Cities throughout California are getting ready for possible revenue reductions and job losses due to new cardroom regulations that limit popular table games, leading to legal disputes from the industry and warnings of financial stress in some local areas.
In February, Attorney General Rob Bonta unveiled the rules in response to appeals from tribal gaming groups, who contend that cardrooms have long conducted games that flout state regulations. Voters approved Proposition 1A in 2000, granting tribal casinos exclusive rights to offer banked games like blackjack and baccarat.
Historically, cardrooms have employed third-party proposition players (TPPPs) to mimic those games, a workaround that the new rules aim to limit by curtailing blackjack-style play and restricting the involvement of TPPPs. These changes are likely to compel operators to reassess some of their most lucrative offerings.
Industry representatives have raised alarms about significant economic repercussions. The state’s assessment predicts a loss of hundreds of millions of dollars in city revenues and hundreds of jobs, in a sector that reportedly produced an annual economic impact of $5.6 billion in 2019.
“Attorney General Bonta’s regulations threaten to eliminate more than half of California’s cardroom jobs,” said Kyle Kirkland, president of the California Gaming Association. “We are appealing to the court to halt these unlawful regulations before they decimate thousands of jobs and push numerous local economies into fiscal turmoil throughout California.”
The association, along with several cardrooms, has initiated lawsuits contesting the regulations and is pursuing injunctions to prevent their enforcement. These regulations went into effect on April 1, with operators required to present compliance plans by May 31. Tribal entities have sought to intervene in these cases, arguing that cardrooms have historically engaged in illegal banked games.
Some cities that are heavily reliant on cardroom revenues have already acted. Cities like Commerce and Bell Gardens have declared fiscal emergencies and are considering increases in sales taxes to make up for anticipated deficits.
San Jose officials have cautioned that the impact may be devastating. “If implemented, these regulations will deal a direct and catastrophic financial blow to San José – with an estimated annual loss of $32 million to our General Fund,” wrote Mayor Matt Mahan and four city councilmembers in a letter, warning that revenues could plummet by as much as 85% if customers do not transfer to other games.
Other municipalities remain uncertain about the potential impacts. Finance officials in Napa and Gilroy have indicated they do not foresee budgetary repercussions, while cities such as Rancho Cordova, Livermore, and Lodi are closely observing the developments.
In Hawaiian Gardens, where cardroom revenue constitutes approximately 65% of the general fund, local leaders are adopting a cautious approach, bolstered by reserve funds but apprehensive about possible financial setbacks.
Local stakeholders and industry proponents emphasize the significant stakes for communities that depend on cardroom activity.
“The repercussions for the community are potentially devastating,” remarked Juan Garza, executive director of California Cities for Self-Reliance.
State officials, however, have defended the legality of the new regulations. “The Department of Justice instituted these regulations in compliance with the Administrative Procedure Act (APA),” stated a DOJ representative.
Tribal advocates have supported the amendments, arguing they are essential to uphold existing gaming laws. “Cardroom casinos must adhere to the law,” declared an attorney for the intervening tribes, noting that the regulations are a constructive measure towards ensuring that cardrooms remain within legal bounds.