BILL ANALYSIS                                                                                                                                                                                                    






                                                       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  





          -------------------------
          <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                                   
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            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  
             -----------------------
          <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                                   
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               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  
          -------------------------
          <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)





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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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