Business & Real Estate

Casino wars: California tribes, card rooms take their fight to Elk Grove

Sacramento card room owner describes competing against big casinos

As the fight rages over a proposed Indian casino in Elk Grove, Limelight Card Room in Sacramento perseveres against the competition.
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As the fight rages over a proposed Indian casino in Elk Grove, Limelight Card Room in Sacramento perseveres against the competition.

All Elk Grove wanted was a shopping mall.

Instead, it wound up in the middle of a long-standing statewide turf war over gambling.

A proposal to build a massive Indian casino at the southern edge of the Sacramento suburb has triggered the latest skirmish between California tribes and their main competitors, the state’s venerable card clubs.

The Wilton Rancheria Indian tribe wants to build a $400 million casino-hotel complex off Highway 99. An Emeryville company called Knighted Ventures LLC, which has close ties to the owner of two Sacramento-area card rooms, has launched a voter referendum that could kill the project.

Besides thwarting the casino, the referendum could derail plans for a nearby shopping mall that the city has been desperate to see built since Elk Grove became a city in 2000. The likelihood of a referendum has city officials and tribal leaders fuming.

The casino “is an opportunity for our tribe to provide self-governance, self-sufficiency, self-determination, job opportunities, to provide housing and medical benefits,” said tribal Chairman Raymond Hitchcock.

Compared to the card rooms, “I think that’s a far greater cause,” he added. “They’re out for themselves.”

Card rooms, however, see themselves as the little guys trying to halt a powerful nemesis.

“Certainly it’s a big project and it will have a big impact,” said Kyle Kirkland, a Fresno card room owner and president of the industry’s trade group, the California Gaming Association. “It’s sort of irresponsible if you don’t use whatever tools you have to try to challenge it.”

Blocking a tribal casino would represent a rare win for the card rooms. Although they’ve been around since the late 1930s, they’ve been left in the dust since California voters passed Proposition 1A in 2000, allowing tribes to operate Las Vegas-style casinos. The tribes have built a $7 billion-a-year business, while Kirkland said the state’s 72 card rooms generate about $800 million in annual gambling revenue.

It’s sort of irresponsible if you don’t use whatever tools you have to try to challenge it.

Kyle Kirkland, a Fresno card room owner

Legally speaking, the tribes hold most of the chips. They have a monopoly on slot machines, and they alone are allowed to act as “the house” or “the bank” – that is, take a financial stake in their games. By contrast, the card rooms operate under a complicated set of betting restrictions that forces them to work with third-party companies, such as Knighted Ventures, to handle the actual betting at their card tables.

The tribes are frequently pushing in the courts and the Legislature for tighter rules on wagering at the card clubs. Just last summer, the state issued a stricter policy that starting next year could force card rooms to call a two-minute halt to the card playing once every hour under some circumstances.

“It’s difficult when you’re at a significant disadvantage,” said John Mikacich of the Limelight Card Room on Alhambra Boulevard in Sacramento.

The Limelight is one of three card rooms in the city, and one of the smallest anywhere. It’s low on glitz, the carpet is rumpled, but the club has been around since the 1970s and survives on a kind of neighborhood pub atmosphere where everybody knows your name.

“This is comfortable,” said Chip Underwood, an occasional customer who was playing blackjack the other day over lunchtime. “I come here often enough, I’ve come to know the people.”

Mikacich, whose family has been in the card room business since the 1950s, said the Limelight employs 75 workers and does a “sustainable” business. He wouldn’t comment specifically on the referendum battle but wonders about the fairness of another tribal competitor in Elk Grove.

When Indian casinos were legalized in California, he said, the idea was they’d be built in more remote, rural areas – not the fringes of booming suburbs.

“I respect the tribe for trying to create an economic opportunity for themselves, but I think it’s important to create boundaries for where casinos can go,” he said.

The tribes’ power is enough to make someone think twice about opening a card room.

“I wish I could be an Indian casino, but I can’t,” said Sacramento businessman Steve Ayers, who’s trying to open a card room in the historic Elks Tower building in downtown Sacramento.

Ayers said he welcomes the chance to compete against the tribes. His project is running into interference, though – from other card clubs. The owners of two other clubs in the city – Capitol Casino and Parkwest Casino Lotus – are suing the city over its plans to let Ayers acquire the card room license belonging to the shuttered Casino Royale.

The suit “certainly could harm us,” Ayers said.

Parkwest’s owner, John Park, is closely tied to the fight against the Elk Grove casino as well.

Park owns Silver F Inc., which operates five clubs in Northern California. Two are in the Sacramento area: Parkwest Casino Cordova in Rancho Cordova and the Lotus facility, in the heart of Sacramento’s Little Saigon neighborhood.

On a recent weekday afternoon, the Lotus club was bustling with activity – inside and out. Construction crews were making progress on a $4.8 million expansion, while customers jostled for seats at the tables.

The tables looked the same as any other casino, with one exception. Standing behind stacks of chips, clearly identified by badges, were employees from Knighted Ventures, the company behind the Elk Grove referendum.

We’ve had people observing what they do, and it’s just a sham.

Steve Stallings, chairman of the California Nations Gaming Association

Card rooms can’t take bets. They contract with “third-party” companies – in Lotus’ case, Knighted Ventures – to conduct the wagering. The third-party employees aren’t dealt any cards but handle the betting. They make the payouts to winning players and rake in the chips from the losers. They also pay a small fee to the card room at the beginning of each hand, based on how much has been wagered – the only money the card rooms make from gambling.

Card room owners chafe under this system, and some have been caught skirting the rules. Park himself was fined $320,000 by state regulators in 2012 after investigators found he had an ownership stake in a third-party company, PT Gaming, that was working at his card rooms at the time.

Park and Roy Choi, the owner of Knighted Ventures, were unavailable for comment.

There’s another wrinkle in the wagering rules – the card rooms must periodically offer every player at the table the chance to play the “banker” role.

It sounds arcane, but it’s become a serious issue. The tribes have argued for years that the card clubs don’t bother rotating the banker role around the tables.

“We’ve had people observing what they do, and it’s just a sham,” said Steve Stallings, chairman of the California Nations Gaming Association. Stallings’ tribe, the Rincon Band of Luiseño Indians, owns a major casino resort near San Diego.

Tribes have lobbied the Legislature and gone to court to try to tighten the rules, with mixed results. Earlier this year, they did persuade state regulators to issue a new policy. The Bureau of Gambling Control, an arm of the attorney general’s office, announced in June that a card table must shut down for two minutes if the banker role doesn’t rotate at least once every hour.

Card rooms said the new rule, set to take effect sometime in 2017, will make it even harder for them to compete against the tribes.

“The customer’s going to see it. It adds costs, it’s disruptive,” said Kirkland of the California Gaming Association. “It’s like, every time you see a movie, we’re going to make you take an intermission.” He added that “it’s very draining to have these regulatory battles.”

All of which helps explain why the referendum in Elk Grove matters so much to the card rooms. After years of playing defense, the card clubs are taking the fight to the Indian tribes for a change.

Normally, a tribal casino’s fate wouldn’t rest with a local voter referendum. Tribes need approvals from the U.S. Bureau of Indian Affairs and National Indian Gaming Commission; they also have to sign compacts with the governor. While most tribes do cut deals with local authorities to pay for police and fire protection, as the Wilton Rancheria did earlier this year, those agreements aren’t legally required, said Sacramento tribal law expert Howard Dickstein.

In Elk Grove’s case, however, there’s an opening for voters to block the project.

Howard Hughes Corp. announced two years ago it would create an outlet mall at the south end of town, completing a half-built project that was abandoned in 2008 by a bankrupt predecessor.

In October the City Council altered its development agreement with Hughes. The new deal allows the Wilton tribe, whose project is being bankrolled by Las Vegas casino operator Boyd Gaming, to buy a portion of the mall site. Hughes has called the casino, and the crowds it would draw, “essential” to the mall’s success.

A month later an unidentified group began circulating petitions demanding a referendum to overturn the City Council’s decision. The group gathered 14,800 signatures, or 6,000 more than necessary, although the city clerk is still validating the signatures. It wasn’t until after the signatures were gathered that the group behind the petitions was publicly identified: Knighted Ventures.

The disclosure triggered angry denunciations from supporters of the casino and outlet mall.

“To find out a card room was behind it kind of pissed me off,” said Hitchcock, the tribal chairman.

Dale Kasler: 916-321-1066, @dakasler

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