BILL ANALYSIS
SB 1125
Page 1
Date of Hearing: June 30, 2010
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Joe Coto, Chair
SB 1125 (Florez) - As Amended: June 28, 2010
SENATE VOTE : 33-2
SUBJECT : Gambling Control Act.
SUMMARY : Creates a one-time exemption under the Gambling
Control Act (Act) to allow the owner of the Hollywood Park Race
Track to become part-owner of the Hollywood Park Casino, as
specified. Specifically, this bill :
1)Provides that jackpot funds are considered trust funds that
are held for the benefit of the players. These funds are not
the property of the gambling establishment / card club, but
are held solely for the benefit of the players.
2)Requires the Department of Justice (DOJ) to establish an
enhanced fee schedule to provide for additional fees to be
charged to applications processed and background
investigations conducted in an expedited manner.
3)Defines "financial interest" as a means to operate or exercise
control over the operation of a gambling business and receive
a pecuniary gain or sustain a pecuniary loss from that
gambling business, as specified. This definition only applies
to qualified racing association, or to an affiliate of a
qualified racing association.
4)Amends the definition of "Publicly traded racing association"
to mean a corporation licensed to conduct horse racing and
simulcast wagering pursuant to the Horse Racing Law, as of
July 1, 2010.
5)Amends the definition of "Qualified racing association" to
mean a corporation licensed to conduct horse racing and
simulcast wagering pursuant to the Horse Racing Law that is a
wholly owned subsidiary of a limited liability company (LLC)
whose stock is publicly traded.
EXISTING LAW :
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1)Provides for, under the Act, the licensure of certain
individuals and gambling establishments involved in various
gambling activities, and for the regulation of those
activities, by the California Gambling Control Commission
(CGCC).
2)Provides for the enforcement of those activities by the DOJ.
3)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 of Gambling Control (BGC)
within DOJ, will be adequate to pay the anticipated costs and
charges incurred in the investigation and processing of the
application.
4)Requires the head of the BGC to adopt a schedule of costs and
charges of investigation for use as guidelines in fixing the
amount of the deposit.
5)Expresses the intent of the Legislature that nothing in the
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 or by CGCC.
6)Defines "gambling establishment," "establishment," or
"licensed premises," to mean one or more rooms where any
controlled gambling or activity directly related thereto
occurs.
7)Defines "publicly traded racing association" as a corporation
licensed to conduct horse racing and simulcast wagering
pursuant to the Horse Racing Law (Business and Professions
Code Chapter 4, commencing with Section 19400) whose stock is
publicly traded.
8)Defines "qualified racing association" as a corporation
licensed to conduct horse racing and simulcast wagering
pursuant to the Horse Racing Law (Business and Professions
Code Chapter 4, commencing with Section 19400) that is a
wholly owned subsidiary of a corporation whose stock is
publicly traded.
9)Deems a person to be unsuitable to hold a state gambling
license to own a gambling establishment if the person, or any
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partner, officer, director, or shareholder of the person, has
any financial interest in any business or organization that is
engaged in any form of gambling prohibited by Penal Code
Section 330, whether within or without this state.
10)Deems an applicant or licensee suitable to hold a state
gambling license even if the applicant or licensee has 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, either directly or indirectly, more than
1% interest in, or have control of, that business.
11)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.
12)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.
13)Defines "house" to mean the gambling enterprise, and any
owner, shareholder, partner, key employee, or landlord
thereof.
14)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.
FISCAL EFFECT : Unknown.
COMMENTS : Rationale . According to the author and the sponsor,
Commerce Club Casino, this bill tasks the BCG and the CGCC 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 no provision under existing law for
the BCG and the CGCC to charge an increased amount for special
handling of an application.
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In addition to providing consumer protections under the Act for
the proper handling of jackpot funds at card clubs, this bill is
also designed to provide a one-time gambling license exemption
for Stockbridge Capital Group, LLC (Stockbridge)--the owner of
the Hollywood Park Racetrack--to become part owner of the
Hollywood Park Casino, which is currently owned by Leo Chu, by
amending the definition of "financial interest" within the Act.
Stockbridge, through its Stockbridge Real Estate Group, along
with Gordon Gaming Corporation, and SBE, a Los Angeles-based
hospitality, real estate development, and film production
corporation, currently owns the Sahara Casino and Hotel-a
longtime fixture on the northern end of the Las Vegas Strip.
All enforcement and expediting license applications would go
through the BGC. The sponsor worked with staff at the DOJ and
the CGCC on crafting the technical details contained in this
bill.
Background . Defining "financial interest." B&P Code section
19858 within the Act establishes the rules of engagement for the
types of individuals who cannot own or possess a gambling
license under the Act based on their out-of-state business
dealings. Also within the Act, B&P Code section 19858.5 simply
says that CGCC may deem an applicant for a gambling license
suitable to hold a state gambling license if the applicant or
licensee holds, operates, or controls a casino in another state,
provided that the applicant or licensee does not have, directly
or indirectly, more than 1% interest, or have control of, that
casino.
This bill places term "financial interest" into definition under
the definitions portion of the Act. According to the sponsor,
there is no definition of financial interest in the Act. The
term is used in the licensing portions of the Act (Business and
Professions Code Sections 19858 and 19858.5-see bullet points 9
and 10 of the "Existing Law" section). Author and sponsor
believe that a definition for "financial interest" provides some
clarity on who can qualify for ownership of a gambling
establishment based on the provisions established under the Act.
Providing consumer protections . According to the sponsor, the
language in section two of the bill establishes the fact that
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jackpot funds held by gambling establishments are not the
property of the gambling establishment, but belong to those who
are playing at the club. The intent of this provision is to
provide some additional protections to jackpot funds held by
gambling establishments.
The sponsor says that the gambling establishments merely hold
these funds in trust for the benefit of the players, as soon as
the funds have been collected and an administrative fee is
deducted. Sponsor believes this action is necessary because,
recently, a gambling establishment in southern California went
into bankruptcy after inappropriately spending the monies from
the jackpot funds. This revelation caused some level of concern
at the BGC, and as a result they had conducted meetings with the
gambling establishments to discuss the manner in which jackpot
funds, to which the patrons have made contributions, are
treated.
Hold harmless provision . Section four of this bill indicates
that if a gambling establishment is playing games approved by
the BGC and in the manner in which it was approved, that this
may be a defense to any action that is brought through the
criminal courts, administrative courts, or civil courts.
According to the author and sponsor, ten years ago the DOJ
required all card clubs to surrender revenues that had been
realized from the play of jackpot poker for approximately a
nine-month period of time. As a result, the sponsor and other
card clubs said they gave millions of dollars to the State.
The author and sponsor believe that if you are playing a game
that is approved by the regulators and in the manner in which it
was approved, that this should be a defense to any future action
which has found that the game is found to be unlawful. Sponsor
states that it would be devastating to any card club in the
State, to have to relinquish profits to the State for ten to
fifteen years on the play of certain games only to learn that
they are ruled to be illegal. This bill would give card clubs
some assurance that if a game is approved and they play it in
the manner in which it is approved, even though the game may be
found to be deemed unlawful in the future, it will not cause
financial hardship or ruin for the card clubs.
One-Time Exemption . This bill has been narrowly crafted to
benefit the owner of the Hollywood Park Racetrack, Stockbridge,
to become part-owner of the Hollywood Park Casino. On March 2,
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2007, Los Angeles-based real estate developer SBE, Stockbridge's
subsidiary, Stockbridge Real Estate Funds, and Gordon Gaming
reached an agreement with the Bennett Family Trust to acquire
the Sahara Hotel and Casino, a longtime fixture on the northern
end of the Las Vegas, Nevada Strip.
Although Stockbridge's ownership in the Sahara Hotel and Casino
is minor, concerns have long been speculated by tribal gaming
experts that passage of this bill could set a potentially
dangerous precedent because this action may open the doors to
future exemptions that could lead to the legalization of
gambling on non-tribal lands throughout California.
In support . According to this bill's sponsor, the Commerce
Club, "This bill seeks to make some necessary changes to the
Gambling Control Act which is largely non-controversial."
In opposition . The Pechanga Band of Luiseno Mission Indians
opposes this bill by saying, "Absent additional protections
against expanded gaming throughout the State, the current
limitation on ownership is consistent with the will of the
voters, and necessary to ensure the integrity of California's
public policy toward gaming."
Policy consideration . The chair and the committee may wish to
consider whether it is in the best interest of the State to
provide this one-time exemption, as proposed under this bill.
In addition, the chair and the committee may wish to consider
whether passage of this bill, should it become law, could
positively or negatively affect the landscape of gambling in the
State in future years.
Related legislation . AB 2193 (Hall, 2010 Legislative Session)
Extends the moratorium on the issuance of a new gambling license
for cardrooms from January 1, 2015 to January 1, 2020. Set for
hearing in Senate Governmental Organization Committee on June
29, 2010.
AB 2596 (Portantino, 2010 Legislative Session) clarifies the
rules of engagement for California Gambling Control Commission
(CGCC) in the process for cardroom owners to process renewal
application for a gambling license. Set for hearing in Senate
Governmental Organization Committee on June 29, 2010.
Prior legislation . SB 213 (Florez, 2009 Legislative Session)
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would have extended the moratorium on the issuance of new
gambling licenses for cardrooms from January 1, 2015 to January
1, 2020. Vetoed by the Governor on October 11, 2009.
AB 293 (Mendoza, Chapter 233, Statutes of 2009) allows limited
liability companies (LLCs) and its officers, managers, members,
or owners to be eligible for a state gambling license; imposes
on all partnerships and provides that a partnership, instead of
being formed under laws of the state to be eligible for a
gambling license must be registered in the state and provide
specific supplemental information; and requires the California
Gambling Control Commission to develop procedures to allow for
the continuous operation of licensed gambling establishments in
cases including the death or incapacity of a license.
AB 163 (Mendoza, Chapter 647, Statutes of 2008) adds a new
section to the Gambling Control Act to authorize a local
government to amend its gambling ordinance to increase the
number of tables that may be operated by small card clubs.
AB 356 (Mendoza, Chapter 493, Statutes of 2007) authorizes the
California Gambling Control Commission to delegate to staff the
approval of the articles of incorporation, statements of limited
partnership, and other entity filings that are required to
specifically state that gambling is one of the purposes for
which the business entity is formed. Increases, from 3 to 5,
the number of collection rates that may be established per table
in a card club.
SB 289 (Vincent, Chapter 294, Statutes of 2007) authorizes the
California Gambling Control Commission to deem a person suitable
to hold a state gambling license even if the person has a
specified financial interest in a business that conducts
gambling activities outside the state that would violate
California law if conducted within the state.
SB 730 (Florez, Chapter 438, Statutes of 2007) provides for a
number of changes to the licensing renewal process for gambling
establishments under the Gambling Control Act. This law
streamlines the process and eliminates some of the current
outdated requirements.
AB 3068 (Jerome Horton, Chapter 868, Statutes of 2006) extends
current provisions which apply to a publicly traded corporation
owning a card club at a racetrack to a limited liability company
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or a limited partnership, and have these provisions apply only
to the casino at Hollywood Park Racetrack in the City of
Inglewood. Makes a technical correction to the current
definition of "individual tribal casino accounts."
REGISTERED SUPPORT / OPPOSITION :
Support
Commerce Club (Sponsor)
Hollywood Park Casino
Lucky Chances
Village Club
Opposition
Pechanga Band of Luiseno Mission Indians
Analysis Prepared by : Rod Brewer / G. O. / (916) 319-2531