BILL ANALYSIS Ó
Bill No: SB
472
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
SB 472 Author: Hill
As Amended: August 26, 2013
Hearing Date: September 10, 2013
Consultant: Paul Donahue
SUBJECT
Gaming: licenses
DESCRIPTION
In order to allow for continued operation of the Hollywood
Park Casino card club, which is adjacent to the closing
Hollywood Park racetrack, this bill amends existing laws
specifying who is suitable to hold a state gambling license
to own a gambling establishment. Specifically, this bill :
1)Clarifies, with respect to existing gambling license
exemptions for specified limited partners,<1> that the
gambling license exemption applies to a card club located
on any portion of, or contiguous to, the grounds on which
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<1> Bus. & Prof. Code § 19852.2 establishes a gambling
licensing exemption for specified limited partners that
include institutional investors, employee benefit plans, or
state university endowment investment companies.
SB 472 (Hill) continued
PageB
a racetrack is, or has been previously located.<2>
2)Specifies that a person meeting the following criteria
shall not be deemed to be unsuitable to hold a gambling
license, despite existing laws<3> to the contrary:
a) The person is licensed, or had an application to be
licensed, on file with the California Gambling Control
Commission ("Commission") on or before February 1,
2013.
b) The person has a financial interest in a business
or organization engaged in gambling prohibited by
California laws that was closed, and was not engaged
in prohibited gambling at the time the person either
was licensed or had filed an application with the
Commission to be licensed.
c) The person has a financial interest in a gambling
establishment that is located on any portion of, or
contiguous to, the grounds of the Hollywood Park
racetrack.
d) The grounds upon which the above-described gambling
establishment are directly or indirectly owned by a
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<2> On May 9, 2013 in a letter to employees, Hollywood Park
president F. Jack Liebau announced that the track would be
closing at the end of the fall racing season in 2013. The
letter states among other things that the 260 acres on
which the track sits now has "a higher and better use," and
that "in the absence of a favorable change in racing's
business model, the development of the Hollywood property
was inevitable."
<3> Bus. & Prof. Code § 19858 provides that a person is not
suitable to hold a gambling license if that person, or any
partner, officer, director, or shareholder has a financial
interest in a business or organization engaged in any form
of gambling prohibited by California law. Penal Code §330
outlaws the play of any specified games, including
roulette, twenty-one, as well as any banking or percentage
game played with cards, dice, or any device, for money,
checks, credit, or other representative of value.
SB 472 (Hill) continued
PageC
racetrack limited partnership owner.<4>
3)States that within 3 years of the date the closed
business or organization reopens or becomes engaged in
any form of gambling prohibited by California law, the
exempted person shall either divest that person's
interest in the business, or divest that person's
interest in the gambling enterprise or establishment for
which the person is licensed or has applied to be
licensed by the Commission.
4)Requires the exempted person to inform the Commission
within 30 days of the date on which a business or
organization in which the person has a financial interest
begins to engage in any form of gambling prohibited by
California law.
5)Provides that during the three-year divestment period, it
is unlawful for any cross-promotion or marketing<5> to
occur between the business or organization that is
engaged in any form of gambling prohibited by California
law and the Hollywood Park Casino.
6)Specifies that during the three-year divestment period,
any funds used in connection with the capital improvement
of the card club located at the Hollywood Park Racetrack
shall not be provided from the gaming revenues of either
the business or organization engaged in gaming that is
prohibited in California.
7)Specifies that if at the end of the three-year divestment
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<4> A "racetrack limited partnership owner" is a limited
partnership, or a number of related limited partnerships,
that are at least 80 percent capitalized by limited
partners that are an "institutional investors" as defined
in existing law, an "employee benefit plan" under federal
ERISA law, or an investment company that manages a state
university endowment.
<5> "Cross-promotion or marketing" means the offering to
any customers of the gambling enterprise or gambling
establishment anything of value related to visiting or
gambling at the business or organization engaged in any
form of gambling prohibited by Section 330 of the Penal
Code. (See fn. 3, above)
SB 472 (Hill) continued
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period, any person has not divested his or her interest
in either the card club located at the Hollywood Park
Racetrack or the business or organization engaged in any
form of gaming that is prohibited in California, the
prohibition as it existed on January 1, 2013 shall apply.
8)Extends from 30 to 45 days the time after receipt of an
order by Commission within which a person must apply for
a gambling license or a finding of suitability.
EXISTING LAW
1)The Gambling Control Act ("Act") provides for the
licensure of certain individuals and establishments
involved in various gambling activities, and for the
regulation of those activities by the Commission.
2)Provides that a person is deemed unsuitable to hold a
state gambling license to own a gambling establishment if
the person, or any partner, officer, director, or
shareholder of the persons, has any financial interest in
any business or organization that is engaged in a
prohibited form of gambling, whether within or without
this state, except as specified.
3)Requires every person who is required to hold a state
license to obtain the license prior to engaging in the
activity or occupying the position with respect to which
the license is required, except as specified.
4)Requires every person who, by order of Commission, is
required to apply for a gambling license or a finding of
suitability to file an application within 30 calendar
days after receipt of that order.
5)Specifies that if the owner of a gambling enterprise is
not a natural person, the owner is not eligible for a
gambling license unless specified persons involved in the
enterprise obtain a gambling license.
6)Authorizes the Commission to exempt specified limited
partners in limited partnerships from the licensing
requirements described above solely for the purpose of
the licensure of a card club located on the grounds of a
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racetrack owned by a limited partnership that also owns
the racetrack.
7)Provides that a person is deemed unsuitable to hold a
state gambling license to own a gambling establishment if
the person, or any partner, officer, director, or
shareholder of the person, has any financial interest in
any business or organization that is engaged in a
prohibited form of gambling, whether within or without
this state, except as specified.
8)Allows a person or entity to hold a state gambling
license if they have a financial interest in another
business that conducts lawful gambling outside the state
that, if conducted within California, would be unlawful,
provided that an applicant or licensee may not own more
than 1% interest in that business.
BACKGROUND
1)Purpose of the bill : According to the author, the
Hollywood Park Racetrack and Card Club is owned by a
group of public pension plan investors. Some of those
same public pension plans also own a share of the
currently closed Sahara Hotel in Las Vegas, which is
undergoing capital improvements and remodeling.
The author states that once the Sahara Hotel in Las
Vegas, NV reopens for business, the owners of the
Hollywood Park Casino would have three years to divest
ownership of either the card club or the Sahara Hotel.
The author points out that this bill does not enact a
permanent exemption, as has been proposed previously.
2)Background : Existing law exempts the actual pension
plans from licensure as card club owners, if the card
club is located at an "operating" racetrack. However,
existing law also prevents an entity owning a card club
in California from also owning an interest in a gambling
facility that conducts gaming that is prohibited in
California.
The pension plans originally purchased the Sahara Hotel
under the erroneous assumption that leasing out the
gaming casino at both the card club at Hollywood Park and
the Sahara Hotel would avoid the prohibition noted above.
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Last year the author introduced AB 1290 (Hill) to address
which individuals would require licensure at the card
club, and the bill established an exemption for ownership
of the Sahara Hotel by the same pension plans. Because
the bill did not become law, the pension plan managers
agreed to be licensed by the Commission.
The author further states that the bill will address a
technical issue to clarify that the pension plans
themselves do not have to be licensed at a card club at a
racetrack, as long as the managers of their funds are
licensed, which is now occurring. However, current law
requires the card club to be located at an operating
racetrack.
Because this is the last year of live horse racing at
Hollywood Park racetrack, the owners of the Hollywood
Park Casino also seek a technical change to this section
of law in order to allow the same exemption to apply once
horse racing ceases.
3)Arguments in Support : According to the Hollywood Park
Racetrack, many of the same public pension plans that own
the Hollywood Park Card Club also purchased the Sahara
Hotel in Las Vegas in 2007. At the time of the purchase,
lessees, on a flat rent basis, operated the card club at
Hollywood Park and the casino in Las Vegas with the
pension plans having no stake in the actual outcome of
the gaming. Hollywood Park Racetrack further states that
it was commonly believed at the time that such a
structure would comply with current law. That is not the
case, and as a result, it will be necessary for the
pension plans to divest ownership of either the card club
or the casino once the Sahara Hotel reopens.
Supporters note that this bill simply allows for a
reasonable three-year divestment process, once the Sahara
Hotel reopens. It also prohibits any "cross promotion"
marketing between the card club and the Sahara Hotel
during the three-year divestment period.
4)Arguments in Opposition : Opponents argue that it is
inappropriate to create exemptions in law for one
particular cardroom or even a small minority of
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cardrooms. These opponents state further that they also
opposed SB 356 (Yee), which would allow cardroom owners
to have an ownership interest in foreign-based casinos.
Opponents contend that it would be "more appropriate for
the Legislature to debate cardroom ownership laws in
their entirety, rather than considering piecemeal
legislation that creates exemptions in law for a limited
number of entities."
PRIOR/RELATED LEGISLATION
SB 356 (Yee), 2013-14 Session. Would allow a person or
entity with a financial interest in a foreign gambling
operation to retain a California gambling license if
certain conditions are met. (Held on Assembly Suspense
File)
AB 1290 (Hill), 2011-2012 Session. Would have repealed
existing laws regarding an exemption from licensing
requirements for a card club on the grounds of a racetrack.
The bill was introduced to provide for the continued
operations of the card club located at the Hollywood Park
Racetrack. (Held on the Senate Inactive File)
AB 777 (Hall), 2011-2012 Session. Would have required every
person who is required to hold a state gaming license to
obtain the license before engaging in the activity or
occupying the position with respect to which the license is
required. (Not heard)
AB 2526 (Hall), 2011-2012 Session. Would have changed
several definitions within the Gambling Control Act, e.g.,
revised the definition of a "key employee" to any person
employed in the operation of a gambling enterprise in a
supervisory capacity or empowered to make discretionary
decisions with regard to the gambling operations, (2) added
surveillance managers and supervisors to the definition of
"key employee" for licensing purposes, etc. (Held on Senate
Inactive File)
SB 730 (Florez), Chapter 438, Statutes of 2007. Made
various changes to the licensing and regulatory processes
related to key employees for gambling establishments under
the Gambling Control Act.
AB 3068 (Horton), Chapter 868, Statutes of 2006. Extended
SB 472 (Hill) continued
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the provisions that apply to a publicly traded corporation
owning a card club located on the grounds of the entity's
racetrack to a limited liability company or a limited
partnership.
SUPPORT:
Communities for California Cardrooms
Hollywood Park Racetrack
OPPOSE:
Artichoke Joe's Casino
Bicycle Casino
Commerce Casino
Hawaiian Gardens
Hustler Casino
San Manuel Band of Mission Indians
Santa Ynez Band of Chumash Indians
Tribal Alliance of Sovereign Indian Nations
FISCAL COMMITTEE: Senate Appropriations Committee
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