Why are tribal casinos and California’s cardrooms at odds over Prop 26?

As California voters weigh in this fall on a pair of dueling propositions that would legalize gambling on sports, one of the measures has drawn the ire of public workers unions and cities, including San Jose, that are worried its passage could undercut a chunk of their budgets.

Proposition 26, which would clear the way for sports-betting at California’s tribal casinos, also includes a little-known provision that critics say could threaten the future of cardrooms, including more than a dozen in the Bay Area, such as Artichoke Joe’s in San Bruno, Oaks Card Club in Emeryville and San Jose’s Bay 101 and Casino M8trix.

The measure, written and supported by large gaming tribes in California, would make it easier to sue cardrooms for violating the state’s gambling laws. Tribal casinos see cardrooms as competition and say they are skirting the law in the way they play table games like poker, blackjack and baccarat.

A second ballot measure, Proposition 27, that would legalize online sports gambling, leaves cardrooms alone.

The showdown is yet another wrinkle in the high-stakes battle to control a potential billion-dollar sports gambling industry in California. Voters have been under siege for weeks by ads from both sides in a campaign that has already generated a record $400 million in contributions. While Prop 26 and 27 camps have inundated voters about their bona fides with California’s native tribes and promise to generate millions to fix homelessness, the fight over cardrooms has flown largely under the radar.

At the heart of the dispute is who serves as the banker. Typically, in Las Vegas and tribal casinos, the “house” is the banker. Everyone plays against the house.

But historically in California, cardrooms were forbidden to serve as the banker. Instead, the role was supposed to rotate around the table. But in 2007, a letter written by an outgoing gambling regulator, who went on to become a cardroom owner, allowed cardrooms to simply ask patrons if they wanted to be the banker. If they declined, the house could serve as the banker round after round, which the tribal casinos say crosses the line.

The cardrooms say Prop 26 would make them vulnerable to frivolous lawsuits that could put them out of business, threatening 32,000 jobs and $100 million in annual tax revenue they generate for cities around the state. The “Yes on 26” campaign says the cardrooms are “overreacting,” and the gaming tribes simply want clarity on whether cardrooms are following the law.

Kathy Fairbanks, spokeswoman for the “Yes on 26, No on 27” campaign, says tribal sovereignty has prevented tribes from challenging cardrooms over the practice of banker deals in court.

Prop 26 is “meant to give tribes standing so they can take this issue to court one time and be done with it,” she said.

But I. Nelson Rose, an emeritus law professor at Whittier College who specializes in gambling law, thinks it was a “big mistake” for the tribes to include this provision in the ballot measure, which he says is designed “to drive [cardrooms] into bankruptcy, for no reason other than they hate the clubs.”

Rose says the tribes are going after the clubs partly because they are in better locations than most tribal casinos, in cities.

For cities like San Jose, Emeryville and San Bruno, shutting down cardrooms could cost their city budgets millions. San Jose, for example, estimated it would receive $27 million in taxes from two cardrooms for the 2022-23 budget. Concern about losing that revenue has caused some public unions and elected officials to oppose Prop 26.

“Proposition 26 was written to benefit certain wealthy tribal casinos at the expense of their competitors,” San Jose Councilmember Raul Peralez said in a statement. He said the measure’s “poison pill” could cause the loss of jobs in San Jose, and millions in tax revenue. “That’s not a wager I’m willing to make.”

Becky Warren, spokeswoman for the “No on 26” campaign, says the lawsuit provision in Proposition 26 is the latest attempt by tribal casinos to shut down cardrooms.

“They still have this belief that they should have exclusivity on games, even though no one else agrees with it,” she said.

The cardrooms in San Jose and San Bruno each contributed $1 million to the “No on 26″ campaign, which has raised over $41 million since Jan. 1. That’s compared to the $157 million raised by the “Yes on 26, No on 27” campaign. In total, all sides of the gambling propositions have raised $397 million.

Despite the hundreds of millions being spent, voters are still confused. An unofficial poll of a handful of patrons at the Oak City cardroom in Emeryville suggests even among gamblers, few had strong thoughts about the propositions.

San Jose Mayor Sam Liccardo said he is opposed to both Prop. 26 and 27, but for a different reason than the city’s relationship with cardrooms.

“I have opposed all local and statewide gambling proposals because studies continually show the negative impacts gambling has on our most vulnerable communities including domestic violence, child neglect, loan sharking, and deepening poverty,” Liccardo said. “Every tax dollar generated from gambling comes at a much larger price.”