Opinion ID: 1160930
Heading Depth: 1
Heading Rank: 9

Heading: Does IGRA Authorize the Forms of Indian Gambling Regulated by Proposition 5's Model Compact?

Text: Because I conclude that the California Constitution does not bar the model compact of Proposition 5, I also reach the question of whether, as petitioners contend, the model compact conflicts with IGRA by allowing forms of gambling that IGRA does not authorize. In applying IGRA here, the initial question is whether two forms of class III gaming activities included in the model compact of Proposition 5gaming terminals under a players' pool prize system and card games under a players' pool prize system-are forms of gambling otherwise permitted in California and therefore meet IGRA's second condition for authorization of class III gaming activities: Class III gaming activities shall be lawful on Indian lands only if such activities are ... [¶] ... [¶] (B) located in a State that permits such gaming for any purpose by any person, organization, or entity[.] (§ 2710(d)(1).) In considering this question, it is important to recognize that, while state law defines the forms of gambling activities the state permits, the question of whether a form of tribal gambling falls within a category of gambling activities permitted by the state is ultimately a question of federal law. The question whether gaming terminals under a players' pool prize system and card games under a players' pool prize system meet IGRA's above quoted second condition for authorization of class III gaming activities can in turn be broken down into two subordinate questions. First, what forms of class III gaming does California permit, even if only to a single person or entity? The answer is lotteries and horse race wagering. Thus, any California Indian tribe may offer these forms of gambling, and federal law obligates the state to negotiate a tribal-state compact addressing these forms of gambling. Second, are the gaming terminals and card games under a players' pool prize system described in Proposition 5's model compact either lotteries or horse race wagering? For the reasons I shall explain hereafter, I conclude that gaming terminals and card games under a players' pool prize system are essentially lotteries and thus within the scope of gambling activities that California permits ... for any purpose by any person, organization, or entity. (§ 2710(d)(1).) To determine whether gaming terminals and card games under a players' pool prize system are lotteries, it is necessary to examine the difference between a lottery and a banking game. In Western Telcon, Inc. v. California State Lottery (1996) 13 Cal.4th 475, 53 Cal.Rptr.2d 812, 917 P.2d 651, this court discussed this difference extensively. Although the state law definition of the term lottery is not ultimately controlling for purposes of federal law, the principles for distinguishing a lottery from a banking game discussed in that case are helpful here. Our court said a lottery requires a prize offered by the operator, distributed on the basis of chance, to players who have paid consideration for the opportunity to win. ( Western Telcon, Inc. v. California State Lottery, supra, 13 Cal.4th 475, 484, 53 Cal.Rptr.2d 812, 917 P.2d 651.) We explained: [A] `purse, prize, or premium is ordinarily some valuable thing offered by a person for the doing of something by others, into the strife for which he does not enter. He has not a chance of gaining the thing offered; and, if he abide by his offer, that he must lose it, and give it over to some of those contending for it, is reasonably certain.' ... `[a] lottery operator does not wager or hazard his property against that of others. Whether the property offered by the lottery operator will be distributed is not the issue, as it is in gaming; in a lottery, the only issue is to whom will the property be distributed and the lottery operator, earning his revenue as a portion of the ticket sales, is not himself a contender for the prize.' ( Id. at pp. 485-486, 53 Cal.Rptr.2d 812, 917 P.2d 651, italics omitted.) [T]he scheme in [ People v. ] Postma [(1945) 69 Cal.App.2d Supp. 814, 818, 160 P.2d 221] was not a lottery because the operators offered no prize for disposal or distribution to others. Instead, they bet individually against each participant on the outcome of a race. In each bet, the operators had a chance to win the other bettor's stake and retain their own. In each bet, by the same token, the operators risked losing their stake. Unlike a lottery operator, who has offered a prize for reasonably certain disposal and has no interest in the outcome of the chance device by which the winner or winners are chosen, the operators in Postma had an interest in the outcome of each bet. It was possible, at least theoretically, that the operators might win all the bets in a given race or, as the court noted, that they might lose all the bets, `all bets being on the winning horse.' ( Western. Telcon, Inc. v. California State Lottery, supra, 13 Cal.4th 475, 487, 53 Cal.Rptr.2d 812, 917 P.2d 651.) These two categories of gambling [banking games and lotteries] are nonetheless exclusive of one another, and can be surely distinguished, not by the manner of play, but by the nature of the betting itself. (See, e.g., In re Lowrie [(1919)] 43 Cal.App. 564, 566-567, 185 P. 421 [complaint, alleging petitioner ran game in which the other participants bet against him on the outcome of a roll of dice, charged operation of a banking game, not a lottery, since petitioner allegedly kept a fund against which the other participants bet].) In a lottery the operator does not bet against any of the participants, but merely offers up a prize for distribution to one or more of them. The operator, in other words, has no interest in the outcome of the chance event that determines the winner or winnersthe `game' or `draw'because neither the fact the prize will be disposed of, nor the value of the prize to be distributed, depends upon which, or how many, of the lottery entrants might win it. In a banking game, in contrast, the operator does compete with the other participants: `he is the one against the many.' ( People v. Ambrose [(1953)] 122 Cal.App.2d [Supp. 966,] Supp. 970 [265 P.2d 191].) The operator thus has a direct interest in the outcome of the game, because the amount of money the operator will have to pay out depends upon whether each of the individual bets is won or lost. One corollary of the distinction drawn above is that the operator of a banked game may or may not, depending on the outcome of the game, be obliged to pay out more than the amounts wagered on a particular game. Moreover, an extraordinary run of bad luck on the part of the house may unpredictably deplete its funds. A bank, in theory, can be `broken.' A lottery can never be broken in this sense. True, if a lottery operator offers a fixed prizea particular automobile or piece of real property, for examplethe ticket receipts may be insufficient to cover the cost. But the operator's success or failure in such a lottery depends only on how many entries are attracted, not on which participant, or how many participants, win the prize. The outcome of the game or draw, in other words, does not determine whether the lottery operator makes or loses money on that game or draw. ( Western Telcon, Inc. v. California State Lottery, supra, 13 Cal.4th 475, 487-488, 53 Cal.Rptr.2d 812, 917 P.2d 651, italics in original.) To summarize, a banking game requires that the operator (banker) wager its property against the property of the players. The banker gets to keep as its own the wagers of the losers, and it pays out of its own account the amounts due the winners. The banker hazards the gain and the loss, it wagers against the other players and like them its fortunes are at risk during play. The banker's gain or loss depends on whether the players win or lose; it profits when they lose and loses when they win. The banker has an interest in the outcome of each individual player's wagers because the bank gets to keep whatever a player loses. The banker is the one against the many, competing against the players. The gaming terminals and class III card games that are the subject of Proposition 5 traditionally are operated as banking games. Under the model compact of Proposition 5, however, prizes for gaming terminals and class III card games are awarded instead under a players' pool prize system. The tribe's revenue comes from fees charged to all players rather than from retaining the wagers of losing players. The model compact describes the players' pool prize system as follows: `Players' pool prize system' means one or more segregated pools of funds that have been collected from player wagers, that are irrevocably dedicated to the prospective award of prizes in authorized gaming activities, and in which the house neither has [acquired] nor can acquire any interest. The Tribe may set and collect a fee from players on a per play, per amount wagered, or time-period basis, and may seed the player pools in the form of loans or promotional expenses, provided that seeding is not used to pay prizes previously won. (Gov.Code, § 98004, Tribal-State Gaming Compact, § 2.16; accord, Gov. Code, § 98006, subd. (a).) A players' pool prize system has none of the characteristics of a banking game. Under that system, the players share in the pool according to their success at the game, the players can win no more than the amount wagered by all players, and the players cannot win anything from the game operator. The game operator's share is independent of the success or failure of the players and is not increased if any or all players lose and is not decreased if any or all players win. The players' pool prize system makes the gaming terminals and card games at issue here lotteries because [t]he outcome of the game or draw ... does not determine whether the lottery operator makes or loses money on that game or draw. ( Western Telcon, Inc. v. California State Lottery, supra, 13 Cal.4th 475, 488, 53 Cal. Rptr.2d 812, 917 P.2d 651.) The majority reaches a different conclusion. [2] It concludes that the gaming terminals and card games to be operated by Indian tribes under a players' pool prize system are banking games and not lotteries. It bases this conclusion on the following asserted distinctions between the players' pool prize system and lotteries: A players' pool prize system operator retains an interest in the outcome of play; the players' pool prize system operator bets against the players, keeping all losing wagers and paying out on all winning wagers; and the payouts on any given round of play under a players' pool prize system are variable. (Maj. opn., ante, 88 Cal.Rptr.2d at pp. 72-74, 981 P.2d at pp. 1005-1007.) The first two assertions are incorrect, while the third is equally true of both traditional lotteries and the players' pool prize system. First, a players' pool prize system operator does not retain an interest in the outcome of play. A game operator under a players' pool prize system has no more interest in the outcome of the game than any other lottery operator. Its income from a given round of play (in the form of player fees) is fixed and does not rise or fall depending on the success or failure of the players. The decision to make a future loan to the prize pool to seed future games is not compelled, contrary to the majority (maj. opn., ante, 88 Cal.Rptr.2d at p. 73, 981 P.2d at p. 1006), and it does not give the operator any interest in the outcome of already completed games, just as a lottery operator's decision to offer a bigger prize in a future lottery does not give it any interest in the outcome of lotteries already completed. Nor does the fact that a high payout in a past game has delayed or prevented the repayment of a past loan to the prize pool by the operator give the operator an interest in the outcome of play, just as a lottery does not become a banking game simply because the operator might lose money if its revenues from operating the lottery are less than the cost of the prizes it offers. Second, the players' pool prize system operator does not retain an interest in the outcome of play. As previously explained, neither the tribe nor anyone else acts as a banker who bets against the players and stands to profit or lose depending on the outcome of the gambling. Third, the payouts on any given round of play under a players' pool prize system are no more variable than those of a lottery. Despite the majority's protestations to the contrary, the possibility that in a players' pool prize system the wagers collected in a given round of play may not all be awarded as prizes in that round of play does not distinguish that system from a lottery. In one common form of lottery, number-matching games like the Super Lotto of the California State Lottery, it is possible that no one will come up with the matching numbers to win the prize in a given round of play; in that case, the prize rolls over to the next round of play. Likewise, in a players' pool prize system, any amounts not won in one round of play become available as prizes in later rounds. The game operator does not acquire those amounts for its own account. Nor, contrary to the majority, can the pool itself sensibly be characterized as a bank simply because it collects wagers and pays winners, for those functions necessarily occur in every form of gambling. Accordingly, gaming terminals and card games under a players' pool prize system are not banking games but lotteries. Because California permits lotteries, IGRA therefore, as matter of federal law, authorizes Indian tribes to offer gaming terminals and card games under a players' pool prize system. In turn, Proposition 5's model compact complies with IGRA by regulating these forms of authorized gambling, and it does not violate the California Constitution because it does not itself authorize the gambling. [3]