BILL ANALYSIS
Bill No: SB
1125
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1125 Author: Florez
As Amended: March 22, 2010
Hearing Date: April 13, 2010
Consultant: Chris Lindstrom
SUBJECT
Gambling Control Act.
DESCRIPTION
SB 1125 makes a number of changes to the Gambling Control
Act (GCA or Act).
Specifically, the bill:
1)Provides that jackpot funds held by a gambling
establishment, to which players have made contributions,
following the deduction of any administrative fee
approved by the Bureau of Gambling Control (Bureau)
within the Department of Justice (DOJ), are considered
trust funds that are held for the benefit of the players.
These funds are not the property of the gambling
establishment, but are held solely for the benefit of the
players.
2)Requires DOJ and the California Gambling Control
Commission (CGCC) to establish an enhanced fee schedule
to provide for additional fees to be charged to
applicants who wish to have their applications processed
and background investigations conducted in an expedited
manner. The payment of those enhanced fees shall entitle
the applicant to have their applications processed in a
shorter period of time than normally would be the case.
SB 1125 (Florez) continued
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3)Permits a person between 18 and 21 years of age to be
employed to work in a gambling establishment, provided
that they may not work as dealers, floor men, or any
other employment classification that exclusively involves
working on the floor of the gambling establishment. A
person between 18 and 21 years of age may be employed in
job classifications that entail providing services on and
off the gaming floor that are not involved in play of any
controlled game.
4)Replaces the word "house" with "gambling enterprise" in
the definition of a "banking game" or "banked game".
Specifically, provides that a "banking game" or "banked
game" does not preclude the "gambling enterprise" rather
than the "house" from maintaining or operating as a bank
during the course of the game. Provides that the
"gambling enterprise" rather than the "house" shall not
occupy the player-dealer position.
5)Makes other technical and conforming changes.
EXISTING LAW
Article IV, section 19, subdivision (e) of the California
Constitution prohibits casinos of the type currently
operating in Nevada and New Jersey. Those casinos commonly
offer their patrons a broad spectrum of gaming and
house-banked games.
Existing law, the Gambling Control Act, provides for the
licensure of certain individuals and gambling
establishments involved in various gambling activities, and
for the regulation of those activities, by the CGCC.
Existing law provides for the enforcement of those
activities by the DOJ.
Existing law requires that an application for a license or
a determination of suitability be accompanied by a deposit
that, in the judgment of the head of the Bureau within DOJ,
will be adequate to pay the anticipated costs and charges
incurred in the investigation and processing of the
application. Existing law requires the head of the Bureau
to adopt a schedule of costs and charges of investigation
for use as guidelines in fixing the amount of the deposit.
Existing law expresses the intent of the Legislature that
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nothing in the Gambling Control Act shall be construed to
preclude any city, county, or city and county from
prohibiting any gambling activity, from imposing more
stringent local controls or conditions upon gambling than
are imposed by the Gambling Control Act or by CGCC.
Existing law defines "gambling establishment,"
"establishment," or "licensed premises," to mean one or
more rooms where any controlled gambling or activity
directly related thereto occurs.
Existing law prohibits a person under 21 years of age from
being eligible for a work permit in a gambling
establishment. Existing law also prohibits a person under
21 years of age from entering the premises of a licensed
gambling establishment, except as provided.
Existing law provides that a banking game does not include
a controlled game if the published rules of the game
feature a player-dealer position and provide that this
position must be continuously and systematically rotated
amongst each of the participants during the play of the
game, and if other specified conditions are met.
Existing law defines "house" to mean the gambling
enterprise, and any owner, shareholder, partner, key
employee, or landlord thereof.
Existing law defines "gambling enterprise" to mean a
natural person or an entity, whether individual, corporate,
or otherwise, that conducts a gambling operation and that
by virtue thereof is required to hold a state gambling
license under this chapter.
BACKGROUND
Purpose of the bill . According to the sponsor, this bill
"makes numerous changes to the Gambling Control Act which
are largely non-controversial."
"Section one of the bill seeks to protect jackpot funds to
which players have made contributions, by declaring them
to, in essence, be trust funds. Recently, we had the
experience of a card club going out of business, and
absconding with the funds which were held for the benefit
of players who achieved certain designated hands.
SB 1125 (Florez) continued
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Additionally, this measure tasks the Bureau and the
Commission with establishing an enhanced fee schedule for
applicants for who may wish to have their gambling licensed
processed in an expedited manner. Currently, there is not
provision for the Commission or the Bureau to charge an
increased amount for special handling of an application.
"This bill also authorizes a card club to employ
individuals who are between the ages of eighteen and
twenty-one in positions that do not require them to work
mainly on the gaming floor. This will allow card clubs to
hire eighteen to twenty-one year old individuals to work as
food servers, bus boys, and other related services which do
not entail them working mainly on the gaming floor."
"Section five of the bill is purely a technical change
which was necessitated by the passage of legislation last
year."
Analysis of the bill - section by section . SB 1125 makes a
number of substantive changes to the Gambling Control Act.
The following comments are intended to provide background
regarding each of the proposed changes, the rationale for
the changes, and staff comments, if applicable, regarding
each of the changes.
1)Section 1 - Jackpot funds are considered trust funds .
Background . Existing law does not define the term
"jackpot". "Jackpot" is defined in state regulations to
mean a gaming activity appended to the play of an
authorized game in a gambling establishment in which a
prize is awarded based on predetermined criteria. State
regulations also define the term "jackpot administrative
fee" to mean a fee to cover all expenses incurred by the
licensee for administering a jackpot.
Under state regulations, each owner-licensee is required to
maintain accounting records identifying records of all
jackpot moneys contributed by the gambling establishment,
jackpot moneys collected from patrons, or both, and
moneys withdrawn for either jackpot administrative fees
or payment to patrons.
In most instances, jackpot funds consist solely of "seed"
monies contributed by the gambling enterprise. Many
SB 1125 (Florez) continued
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jackpot games allow patrons to play for free, thereby,
avoiding violation of state law which prohibits illegal
lotteries. In some instances, players contribute to the
jackpot funds.
This bill applies to those jackpots in which players
contribute into the jackpot fund.
This bill provides that jackpot funds held by a gambling
establishment, to which players have made contributions,
following the deduction of any administrative fee
approved by the Bureau, are considered trust funds that
are held for the benefit of the players. These funds are
not the property of the gambling establishment, but are
held solely for the benefit of the players.
Rationale . According to the sponsor, "there are no
regulations promulgated by either the Bureau of Gambling
Control or the Gambling Control Commission relating to
the handling of jackpot funds in card clubs. The Bureau
recently expressed concern with the manner in which
jackpot funds are treated by some card clubs. Recently a
card club in southern California went into bankruptcy,
and the Bureau learned that jackpot funds, to which
patrons had made contributions, had been spent by the
owners. This caused some level of concern by the Bureau
of Gambling Control, and as a result they had two
meetings with the industry to discuss the manner in which
jackpot funds, to which patrons have made contributions,
are treated. This section thus indicates that jackpot
funds, to which patrons have made contributions, are not
the property of the gambling establishment, and they are,
in essence, to be treated as trust funds. Hopefully this
will give some additional protection to jackpot funds
held by card clubs."
2)Section 2 - Expedited processing of applications and
background investigations .
Background . Under state law, "applicant" means any person
who has applied for, or is about to apply for, a state
gambling license, a key employee license, a registration,
a finding of suitability, a work permit, a manufacturer's
or distributor's license, or an approval of any act or
transaction for which the approval or authorization of
the commission or department is required or permitted.
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Under state law, DOJ performs the background investigations
of applicants and makes recommendations to CGCC who makes
determinations on the applications. Applicants pay
application fees as well as background investigation fees
for these services. The length of time it takes to
process an application varies along with the complexity
of an application, as well as, the responsiveness of the
applicant in submitting and providing the requisite
information in a timely manner.
This bill amends the law related to the fees related to,
and the processing of, background investigations, which
are under the purview of the Bureau.
This bill requires DOJ and CGCC to establish an enhanced
fee schedule to provide for additional fees to be charged
to applicants who wish to have their applications
processed and background investigations conducted in an
expedited manner. The payment of those enhanced fees
shall entitle the applicant to have their applications
processed in a shorter period of time than normally would
be the case.
Rationale . Currently there is no provision in law which
authorizes the Bureau and or Commission to charge an
enhanced fee for the processing of a state gambling
license. This measure would authorize the Bureau and the
Commission to establish an enhanced fee schedule for
those who wish to have their applications processed in an
expedited manner. It is not unusual for the Bureau and
the Commission to take two or three years to approve an
individual to be an owner of a card club. This is
particularly true if the prospective licensees have
numerous business interests in a number of states. We
have seen in recent years that the business climate is
very subject to change because of economic pressures and
competition in the market place. Thus, an individual who
enters into a contract to purchase a club may find that
due to the passage of time that the purchase is no longer
a wise investment, or may find that the economic
conditions have changed such that financing is no longer
possible. Thus this would give a prospective licensee
the ability to hopefully have their license processed in
perhaps less than a year, before there is significant
change in the market place.
SB 1125 (Florez) continued
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Staff comments . (1) The rationale for the expedited
process appears to apply specifically to initial
applications for persons to be owner-licensees. The
author may wish to consider limiting the expedited
process to apply solely to initial applications to own a
gambling enterprise and upon a showing of exigent
circumstances as to why their application should be
expedited .
(2) This provision of the bill requires the Bureau, as
well as, CGCC to establish an enhanced fee schedule for
applicants who wish to have their applications and
background investigations expedited. CGCC has no role in
establishing the amount of the fees for the background
investigation. The author may wish to consider striking
reference to CGCC in this section of the bill .
3)Section 3 - Allowing persons 18 years of age or older to
work in a gambling enterprise .
Background . The Gambling Control Act prohibits a person
under 21 years of age from being eligible for a work
permit in a gambling establishment. The Act also
prohibits a person under 21 years of age from entering
the premises of a licensed gambling establishment, except
for the following:
a) An area, physically separated from any gambling
area, for the exclusive purpose of dining. For
purposes of this subdivision, any place wherein food
or beverages are dispensed primarily by vending
machines shall not constitute a place for dining.
b) Restrooms.
c) A supervised room that is physically separated from
any gambling area and used primarily for the purpose
of entertainment or recreation. Any area of a
gambling establishment to which a person under the age
of 21 years may have access shall have an entrance
that shall not require the entrants to enter upon or
pass through the gambling floor. All persons under
the age of 21 years shall be restricted to the
entrance specified in this subdivision.
d) A designated pathway to reach any of the areas
described in paragraphs (a) to (c) above, inclusive.
To the extent that the designated pathway requires an
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individual to enter upon or pass through the gaming
floor, all persons under 21 years of age shall be
accompanied by a person over 21 years of age or be in
the presence of a gambling establishment employee over
21 years of age.
Further, the Act prohibits any person under 21 years of
age from loitering in a gaming area.
The prohibition on persons under 21 years of age from
being eligible for a work permit was contained in SB 8
(Chapter 867, Statutes of 1997), the bill that enacted
the Gambling Control Act.
SB 8 also included a restriction that prohibited any
person under 21 years of age from entering upon the
premises of a licensed gambling establishment, except for
limited areas, and required a separate entrance to those
areas.
Last year, AB 293 (Chapter 233, Statutes of 2009) changed
the exception to the prohibition on persons younger than
21 years of age from entering a gambling establishment.
Specifically, the bill repealed the requirement that the
gambling had to have a separate entrance, and instead,
permits passage of a person under 21 years of age through
the gaming floor by way of a designated pathway if
accompanied by a person over 21 years of age or an
employee of the gambling establishment.
This bill permits a person between 18 and 21 years of age
to be employed to work in a gambling establishment,
provided that they may not work as dealers, floor men, or
any other employment classification that exclusively
involves working on the floor of the gambling
establishment. A person between 18 and 21 years of age
may be employed in job classifications that entail
providing services on and off the gaming floor that are
not involved in play of any controlled game.
Rationale . According to the sponsor, "under existing law
a card club is not allowed to employ anyone under the age
of twenty-one. This is true, not only for individuals
who work exclusively on the gambling floor, but also for
individuals who work as waiters, bus boys, janitors, and
other ancillary services not directly related to the
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dealing of cards. This bill would thus create the
opportunity for individuals between the ages of eighteen
and twenty-one to work in certain employment
classifications that do not entail providing services
exclusively on the gambling floor."
Staff comment . Allowing persons under the age of 21 in
gambling establishments has been strictly controlled by
the Gambling Control Act. The committee may wish to
consider the rationale for lowering the age of employees
from 21 to 18 before it approves this policy change .
3)Section 4 - Conforming change to Section 3 - Allowing
persons 18 years of age or older to be in a gambling
enterprise .
Background . Section 19921 of the Business and Professions
Code restricts the locations in which persons under 21
years of age may enter upon a gambling establishment.
Section 19911 (b) in the bill would allow a person under
the age of 21 to obtain a work permit.
The change proposed by the bill to Section 19921 (a) (5)
incorrectly references Section 19921. It should
reference 19911 (b).
Staff comment . The author should consider correcting the
incorrect cross-reference in the bill .
4)Section 5 - Replaces the word "house" with "gambling
enterprise" .
Background . In the Gambling Control Act, "house" means the
gambling enterprise, and any owner, shareholder, partner,
key employee, or landlord thereof. This change was
enacted by AB 1416 (Wesson), Chapter 1023, Statutes of
1999.
Also, in the Gambling Control Act, "gambling enterprise"
means a natural person or an entity, whether individual,
corporate, or otherwise, that conducts a gambling
operation and that by virtue thereof is required to hold
a state gambling license under this chapter. This change
was made by AB 293 (Mendoza), Chapter 233, Statutes of
2009.
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Replacing the word "house" with "gambling enterprise" in
the definition of a "banking game" or "banked game"
narrows applicability of the prohibition on who can bank
games, specifically, to no longer prohibit key employees
or landlords from banking games.
Although any person who acts as a bank or who banks card
games must be registered or licensed by the state, this
change to the law may allow key employees, who serve in
key positions and exercise a degree of control and
authority in the card club, as well as, landlords to bank
games which may give the appearance of a house-banked
game and the type of gaming offered by Nevada and New
Jersey.
Additionally, creative corporate structuring may allow
licensees to now serve as a bank or to bank games at
their own gambling establishment or a gambling
establishment in which they work as a key employee.
This bill provides that a "banking game" or "banked game"
does not preclude the "gambling enterprise" rather than
the "house" from maintaining or operating as a bank
during the course of the game. Provides that the
"gambling enterprise" rather than the "house" shall not
occupy the player-dealer position.
Rationale . According to the sponsor, "this is purely a
technical change which is necessitated by the passage of
Assemblyman Mendoza's measure in 2009. Pursuant to the
passage of his measure, the "gambling enterprise" is the
more appropriate term rather than "house". This change
does not have a substantive impact on Penal Code Section
330.11."
Staff comment . The gambling control act strictly controls
who owns or has an interest in a gambling enterprise, who
works in a gambling enterprise, and who can sit in the
player-dealer position and bank games. Further, the Act
strictly prohibits key employees and landlords from
occupying the player-dealer position and banking games.
This change alters that prohibition. The committee may
wish to consider the rationale for the change that
arguably could allow landlords to have an interest in
businesses that bank games in their own gambling
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establishment, as well as, key employees to have an
interest in businesses that bank games in gambling
establishments in which they work .
PRIOR/RELATED LEGISLATION
AB 293 (Mendoza), Chapter 233, Statutes of 2009 . Makes
numerous technical, substantive and conforming changes to
the Gambling Control Act. Defined a "gambling enterprise"
and changed the exception to the prohibition on persons
younger than 21 years of age from entering a gambling
establishment. Specifically, the bill repealed the
requirement that the gambling had to have a separate
entrance, and instead, permits passage of a person under 21
years of age through the gaming floor by way of a
designated pathway if accompanied by a person over 21 years
of age or an employee of the gambling establishment.
SB 730 (Florez), Chapter 438, Statutes of 2007 . Makes
various changes to the licensing and regulatory process for
gambling establishments under the Gambling Control Act.
Defines "initial license" as the license first issued to a
person authorizing that person to commence the activities
authorized by that license. Requires that an application
for a license or a determination of suitability be
accompanied by a deposit that, in the judgment of the Chief
of the Bureau of Gambling Control, will be adequate to pay
the anticipated costs and charges incurred in the
investigation and processing of the application, as
specified. Requires that the schedule of costs and charges
of investigations distinguish between initial and renewal
licenses, as specified.
AB 2627 (Mendoza), 2007-2008 Legislative Session . Similar
to AB 293 (2009). (Vetoed by the Governor)
Veto Message :
To the Members of the California State Assembly:
I am returning Assembly Bill 2627 without my
signature.
The historic delay in passing the 2008-2009 State
Budget has forced me to prioritize the bills sent to
my desk at the end of the year's legislative session.
SB 1125 (Florez) continued
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Given the delay, I am only signing bills that are the
highest priority for California. This bill does not
meet that standard and I cannot sign it at this time.
AB 1620 (Klehs), Chapter 721, Statutes of 2006 . Changes
the license fee structure for card clubs licensed to
operate in California.
AB 2431 (Governmental Organization Committee), Chapter 738,
Statutes of 2002 . Renumbers various sections and article
headings within the Gambling Control Act, eliminates
outdated references, resolves conflicting provisions, and
makes other technical and clarifying changes.
SB 8 (Lockyer), Chapter 867, Statutes of 1997 . Repealed
the Gaming Regulation Act, and instead enacted the Gambling
Control Act, which provided for DOJ to investigate and
enforce controlled gambling in the state. It also
establishes CGCC to regulate gambling in this state to
issue, suspend, or revoke gambling licenses. Prohibits
persons under 21 years of age from being eligible for a
work permit. Prohibits any person under 21 years of age
from entering upon the premises of a licensed gambling
establishment, except for limited areas, as specified, and
required a separate entrance to those areas.
SUPPORT: As of April 9, 2010:
Hollywood Park Casino
Village Club
Lucky Chances
Commerce Club
Bicycle Casino
Crystal Casino & Hotel
Oceans Eleven Casino
OPPOSE: None on file as of April 9, 2010.
FISCAL COMMITTEE: Senate Appropriations Committee
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