Like gaming halls of all kinds, California’s card rooms have taken a body blow due to the coronavirus. The industry’s 66 card clubs closed voluntarily in mid-March, and employment and revenues stopped cold. GGB News recently asked Kyle Kirkland, president of the California Gaming Association, about the future of card rooms when they reopen, and about the industry’s long-running dispute with the state’s Indian tribes.
GGB News: A lot of attention has been focused on the plight of California’s tribal casinos during the coronavirus, but there’s a story to be told about the card clubs that make up your membership. What are we missing?
Kirkland: There’s been media coverage in local markets about the severe impact that card room closures have had on employees and the cities which rely on card room tax revenues to fund vital community services such as emergency services, homeless programs and housing support. Since card rooms pay gaming taxes—tribal casinos do not—the detrimental impact of card room closures has extended beyond the operators and employees to the host communities.
Is the Covid-19 crisis an existential threat to California card rooms?
This crisis has affected the entire California economy, but will likely have a serious lasting impact on all businesses whose operation is predicated on social interaction like bars, restaurants, entertainment venues, and gaming establishments.
The survival of individual operators will depend on their resources, regulatory support, finding a workable business model and a willingness of guests to accept changing norms. Most card rooms are small businesses that are highly dependent on ongoing operating revenue for survival. Even larger card rooms have been severely and perhaps permanently harmed by the unprecedented, extended revenue loss and ongoing expenses such as payroll and insurance costs, rent and other ongoing fixed costs.
At the state level, the governor’s office has extended certain regulatory deadlines applicable to card rooms but has yet to address our request for financial and regulatory relief similar to that granted to other industries.
Until recently, as of early May, card rooms were excluded from CARES funds, as the initial definition excluded businesses with significant gaming revenues. The (Small Business Administration) now allows CARES funding of gaming establishments with fewer than 500 employees, but forgiveness of those loans assumes significant restaffing and employee costs without clarity on when card rooms will be allowed to reopen.
We’re aware of several card rooms that have qualified for CARES funding, but it’s not clear that those operators will be able to take advantage of the support they offer without reopening.
As for the public’s willingness to accept changes in the way we offer gaming, we won’t know until we reopen and observe guest behavior patterns.
What should California do to help card rooms make it through this crisis?
We’ve asked the state to authorize a refund of overpayments by card rooms into the state’s Gambling Control Fund. Before this crisis, the California state auditor found that the fund was projected to end this fiscal year with a surplus of $97 million due to excess and possibly unlawful fees levied on the industry, an amount which comprises five times the combined annual budgets of the California Gambling Control Commission and the Bureau of Gambling Control. We’re asking for these funds to be refunded back to the card room industry to help mitigate the costs that are needed to be able to reopen. This refund would have no impact on the state’s budget or general fund—these are overpayments by card rooms sitting unused in the Gambling Control Fund. Unfortunately, the governor’s recent budget request asks that the surplus be loaned to the general fund to support other state services.
At a minimum, we would ask that the state offer card rooms similar regulatory relief that other state agencies, such as insurance, Alcoholic Beverage Control, etc., have offered their industries—including fee reductions pro-rated for days of non-operation, filing deadline relief and license extensions. In addition, we believe the state should defer to local health officials in setting the guidelines for cardrooms to reopen safely.
Do you see all or most of the card rooms being able to reopen soon, as many tribal casinos are doing?
Card rooms are highly regulated by state and local laws and regulations and must respect state and local directives regarding the health and safety of the general public. Tribal operators are self-regulated and don’t have to adhere to state and local directives. The card room industry is working on re-opening health and safety protocols for consideration by state and local regulatory officials when and if it’s allowed to resume operations.
All 66 card rooms voluntarily closed in mid-March and are not operating until approval from the local counties and state.
How do you respond to tribal charges that card rooms are staging illegal gambling?
As for the past and ongoing tribal complaints about card room table games, we would again state that card rooms are highly regulated in public forums, all of our games are approved by the Bureau of Gambling Control, our table games have been offered for decades without harm to or complaint from the public other than from tribal competitors, and that recent tribal legal challenges to card room gaming in both state and federal court have been dismissed.
What are the relationships like between card rooms and third-party groups that bank the games?
Card rooms contract with third-party groups to facilitate the play of table games under contracts that are allowed under state law and approved by the Bureau of Gambling Control. All card room table games players are offered the opportunity to wager in the player-dealer position on a regular basis, a feature of card room table games that make them unique from the house-banked games tribal casinos offer. A player at a tribal casino cannot wager on the dealer’s hand.
Do you think California’s gaming regulatory system is broken? If so, how would you fix it?
California’s Gambling Control Act has been in effect for over two decades, and certain regulations could use revisions to make them more efficient and effective for California’s evolving card room industry. Last year, the state auditor identified many areas in which the gaming regulatory process can be improved with respect to licensing. Card rooms are supportive of a collaborative effort with industry regulators which will result in more revenue and essential services for the communities they support.
What law or regulation change is most needed right now?
Our priority is guest and employee safety; reopening guidelines are the most pressing regulatory need.
What is a bigger threat to California card rooms, ongoing closures from the coronavirus or a ruling that affirms the tribal lawsuit that the games are illegal?
The closure from the Covid-19 pandemic has resulted in the unprecedented shutdown of the California card room industry and devastating economic damage to dozens of communities and thousands of formerly working Californians. Tribal legal challenges over card room table games burden the courts and waste resources, but both federal and state courts have dismissed those challenges. It would follow that the Covid-19 pandemic and related closures are the more real and immediate threat to the health of the cardroom industry and the communities we serve.
Recently a coalition of 18 tribes gathered signatures to put a measure on the ballot to legalize sports betting in the state. They specifically left card clubs out of the mix, then dropped their efforts due to the coronavirus. Do you expect that effort to be renewed after the crisis is over, and if so, what do you anticipate doing in response?
The tribal initiative on sports wagering was an effort to force in-person sports wagering on tribal lands, criminalize mobile gaming (90 percent of sports wagering occurs on mobile devices), legalize craps and roulette games, and authorize lawsuits against cardrooms and charitable bingo operators by tribes.
The card room industry supports a more inclusive effort to legalize sports wagering, such as that advocated by Senator (Bill) Dodd and Assembly member (Adam) Gray which includes all relevant stakeholders, includes all legal gaming establishments like card rooms, leagues, teams, mobile operators, fantasy sports and others, provides a fun, safe wagering experience, and offers real economic value to all Californians, not just a few wealthy tribes.
So, you believe card clubs should be allowed to offer sportsbooks if sports betting becomes legal in the state?
Of course. With robust regulatory oversight, sports wagering would expand the suite of services that card rooms could legally offer and provide real economic benefit to the communities card rooms support.
