding, “It was about standing, not the merits of the case. I believe there was a re-filing because the wrong people were bringing the suit.”
One of Kirkland’s arguments—backed up by the study—is that cardrooms provide a valuable tax support to host communities. Sometimes those cities rely heavily on those funds, and their residents rely on those jobs.
“It’s important to look at the impact this industry has on several communities,” he told GGB. “We are a leading taxpayer, sometimes 50-plus percent of some cities, providing employment for people who might be struggling to find a job. We power a lot of services such as police. It’s a strong statement to say that an industry that has been around for over a century without complaint should go away. The only complaint we are aware of about our legality is from the tribes. We are an important part of the communities where we operate. We are good citizens. We don’t jeopardize the public, and we are in fight to keep them. We have had city officials turn out in force and say, ‘This is an important part of our community.’ ”
The Big Bucks
The study shows California cardrooms pay about $500 million in taxes, with $398.8 in state taxes and $100.9 million in local jurisdiction gaming taxes (i.e., to cities).
“This isn’t a competition issue,” said Jensen, who would probably disagree with Kirkland’s assertion that only the tribes complain about the cardrooms’ legal issues. “This is an issue of having a well-regulated gaming industry in California. We are seeing that there isn’t a strong regulation of cardrooms. There are lots of violations and fines coming out of the federal government on the cardrooms.”
Jensen refers to the May 2019 report by California State Auditor’s report on the Bureau of Gambling Control and California Gambling Control Commission joint report: “Their Licensing Processes Are Inefficient and Foster Unequal Treatment of Applicants.” This report scores the state for such things as taking 20 years to issue a permanent license to a card club in Lake Elsinore.
“The state needs to look at all sectors of the gaming industry—especially the card rooms—in that the state is the only regulator of the card rooms. With tribes we have our gaming commissions, the state and the federal,” said Jensen. “They spent $6 million to regulate and enforce the entire cardroom industry. I don’t know how you could possibly regulate an industry that large on that little.”
She concluded, “We have been calling on the attorney general for eight years now—multiple AGs— to enforce the constitution and shut down these illegal games.”
Kirkland argues that the tribes and cardrooms shouldn’t be engaged in an existential struggle. “Our industry thinks we can easily coexist,” he said. “It’s a big enough market. We don’t feel like its mutually exclusive. The tribes may feel differently . . .”
Methodology: “All Data Sources Are Crappy”
So how does one determine the economic impact of an industry like cardrooms on a state such as California?
John Dunham of the New York City-based study group told GGB, “The way we do these studies, is all from the ground up, at the micro level.”
He has been doing this for about 35 years, and his company for two decades. His 40 or so clients include the California Wine Institute, the New York Jets, Verizon Wireless and Miller Brewing Company.
Analysts look at “every cardroom and every third party player provider. Where they are located on a map, the geo-code, and gather job numbers from a number of sources,” he said. “There are no good data sources. All are crappy, so we merge them all together. We have a team that physically examines every facility, including size of every parking lot.”
They come up with job numbers too. “Some come from card club owners. A lot of it comes from Info-Group, the company that provides the dots on the Google map,” said Dunham. “We get direct job numbers from the people working in the job rooms and those working the hotels.”
He continued, “And then we take those direct job numbers and run them in a model called Implan, a model that tells you everything that goes into a given product or service, including electricity and tables and kinds of cards.
“With Implan we can calculate what the supplier jobs and wages are and the “induced effect” i.e. multiplier effect, because most people go out and spend their wages,” said Dunham.
Such impacts are measurable, and the opposite is also true. “When a factory in a town closes, you can see the collateral effects on diners and mom and pop stores. It’s the same for any business,” said Dunham. “That goes to create the model, and we break it out into state legislative districts. We geo code and know where the jobs area.”
Ground Zero: L.A.
Card clubs in California are concentrated in the Los Angeles area, said Dunham, who noted that his company specializes in creating easy-to-understand studies. “It’s an open architecture. Our numbers are open and you can see the individual numbers. Our goal is to make everything user friendly. No reason to make an economic study so obtuse that no one can understand it. If you can’t tell a story, then it does no good.”
The takeaway from the study, said Dunham: “It’s an important industry that affects a lot of communities. “It’s not airplane manufacturing or fast-food but it’s an important industry particularly in the towns where the cardrooms are located. In terms of taxes it can be extremely important. I know in smaller communities it can be a lot.”
