California Courts Back Blackjack-Style Card Rooms to Continue

The June 30 deadline came and went, and now the California courts have ruled in favor of the state card rooms. These player-dealer led card gaming rooms can continue to operate, to the frustration of the tribal operators who have long argued that these exploit a loophole that costs the tribes valuable gaming revenue. The market that these Californian card rooms have created is valued at some $5.6 billion, and provides over $500 million in state and local taxes, as well as providing jobs for over 32,000 Californians.

California’s card rooms are not going anywhere, and this business can continue to thrive. But it does point to a larger battleground that is currently being fought in the US. Besides all the state vs feds suits, mostly around prediction markets, there is also a big back and forth between operators – be them big brands or local providers – and the native tribes who claim these operators are infringing on their exclusivity. Especially in states like California.

Card Rooms Get Backed by the Courts

Card rooms in California have been on tenterhooks for months, as gaming tribes have challenged them and sought to close these local operations. The gaming tribes exerted their influence to push lawmakers to propose a ban on card rooms. The card rooms got an injunction in May, but the final decision on the legality of card rooms in California was determined on June 30. The courts sided with them, and now card rooms can continue undisturbed in California. But what was the issue in the first place?

How the Card Rooms Work

These card rooms are technically not allowed to serve blackjack, baccarat, and house-banked casino games, these are the reserve of the gaming tribes, as per the California Senate Bill 549. However, the card rooms used a loophole by offering blackjack-style games without a house. Instead of your classic Vegas-style blackjack with a house and a croupier, these roles were given to player dealers. The player dealers sit at the table and shuffles the cards, calls the outcomes, but doesn’t move the gaming chips at the end of each round. A separate company, called a Third Party Proposition Player (TPPP), handles the bankroll for the game, and its representative is the one moving the money, collecting losing player bets and paying out winning player bets.

These TPPPs are recognized by California law. And so the result is that you get a type of blackjack game that feels more casual, but still has all the essentials that you can get in a Vegas Strip casino. Albeit without the same high stakes play, and less crowded than those venues. They are hugely popular in California, and many are run by local operators or smaller community driven room runners.

Gaming Tribes Against Card Rooms

The industry was estimated at approximately $5.6 billion back in 2019, and it has been steadily growing. Gaming tribes, on the other hand, command a $12+ billion industry in California, with 67 recognized tribes and 65 landbased casinos located throughout the state. They are by far the larger industry of the two, but the tribes argue that the card rooms are soaking up a considerable percentage of the tribes’ potential revenue, and doing so illegally.

California Tribal Compact

Tribes have the exclusive rights to provide blackjack, slot machines, baccarat, roulette, craps, and other conventional casino games in California. The landbased casinos they run must be on tribal reservation land, and they can supply a maximum of 2,000 Class III Gaming machines each. The gaming tribes’ argument is that card rooms, just by introducing 40-minute dealer rotations or third party reps who touch the gaming chips, are effectively soliciting illegal gambling. The tribes have considerable influence in California too, with Attorney General Rob Bonta acting on their behalf to crack down on the card rooms.

But the courts decided otherwise. While there is a chance to appeal the decision, there are no guarantees how long this would last, and Rob Bonta is up for re-election in the November mid-terms. An active member in the gaming space, has was in charge when California kicked out sweepstakes casinos, stood up with other states against prediction markets, and Bonta even requested that DFS platforms be made illegal in the state.

Tribal Compacts and Rights Across America

This theme of tribes vs non-tribal gaming operators is extremely divisive in America, and has drawn much controversy across the country. Tribes are governed by the Indian Gaming Regulatory Act, and they are allowed to operate landbased casinos in states that have not legalized these types of games. There are also states where there are both legal non-tribal and tribal operators competing with each other, and states where tribes are recognized by the authorities and have an effective monopoly.

It is quite complicated, but to simplify, here is a quick run through:

States where commercial casinos are legal:

Tribes can operate, as can commercial brands like Caesars, MGM, Bally’s (BALY ), and so on. These states have direct competition between the two, with similar sets of rules for both types of operators. Examples of such states are Nevada, Michigan, Pennsylvania and Louisiana.

States where commercial casinos are not legal:

Tribes are the only ones who can operate in these states, but they do so through the IGRA and not through state gaming legislation. For instance, Washington and Oklahoma work like this.

States where tribes have an effective monopoly:

The states legalize casinos, but grant the tribes the exclusive rights to certain casino games. Therefore, commercial casino runners can’t enter the market, and while there are some instance of partnerships between them and tribes – for example the tribes in Arizona partnering with Caesars and MGM, or select Connecticut tribes partnering with DraftKings (DKNG ) and FanDuel. But mostly, the tribes run the show in these states. California is one of these states, as while casino gaming is illegal throughout the region, the tribes are recognized through California Senate Bill 549.

Similarities with Canadian First Nations

If you compare the US to Canada, which also has indigenous tribes, the situation is a lot less complex up North. In Canada, First Nations have argued that they should have greater authority over the traditional gambling in the provinces. But most of the regions have provincially run lottery corporations that manage the gambling. Tribes don’t have the exclusivity or as much of a market share across Canada.

That being said, there is a special case in Quebec where the Kahnawake tribe has its own gambling regulatory body. The Kahnawake Gaming Commission is not recognized in the rest of Canada, nor in Quebec for that matter, but the iGaming authority has a good international standing.

Tribal Online Gaming Circumstances

Back to the US, the iGaming and sports betting sector is even more complicated. It adds a new dimension to this whole debate, as state legislation on how these platforms are licensed and authorised varies greatly. There are states where tribes have the exclusivity to online gaming as well, such as the Florida Seminole Compact that gives the tribe exclusive access to online sports betting. Other states give commercial casino runners the opportunity to partner with tribes – or local sports and horse racing institutions – to obtain the permissions to enter the market.

The most recent state to legalize online casinos was Maine. And Maine did it in a way that benefitted their tribes greatly, giving the 4 tribes the exclusive rights to partner with commercial casinos and launch online casinos. The horse racing authority and other industry insiders argued it limited the market greatly, and they fear that Maine will not be able to channel much of the black market volume to onshore sites. Maine has yet to fully launch iGaming, this is expected sometime later this year, but it adds another twist in the tribal vs nontribal gaming saga.

California card rooms can celebrate their court win and continue to operate. But across the US, the gaming legislation on tribes and non tribal gaming is only becoming more and more complicated.