Gaming in the United States: California: overview

A Q&A guide to gaming in the United States: California.

The Q&A provides a high level overview of the legislative framework of gambling regulation; the regulatory authorities;gambling products; land-based gambling; regulation and licensing; online gambling;B2B and B2C operations; mobile gaming and interactive gambling; social gaming; gambling debts; tax; advertising and developments and reform.

To compare answers across multiple jurisdictions, vist the Gaming Country Q&A Tool.

This Q&A is part of the Gaming Global Guide. The gaming global guide serves as a starting point for understanding the regulatory framework of land-based and online gaming.

A Jeff Ifrah and Jessica Feil, Ifrah Law
Contents

Legislative framework of gambling regulation

Overview

1. What legislation applies to gambling?

The California State Constitution makes gambling illegal (California Constitution, Article IV). However, certain forms of gambling, regulated by the state or the state's Native American tribes, are permitted. Specifically, California permits:

  • Card rooms.

  • Tribal casinos.

  • A state-run lottery.

  • Bingo.

  • Horse race wagering.

The main legislation in California is the Gambling Control Act (GCA) (California Business and Professions Code §§ 19800 et seq. (West)). The GCA sets out, as part of the state's Business and Professions Code, the licensing terms for entities involved in the gaming market. The GCA sets out the law applicable to all state card rooms, state relations with tribal casinos and bingo. It also establishes the:

  • Potential enforcement and disciplinary actions.

  • Restrictions on certain transactions.

  • California Gambling Control Commission, which issues regulations and gaming licences.

In addition to the GCA, the state allows tribal casinos to offer card games and slots. These casinos are owned and operated by the state's Native American tribes. The terms, limitations and regulations pertaining to the tribal casinos are set out in compacts negotiated between the state and each tribe that runs a casino.

The California Horse Racing Law governs all aspects of horse racing in the state, including pari-mutuel wagering.

Consistent with the constitutional prohibition on gambling, the California Penal Code (§§ 330 et seq.) provides that it is a misdemeanour for a person to facilitate, sponsor, run or otherwise operate an illegal gambling operation.

California does not currently have any online gaming legislation. However, the state has tried many times over the past several years to legalise online poker and other online games (see Question 17, Online gambling).

Definitions of gambling

2. What is the legal definition of gambling in your jurisdiction and what falls within this definition?

General definition

California state law does not define gambling. However, case law has established that three elements must be present for an activity to qualify as gambling (for example, see Trinkle v California State Lottery, 105 Cal. App. 4th 1401, 1407, 129 Cal. Rptr. 2d 904, 907–08 (2003)):

  • A prize.

  • Awarded through an event of chance.

  • In exchange for consideration.

Online gambling

California law does not define online gambling.

Land-based gambling

California law does not define land-based gambling.

Regulatory authorities

3. What are the regulatory or governmental bodies that are responsible for supervising gambling?

The California Gambling Control Commission (CGCC) is the state regulatory body for all gaming matters. The CGCC has regulatory and licensing authority over all:

  • Gaming operators.

  • Third-party providers of proposition player services.

  • Tribal casinos, pursuant to the relevant state-tribe compacts.

The CGCC is comprised of five members, as follows:

  • One at-large member.

  • One attorney member.

  • One banking or finance member.

  • One governmental experience member.

  • One law enforcement member.

The CGCC's primary work is focused on the licensing and supervision of the state's card rooms, which includes:

  • Issuing licences to owners, supervisors, players and key employees.

  • Developing and implementing regulations under the Gambling Control Act.

In addition, the CGCC works with the state's Native American tribes to:

  • Make suitability determinations on tribal key employees and resources.

  • Oversee the various state funds for tribal gaming.

  • Develop regulations that are consistent with the related state-tribe compacts.

The tribes that run casinos also have their own gaming commissions to oversee casino operations.

The Office of the Attorney General's Bureau of Gambling Control is responsible for the enforcement of gambling laws and regulations, which includes:

  • Conducting investigations into entities and individuals who apply for gambling licences.

  • Conducting ongoing compliance investigations.

  • Reviewing rules of games and gaming activities in all state card rooms.

  • Administering the state self-exclusion programme for problem gambling.

Additionally, there are entities that specialise in specific types of gaming. The California Horse Racing Board oversees all horse racing and pari-mutuel matters. The California Lottery runs the only authorised lottery in the state. Municipalities also have licensing and enforcement authority over traditional bingo games.

See box, The regulatory authorities.

Gambling products

4. What gambling products have been specifically identified by legislation, and what different requirements have been established for each?

Poker

California does not define poker separately. However, poker is permitted in the state's card rooms and tribal casinos. In-home, not-for-profit poker games are also permitted.

Betting

Non-sports betting is not permitted in California.

Sports betting

Sports betting, other than pari-mutuel wagering on horse racing, is not permitted in California. The law on pari-mutuel wagering is set out in the California Horse Racing Law (California Business and Professions Code §§ 19590-603). Pari-mutuel wagering is defined as a contribution to the pari-mutuel pool operated by the licensee association with the obligation to pay a ticket holder a portion of the distributable pool (California Business and Professions Code § 19591).

Casino games

Casino games are not separately defined in California.

Slot and other machine gaming

A slot machine is any machine that meets the following criteria (California Penal Code § 330b):

  • It is or can be used or operated in such a way that, as a result of the insertion of any piece of money or coin or other object, the machine or device is caused to operate or can be operated or played, mechanically, electrically, automatically or manually.

  • By reason of any element of hazard or chance, the user may:

    • receive or become entitled to receive anything of value or any cheque, slug, token, or memorandum, whether of value or otherwise, which can be given in trade; or

    • secure additional chances or rights to use the machine or device.

Apart from any element of hazard or chance, a slot machine will also sell, deliver or present some merchandise, indication of weight, entertainment or other thing of value.

Terminal-based gaming

Terminal-based gaming is not separately defined in California.

Bingo

Bingo is defined as a game of chance in which prizes are awarded on the basis of designated numbers or symbols that are marked or covered by the player on a tangible card in the player's possession and that conform to numbers or symbols, selected at random and announced by a live caller (California Penal Code § 326.5(o)). Further, bingo includes tangible cards with numbers or symbols that are concealed and pre-printed in a manner providing for the distribution of prizes (California Penal Code § 326.5(o)).

Lottery

In California, a lottery is any scheme (whether called a lottery, raffle or gift enterprise or any other name) for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, on any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance (California Penal Code § 319).

 

Land-based gambling

Regulation/licensing

5. What is the licensing regime (if any) for land-based gambling?

Available licences

There is currently a moratorium on card rooms in California until January 2020. However, interested parties can buy licences from currently operating card rooms.

Licences for other casinos are only available for the state's tribes. There are currently 63 active tribal licences. Tribal casino licences are negotiated through a compact between the tribe and the state. The compacts set out the terms of the relationship between the state and the tribe in operating the casino, including:

  • Revenue sharing.

  • Licensing terms.

  • Other details related to operating a casino on tribal land.

Eligibility

Not applicable. There are currently no licences available for card rooms. Eligibility for a tribal licence depends on the negotiations with each tribe.

Application procedure

Not applicable. There are currently no licences available for card rooms. The provisions of tribal-state compacts vary depending on the negotiations with each tribe.

Duration of licence and cost

Licences must be renewed bi-annually (California Business and Professions Code § 19876). The initial licence fee is US$6,600, plus a US$1,000 non-refundable deposit. The renewal fee is US$1,000. As California is a community property state, spouses of licensees must also register, which costs US$1,500 initially and US$725 on renewal.

 
6. What are the limitations or requirements imposed on land-based gambling operators?

Prohibitions

Generally, only card rooms, bingo and pari-mutuel wagering on horse races are permitted in California. Other casino games, such as slot machines, are limited to tribal casinos operated on tribal lands under the state-tribe compacts. The minimum age to gamble in California is 18, although many casinos have a minimum age of 21 for entry, to comply with state alcohol laws.

Restrictions

California has a self-exclusion programme, which does not encompass tribal casinos or pari-mutuel horse wagering. The programme allows for a one-year or lifetime exclusion. Most tribal casinos operate their own self-exclusion programmes.

Anti-money laundering legislation

There is no state legislation on money laundering. Federal law governs all anti-money laundering matters.

 

Online gambling

Regulation/licensing

7. What is the licensing regime (if any) for online gambling?

Online gambling is not legal in California, so there is no licensing regime for online gambling.

 
8. What are the limitations or requirements imposed on online gambling operators?

Online gambling is prohibited in California. However, the state has made several attempts to legalise online poker in recent years.

In 2016, a member of the State Assembly introduced Assembly Bill 2863, which would legalise online poker. The bill made progress, but received opposition from the horse racing industry due to perceived threats to pari-mutuel pools, and from state tribes over the "bad actor" provision (see Question 17, Online gambling). Legislative efforts overcame the horse racing industry's opposition, but concerns over the "bad actor" provisions were insurmountable. While the bill has failed for 2016, it appears likely that the state will make new attempts to legalise online poker in 2017.

B2B and B2C

9. Is there a distinction between the law applicable between B2B operations and B2C operations in online gambling?

As online gambling is not legal in California, there are no laws covering B2B and B2C operations.

Technical measures

10. What technical measures are in place (if any) to protect consumers from unlicensed operators, such as ISP blocking and payment blocking?

As online gambling is not legal in California, there are no related consumer protection measures.

 

Mobile gambling and interactive gambling

11. What differences (if any) are there between the regulation of mobile gambling and interactive gambling on television?

Mobile gambling is not permitted in California.

 

Social gaming

12. How is social gaming regulated in your jurisdiction?

There are no laws specific to social gaming in California. However, case law and precedents provide guidance on social gaming. California case law has established that gambling involves three elements (that is, consideration, a game of chance and a prize). Courts have further analysed the prize element, noting that the opportunity to win free games constitutes a prize (see, for example, Trinkle v Stroh, 60 Cal. App. 4th 771, 785, 70 Cal. Rptr. 2d 661, 669 (1997)). To be legal under current state law, social gaming must therefore not require consideration, be a game of skill, or not offer a prize. Many game developers and operators offer social gaming in the state of California either as games of skill or free of charge.

Social gaming has been challenged under California state law (although the suits were brought under California state law, the cases were filed in federal court in other states). In these cases, the plaintiffs challenged various social games that were largely games of chance that contained elements of casino-style games of chance. The plaintiffs argued that, under California state law, the games were illegal gambling. The courts disagreed, finding that the games were (For example, see Mason v Machine Zone, 140 F.Supp. 3d 457 (D.Md. Oct. 20, 2015)):

  • Not slot machines as defined in California law, but rather software downloaded onto a person's mobile device.

  • Predominantly games of skill, not games of chance.

Following these cases, social gaming continues to be provided in California.

 

Gambling debts

13. Are gambling debts enforceable in your jurisdiction?

There are no laws on the enforcement of gambling debts in California. While state law does not prohibit the extension of credit by licensed casinos or card rooms, the courts have refused to enforce gambling debts based on such credit as a matter of public policy.

 

Tax

14. What are the applicable tax regimes for land-based and online gambling?

Land-based gambling

The tax regime for land-based gambling is as follows:

  • Personal winnings. All winnings are subject to federal income tax, but there are no California taxes on gambling winnings.

  • Card rooms. California requires a 10% operator fee on gross gambling receipts. Local jurisdictions may impose additional tax on card rooms.

  • Tribal casinos. Generally, tribal casinos on tribal land are not subject to state taxation. However, casinos collect sales and use tax for purchases made by non-tribal members for consumption or use outside the reservation. Additionally, the tribes make payments to the state under their individual compacts.

  • Pari-mutuel wagering. California's tax rate on pari-mutuel wagering is currently 20.84% of the total amount wagered.

Online gambling

Not applicable. Online gambling is not legal in California.

 

Advertising

15. To what extent is the advertising of gambling permitted in your jurisdiction? To the extent that advertising is permitted, how is it regulated?

Land-based gambling

The California Gambling Control Commission, the Horse Racing Board and the Lottery Commission can all adopt regulations to control the advertising of gambling. However, none of these bodies has adopted regulations in this respect. Therefore, they operate under the provisions of the California Business and Professions Code.

An advertisement for gambling that appeals to children or adolescents or presents gambling as a means to becoming wealthy is presumptively deceptive (California Business and Professions Code § 19841(f)).

Online gambling

As online gambling is not legal in California, there are no laws related to its advertising.

 

Developments and reform

Legal development

16. Has the legal status of land-based and online gambling changed significantly in recent years, and if so how?

Land-based gambling

The status of land-based gambling has remained largely consistent throughout California's history. The most recent significant change was the adoption of Proposition 1A in 2000, which amended the state constitution to allow tribal casinos on Native American land. Since then, several dozen tribes have negotiated compacts with the state and opened casinos offering card games and slots.

Online gambling

California does not currently permit online gambling. There have been several attempts in recent years to legalise online poker, but all have failed (see Question 17, Online gambling).

Reform

17. What, if any, are the likely short-term and long-term developments/legislative amendments concerning gambling in your jurisdiction? Are there any proposals for reform?

Land-based gambling

Land-based gambling laws and regulations in California have remained consistent for many years. There have not been any recent attempts to introduce new legislation or constitutional amendment that would change the landscape for land-based gambling. It is unlikely that there will be any changes to these laws in the near future.

Online gambling

Online gambling has been a major area of legislative activity in California, and hope remains across the industry for legalisation in the near future. The closest the state has come to legalising online gambling was in 2016, when Assembly Bill 2863, also known as the "Gray Bill" after its sponsor State Assemblyman Adam Gray, passed out of committee with a unanimous vote. The bill aimed to legalise online poker and overcome the major hurdles that doomed online gambling legislation in the past.

The first major hurdle to online gambling has been the horse racing industry's opposition to online poker. This industry worries that online poker will cut into its gaming revenue. The Gray Bill overcame this by granting the racing industry an annual US$60 million payment from online poker proceeds.

The second major issue has been the "bad actor" issue. There has been significant opposition to allowing online poker companies that operated in the state after the passage of the Unlawful Internet Gaming Enforcement Act (a federal law outlawing online poker), to seek licensing if online poker became legal. Proposed legislation in the past would have allowed these companies to seek licences. The Gray Bill similarly allowed "bad actors" to seek licences, but also empowered state regulators to conduct investigations into these applicants to determine if they would now be suitable to hold licences.

Like its predecessors, the Gray Bill was rejected by the legislature in September 2016. Considering that there have been ten attempts in eight years to legalise online poker, it appears highly likely that the legislature will take this issue up again very soon. With more progress made towards legalising in 2016 than ever before, there is a great chance that California will legalise online gambling in the near future.

Social gaming

California has not issued any specific legislation or regulation on social gaming. As many social gaming operators are operating in the state under the current laws without any issue, it seems unlikely that there will be a need to address this area of the law in the near future.

 

The regulatory authorities

California Gambling Control Commission (CGCC)

W www.cgcc.ca.gov

Description. The CGCC is California's regulatory board for all casino and card room matters. It is responsible for licensing card rooms and for working with tribes that operate casinos.

Bureau of Gambling Control

W https://oag.ca.gov/gambling

Description. The Bureau of Gambling Control is the enforcement arm for all gaming issues in the state of California. The Bureau is empowered to conduct investigations and audits of employees and entities in the industry, conduct ongoing compliance inspections, and review and approve the rules of games offered in card rooms.

California Horse Racing Board

W www.chrb.ca.gov

Description. The California Horse Racing Board is the state board for all matters related to horse racing, including pari-mutuel wagering. It is responsible for the licensing, regulation and supervision of the state's horse racing industry.

California Lottery

W www.calottery.com

Description. The California Lottery is the official state agency running the state lottery. It oversees all aspects of lottery, from ticket sales to prize payment.



Online resources

California Gambling Control Commission

W www.cgcc.ca.gov/?pageID=home

Description. This is the Official website of the CGCC.

Bureau of Gambling Control

W https://oag.ca.gov/gambling

Description. This is the Official website of the Bureau of Gambling Control, which is part of the Office of the Attorney General.

Gambling Control Act and regulations

W www.cgcc.ca.gov/documents/enabling/2016/CA_Gambling_Law_Regulations_Resource_Information_2016_Edition.pdf

Description. This is a complete compilation of the Gambling Control Act and related regulations, maintained by the California Gambling Control Commission.



Contributor profiles

A Jeff Ifrah, Founder

Ifrah Law

T +1 (202) 524 4140
F +1 (202) 524 4141
E jeff@ifrahlaw.com
W www.ifrahlaw.com

Professional qualifications. Attorney, New York Bar, New Jersey Bar and District of Columbia Bar

Areas of practice. US government investigations; iGaming law; financial services and payment processing; digital media law; white collar defence; e-commerce.

Non-professional qualifications

  • Named 2015 Litigation Trailblazer by the National Law Journal.
  • Listed in Chambers & Partners (USA) for Gaming and Licensing (Nationwide, 2015-2016).
  • White Collar Crime and Government Investigations (Washington, DC, 2011-2016).
  • Named 2015 White Collar Crime Local Litigation Star by Benchmark Litigation.
  • Listed as Outstanding Fraud and Compliance Lawyer by Nightingale's Healthcare News.
  • Listed as "Expert News Source" in Corporate Governance and Securities and Health Care/Pharmaceutical, by LexisNexis.

Recent transactions

  • Legal representation of the world's largest online gaming operator.
  • Serves as Special Internet Counsel for the Delaware State Lottery.
  • Negotiated a historic agreement between the US Department of Justice and high profile clients following the federal internet gambling ban in 2011.
  • Won dismissal of 56 separate felony counts for a gaming odds-master regarding criminal allegations tied to a multi-million dollar sports betting ring.
  • Won standard-setting victory for an internet operator related to an international jurisdiction matter following a related US Supreme Court ruling.
  • Founded the iDevelopment & Economic Association (iDEA), a trade association advocating for the interests of online interactive entertainment companies worldwide.

Languages. French, Hebrew

Professional associations/memberships

  • International Masters of Gaming Law.
  • UNLV Gaming Law Journal Advisory Board.
  • Online Gambling Lawyer Editorial Board.
  • American Bar Association (ABA) Criminal Justice Section.
  • American Health Lawyers Association.
  • ABA Business Law Section.
  • National Association of Criminal Defence Lawyers.
  • ABA Procurement Law Section.

Publications

  • Author of articles in the Houston Chronicle, Law360, iGaming Business, Gaming Intelligence, eGaming Review and the New Law Journal.
  • Federal Sentencing for Business Crimes, LexisNexis.
  • The Definitive Guide to iGaming in the US.

Jessica Feil, Associate

Ifrah Law

T +1 (202) 524 4140
F +1 (202) 524 4141
E jfeil@ifrahlaw.com
W www.ifrahlaw.com

Professional qualifications. Attorney, Ohio and District of Columbia

Areas of practice. US Government investigations; iGaming law; financial services and payment processing; digital media law; white collar defence; e-commerce.

Non-professional qualifications. JD, Case Western Reserve University School of Law; Bachelor of Arts, Skidmore College

Recent transactions

  • Compiled a 50-state survey on the laws applicable to mobile social gaming for the world's largest online poker operator.
  • Formulated a favourable plea deal for a client accused of bank/wire fraud and money laundering for processing offshore gambling payments.
  • Conducted key discovery and research for a US federal civil case with allegations of fraud and breach of contract involving a Native American tribe.

Professional associations/memberships. Women's Bar Association; Order of the Barristers.

Publications

  • Author of articles in iGaming Business North America, Online Gambling Lawyer (formerly World Online Gaming Law Report), eGR North America and Law360.
  • Case Western Reserve Journal of International Law, "Cyberwar and Unmanned Aerial Vehicles: Using New Technologies, from Espionage to Action".

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