BILL ANALYSIS {u AB 1517 u} Page 1 Date of Hearing: April 12, 1999 ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION Herb Wesson, Chair AB 1517 (Firebaugh) - As Amended: April 5, 1999 {u SUBJECT u} : Jackpot Poker {u SUMMARY u} : Allows for a jackpot or progressive pool card game to be played in any licensed California card club. Specifically, {u this bill u} : 1)States that it is the intent of the Legislature to clarify the law to restore the play of jackpot poker, and to allow cities and counties to assess fees and taxes on the funds placed in jackpot poker pools authorized by the California Gambling Control Commission. 2)Requires the commission to adopt regulations providing for the collection, accounting, and disbursal of all funds held for jackpot or progressive pool payouts. The bill allows a card club to deduct no more than 15% from the jackpot or pool for administrative expenses, and a city or county in which the club is located to claim up to 5% as a licensing fee or for administrative costs. The regulations must further require a card club to use separate collection boxes for jackpot or pool funds, and the collections in jackpot or pool funds to be counted separately from the other funds. 3)Allows for a jackpot or progressive pool game to be played with cards in a licensed card club so long as the game is consistent with the above-mentioned regulations and the game contains an element of skill. {u EXISTING LAW u} 1) The California Constitution, provides that the Legislature may not authorize lotteries and prohibits the sale of lottery tickets in the State, except for the California State Lottery, which was enacted by a constitutional amendment in 1984. 2) Defines a "lottery" as any scheme for the distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining {u AB 1517 u} Page 2 such property. 3) Provides that every person who contrives any lottery, or who sells or gives any ticket purporting to represent any interest in, or depending upon the event of any lottery, is guilty of a misdemeanor. 4) Establishes the California Gambling Control Commission and grants it jurisdiction over the operation of card clubs and of all persons having an interest in the operation of card clubs. 5) Creates the Division of Gambling Control within the Department of Justice to investigate and enforce controlled gaming activities in the state. 6) Defines a "controlled game" as any game of chance, including any gambling device, played for currency or any other thing of value that is not prohibited and made unlawful by statute or local ordinance. 7) Prohibits any person from collecting any fee in connection with a controlled game unless the method of fee collection conforms to regulations adopted by the Division of Gambling Control or the Gambling Control Commission. Prohibits any fee from being calculated as a portion of wagers made or winnings earned, exclusive of charges or fees for the use of space and facilities, and requires that the amount of the fee to be fixed in advance of the game. 8) Specifies that any person who conducts any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, stud horse poker, seven-and-a-half, twenty-one, hokey-pokey, or any banking or percentage game played with cards, dice, or any device, for money is guilty of a misdemeanor. {u FISCAL EFFECT u} : Unknown {u COMMENTS u} : 1. {u Background u} . For approximately a ten-year period of time from 1985 to 1995, many California card clubs played a type of poker game called "Jackpot Poker," whereby a bonus was added to one of the club's legal poker games. In 1989, then-Attorney {u AB 1517 u} Page 3 General Lungren issued an opinion which stated that Jackpot Poker played for money in California is unlawful because it violated both the constitutional and Penal code prohibitions against lotteries. The Attorney General then informed California card club owners of this opinion and advised them that the continued play of this game could be subject to administrative disciplinary action and possible criminal prosecution. {u u} Consequently, several card clubs filed a lawsuit in the Los Angeles Superior Court challenging this action where the court considered whether Jackpot Poker was an illegal lottery, or an adjunct to poker, requiring a comparable level of skill to poker. The court held that jackpot poker is not a lottery and was therefore legal on a local option basis, thus prompting the state defendants to appeal. 2. {u Bell Gardens Bicycle Club et al., v. Department of Justice u} . As noted above, the Attorney General appealed the Superior Court decision to the 2nd District Court of Appeal, which was asked to consider whether the jackpot feature to legal card games such as draw poker and seven-card stud was an illegal lottery prohibited in both the State Constitution and the Penal Code, since the game in question contained the three elements of an illegal lottery: There is a prize, the winner is determined by chance, and there is consideration (or payment) for the opportunity to participate. The card clubs did not argue that the game of Jackpot Poker featured both a prize and consideration feature, but disputed whether skill or chance dominated in the determination of the winner of the jackpot in the game. The court held that California law did not permit card clubs to add an illegal jackpot feature to an otherwise lawful game of poker and thus circumvent the state's prohibitions against lotteries, therefore rejecting the trial courts conclusion that poker participants win the jackpot prize through skill and not by chance. The court maintained that unlike the pot distribution in each regular game of poker, in Jackpot Poker, the distribution of the prize depends solely upon the fortuity or random event of one person having a particular combination of cards that were predetermined to make one eligible for the jackpot, a random occurrence that in the court's opinion lacked the skill and strategy of regular poker games. The test as to whether a particular card game is a lottery, the court concluded, is if the game is dominated by chance and not whether {u AB 1517 u} Page 4 the winner of the game is determined solely by chance. 3. {u What is "Jackpot Poker." u} In the game of draw poker, each player antes an agreed amount prior to play, and then continues to play by betting more or folding. The player remaining in the game having the best poker hand as determined by the rules of the form of draw poker being played wins the pot. In Jackpot Poker, a fixed sum is withdrawn from the pot in each game of poker played and placed in a separate fund known as the "jackpot." The money in the jackpot accumulates until a player achieves a hand with a particular combination of cards or specified hand that makes the person the winner of all the funds in the jackpot. For example, in lowball poker, the best hand is a five-four-three-two-ace, often called a "wheel." The second best hand is a six-four-three-two-ace, often called a "sixty-four." Under this format, the winner of the jackpot could be the player who holds a sixty-four hand when another player has a wheel and thus wins the pot. The jackpot feature does not interfere with the regular poker play except for the withdrawal from each pot for the jackpot. 4. {u Purpose of the bill u} . Supporters of this bill seek to modify the law and address the court's concerns regarding the play of jackpot poker-type games in California card clubs. Supporters note that the play of such games under the terms of the bill do in fact contain an element of skill and that the game would have to be played in accordance with regulations adopted by the Gambling Control Commission that address the collection, accounting and disbursal of jackpot funds. Card clubs contend that in the increasingly competitive California gambling market, promotions, such as the type previously associated with the playing of jackpot poker, would be of benefit to the card club industry, which has experienced lackluster growth of late. The industry suggests that this slump is in some part due to smoking ban and the downturn in the Asian economy, which has affected their player base. Moreover, local governments, who in some instances depend on card club license fees to support municipal services, also stand to gain from increased card club patronage. {u REGISTERED SUPPORT / OPPOSITION u} : {u Support u} {u AB 1517 u} Page 5 California Gaming Cities Coalition City of Commerce City of Inglewood Commerce Casino Ladbroke/Casino San Pablo Lucky Chances, Inc. Card Club Hawaiian Gardens Card Club {u Opposition u} None registered. {u Analysis Prepared by u} : George Wiley / G. O. / (916) 319-2531