Court ruling spares San Jose card rooms

San Jose’s two card rooms have been granted a reprieve after a judge overturned pending statewide regulations that could have crippled the local gambling industry, and in the process, eliminated millions of dollars in public funding the city relies on.

San Francisco Superior Court Judge Richard Darwin ruled last week that California’s Bureau of Gambling Control, overseen by Attorney General Rob Bonta, overstepped its authority when it issued rules that would have significantly curtailed a range of lucrative table games at card rooms statewide.

The ruling has won cheers from card rooms and gaming industry trade groups, many of which signed on as plaintiffs in the lawsuit, as well as from San Jose’s leaders, who have lobbied Bonta to change course.

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A court ruling overturning regulations on card rooms statewide has brought relief to San Jose’s gambling industry and city leaders, who feared the new rules would eliminate millions of dollars in public funding through lost taxes and fees. Senior San Jose Politics Reporter Keith Menconi explains.

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Mayor Matt Mahan has estimated that if the rules went into effect, the city’s already shaky budget would take a $25 million hit, the result of the lower taxes and fees that would be contributed by the city’s two card rooms, Casino M8trix and Bay 101.

“We are pleased the court recognized the importance of preventing these harmful regulations from taking effect,” Mahan told San José Spotlight. “This decision protects our residents, local economy and the essential public services our community depends on.”

Bonta’s office still has the option of appealing the ruling. A spokesperson called the outcome disappointing, and told San José Spotlight the agency is reviewing its options.

The regulations had been set to take effect June 1, until an earlier ruling put those plans on hold.

The rules effectively ban blackjack, along with close variants, from non-tribal casinos. They also crack down on the card room practice of offering “player-dealer” games — such as blackjack, baccarat and Pai Gow — in which players, rather than the casino, act as the house, paying winners and collecting from losers.

California’s tribal casinos have long contended that the player-dealer play format allows card rooms to skirt state laws that prohibit casinos outside of tribal lands from directly operating house-banked games.

Curtailing player-dealer games would shake the business model used by the dozens of card rooms scattered across California, including those in San Jose. At Casino M8trix, such games generate 85% of revenue, according to Rob Lindo, the card room’s vice president and director.

The loss of this business would lead to a reduction in the roughly $12.5 million in licensing fees and taxes Casino M8trix pays to San Jose and Santa Clara County each year, Lindo said. In addition, he warned the city’s card rooms, which employ about 2,000 people, would likely be forced to consider layoffs.

“We’re pleased that this decision allows us to continue providing these significant economic benefits to our community,” Lindo told San José Spotlight.

The court case has centered on the question of whether the Bureau of Gambling Control has the authority to enact this new set of card room regulations.

The California Gaming Association, an industry trade group involved in the case, has argued that the bureau is primarily an enforcement agency — and therefore it does not.

“For more than a year, we have said this case is about far more than gaming — it is about whether the attorney general and his regulators can bypass the Legislature and unilaterally rewrite decades of established law,” California Gaming Association President Kyle Kirkland told San José Spotlight.

In contrast, officials with the California Department of Justice, which includes the Bureau of Gambling Control, contend the regulations are intended only to strengthen enforcement of existing state gaming laws.

Anticipating the fiscal damage the regulations could bring, San Jose’s Office of Administration, Policy and Intergovernmental Relations wrote to Bonta’s office in February, urging him to reconsider.

A drop in card room revenue could make San Jose’s fiscal outlook even more precarious. The city’s recently passed budget balanced a $50 million deficit, but only after tapping into reserve funds and cutting into a wide array of city services. Officials project that the city will face somewhat smaller deficits in the next two budget cycles as well.

“The city continues to monitor the case and possible actions that the California Gambling Control Commission and California Legislature may take,” Demetria Machado, a spokesperson for the City Manager’s Office, told San José Spotlight.

Contact Keith Menconi at [email protected] or @KeithMenconi on X.