Legal Expert: Prop 26 Card Room Lawsuit Provision May Kill Its Chances

California tribes behind Prop 26 have spent millions to keep big-name sportsbooks from beating them to a potential California sports betting launch. But it is an entirely different opponent that could cost tribes the race. 

That opponent? A contingent of 84 licensed card rooms that make money off poker and other card games across California. 

Under Prop 26, the card rooms could face civil lawsuits from any tribe that suspects them of illegal gambling. The mechanism for the lawsuits would be the 2004 California Private Attorney General Act, or PAGA. PAGA is a law that allows private entities to stand in for the state in legal actions for suspected violations.

Prop 26 would bring tribes in as entities that could file suit. 

If card rooms lose in court, they could face penalties of up to $10,000 per violation. Some might even have to close down. That would obviously hurt the card room employees and cities that rely on card room tax revenue for their budgets. 

UC Davis law professor and tribal gaming expert Katherine Florey told California Casinos in a phone call this week that she thinks the PAGA provision could backfire on tribes that might have otherwise had voter sympathies on Nov. 8. 

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Florey: PAGA Provision Could Kill Prop 26

Bad publicity about the PAGA provision from card rooms and cities they financially support is a big threat to Prop 26 going into November, Florey said. A big threat, if you believe the polls. (The most optimistic polling has Prop 26 at 43% favorability.)

Florey said most card rooms in the state are not big-time money-makers. What money they do make generates about $100 million a year in local government revenue and $24 million in state revenue. A state legislative report says one city estimates it receives as much as 70% of its annual revenue from its local card room. 

Prop 26, on the other hand, could potentially generate well over $1 billion in revenue early on. It would come from sports betting and additional table games at tribal casinos and sports betting at California’s four horse racetracks.

“I’m sort of surprised this has become such a focus of opposition to Prop 26,” Florey told California Casinos. “A lot of card rooms are pretty small-time. I’m a little surprised that the tribes wanted this provision included because it seems like it has sparked a lot of opposition and may cause Prop 26 not to pass at all.” 

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Card Room Lawsuit Provision Sends Message of Tribal Sovereignty

Florey said tribes likely put the PAGA provision in Prop 26 as a reminder of tribal sovereignty over casino-style gaming in California.

Only Indian casinos are allowed to offer banked casino-style games (sometimes called Las Vegas-style games) under California law. These banked games include blackjack and baccarat.

Tribes enter into tribal-state gaming compacts with the state to be able to offer these games. Once ratified by the state legislature, the compacts require federal approval.  The entire process is lengthy and often expensive.

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Meanwhile, Florey said some card rooms use a loophole in state law (“it’s very ambiguous whether it even exists”) to offer banked games reserved for tribal casinos. She said card rooms get around the law by “hiring someone (a third-party vendor) to come in and serve as a dealer, and they ask patrons every now and then if that’s OK with them.”

These third-party vendors have helped fund the $42.5 million No on 26 campaign, alongside card rooms.

“I think that is something that just bugs some tribes,” Florey added, “because they feel certain card rooms are offering games that should be reserved for tribes, because that’s sort of what they were promised.

“I think the motivation (behind the PAGA provision) was sort of allowing tribes to litigate this practice that a lot of card rooms have been engaging in.” 

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Will Card Room Backlash Cost Prop 26 the Election on Nov. 8? 

Right now, tribal casinos and gaming suppliers in California provide $3.45 billion in tax revenue and tribal revenue-sharing payments to state and local governments. 

Adding sports betting would drive that revenue higher. 

That said, California tribes are unlikely to cede anything to card rooms or big-time gaming operators like FanDuel and DraftKings any time soon. It remains to be seen whether that costs Prop 26 the election next month.

One can only wonder what polling numbers for Prop 26 would be right now if the PAGA provision wasn’t included. Without it, card rooms still likely would have been opposed to Prop 26. It creates another gambling option that they cannot provide and tribal casinos can.

But would they have spent $42.5 million and launched several No on 26 ad campaigns? Who knows.

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