Skip Repetitive Navigation Links

The Bureau of Gambling Control and California Gambling Control Commission
Their Licensing Processes Are Inefficient and Foster Unequal Treatment of Applicants

Report Number: 2018-132



The Bureau of Gambling Control (bureau) is part of the California Department of Justice (Justice), whereas the California Gambling Control Commission (commission) is an independent entity. In addition to regulating tribal‑operated casinos, the bureau and the commission each have responsibilities for licensing and enforcement activities related to certain gaming businesses in California. These gaming businesses consist predominantly of card rooms that offer poker‑style and other table games to the public. Card rooms differ from tribal casinos in how they generate revenue and in the specific types of gaming they can offer.

The Gambling Control Act (Gambling Act) requires people who own or work in card rooms to be 21 years of age and to hold commission‑issued gaming licenses, which they must renew periodically.1 Further, the Gambling Act prevents the licensing of any additional card rooms beyond those that the commission has already licensed, therefore limiting the number of card rooms that can operate in the State. As of March 2019, the commission reported 87 licensed card rooms in California. The size of these card rooms varies from businesses with just a few gaming tables to large establishments with more than 200.

This audit focuses on the manner in which the bureau and commission individually carry out regulatory roles supported by the Gambling Control Fund (Gambling Fund). The Gambling Fund receives revenue from the licensing and regulatory fees that those who own, operate, and work in card rooms and related businesses pay. Since fiscal year 2010–11, the bureau's and commission's expenditures have comprised an average of 98 percent of all Gambling Fund expenditures. Although the bureau and commission also perform regulatory activities for tribal casinos, these activities are distinct from those for card rooms and are financed by a separate fund; therefore, this audit does not focus on the bureau's and commission's regulation of tribal casinos.

Types of Gaming Licenses

The bureau and commission perform activities related to processing, approving, and otherwise regulating gaming licenses for card rooms and related businesses, as well as their owners and employees. With the exception of the card room patron, each of the gaming roles that Figure 1 depicts requires a distinct type of license. Many licenses go to individuals who work in the gaming industry, such as card dealers and floor supervisors. Even employees working in nongaming roles, such as food service, must hold licenses. In general, the licenses subject to the most in‑depth review are those held by business owners—individuals who partially or fully own card rooms or who provide players for certain types of games, as we discuss below. Although state law does not allow the licensure of new card rooms, individuals may buy existing card rooms, which requires these individuals to apply for licenses. Finally, as Figure 1 shows, card rooms must also obtain approval for the rules of every game they offer to their patrons.

Figure 1
License Types Correspond to Individual Roles in Card Rooms

Figure 1 illustrates the different roles of parties involved in the gambling industry in California card rooms and the types of licenses that they hold.

Source: Business and Professions Code; California Code of Regulations, title 4, section 12002 et seq.; California Code of Regulations, title 11, section 2000 et seq.; and bureau documentation.

Games that card rooms offer include poker‑style games, in which players wager against one another. They may also offer variations on games such as blackjack or baccarat—known as California games—in which players wager against a single individual. State law allows card room owners to generate revenue based on the volume of game play taking place in their establishments, but it bars them from benefiting from the outcome of any games or from players' winning or losing money. Therefore, card rooms earn revenue by charging players to participate in games and by selling food and drinks.

The fact that state law prohibits card rooms from benefitting from the outcomes of games means they cannot act as the house or bank.2 Therefore, in order to offer certain California games, the card rooms depend on patrons' acting in a role known as the player‑dealer, paying players who win and collecting from those who lose. Although individual patrons are allowed to act as the player‑dealer, doing so may carry a financial risk, and consequently an entire industry has emerged to serve this role. Businesses known as third‑party proposition player companies (third‑party companies) enter into contracts with card rooms and employ staff who, as Figure 1 shows, take on the role of the player‑dealer at game tables. These companies also employ personnel who supervise their players and distribute money to games. Third‑party companies have been subject to regulation since 2003, and in fiscal year 2017–18, they represented a large portion of all gaming license applications.

The Licensing Process

The bureau, the commission, and the Indian and Gaming Law Section (IGLS)—a separate division of Justice—each have responsibilities in determining whether to issue licenses to applicants. Figure 2 outlines the roles each of these parties play in the regulation of card rooms and third‑party companies, and we describe these roles in detail in the sections that follow.

Figure 2
The Bureau, the Commission, and IGLS Share Licensing Responsibilities

The figure demonstrates the relevant responsibilities of the bureau and IGLS, both of which divisions within the California Department of Justice. It also summarizes the responsibilities and the commission, an independent entity.

Source: Business and Professions Code; California Code of Regulations, title 4, section 12002 et seq.; California Code of Regulations, title 11, section 2000 et seq.; and bureau, Justice, and commission policies.

The Bureau

To begin the process, applicants first submit their applications to the bureau, along with payment of any applicable fees. The application forms vary by license type, but most require information about the applicants' employment history and criminal background. Because the Gambling Act prohibits certain individuals from holding licenses, including those with felony convictions or who have been convicted within the past 10 years of offenses classified as crimes involving moral turpitude or dishonesty, the bureau must recommend denial for applicants with such convictions. Some license types also require other types of information, such as the applicants' personal financial history. In general, the higher the level of responsibility the license holder will hold in the industry, the more detailed the application materials and subsequent review are.

The bureau has multiple units under its licensing division, each of which is responsible for either a specific step in the process or for a specific type of application. Figure 3 shows the structure of the bureau's licensing division, as well as its general process for handling applications. The bureau's intake unit receives all initial applications and license renewals. This unit performs certain administrative tasks, such as verifying application fees, before forwarding the applications to one of the three application review units: one focuses on card room owners and their employees, one on the games that card rooms offer, and one on third‑party company applications. According to the bureau's assistant director for licensing (licensing director), managers in the application review units are responsible for assigning individual applications to staff. Although the bureau has no formal protocols for how managers assign applications, managers told us they generally do so in the order in which the applications arrive. Managers also told us that as a general rule, staff in different licensing units do not assist with each other's applications.

Figure 3
The Bureau Has a Structure and Process for Reviewing License Applications

Figure 3 depicts the path a gaming license application takes through the bureau's licensing division, culminating in a report and recommendation to the commission.

Source: Bureau organizational charts and licensing division procedures.

Note 1: Position totals include vacancies and only positions funded by the Gambling Fund.

Note 2: The Games Unit and Intake Unit have the same manager but are different units. The manager is included in the position count of the Intake Unit.

Once applications are assigned, bureau staff conduct background investigations on the applicants to help determine their suitability to hold gaming licenses. Figure 4 provides some example steps in the background investigation process. Although these steps vary depending on the type of license, the bureau's procedures generally direct staff to identify and inquire about criminal convictions or apparent issues with applicants' employment histories, such as previous terminations, as part of investigating the applicants' suitability for licensing. The bureau's procedures further instruct staff to review all applicants' fingerprint results and to request database inquiries from agencies such as the Department of Motor Vehicles to identify past infractions or outstanding fines. Some processes may require staff to follow up for additional information. For example, when an applicant has a criminal history, staff may need to request records from the court that convicted the applicant. For more involved applications, such as those for card room and third‑party company owners, staff also review and follow up on financial issues, such as bankruptcy filings or loans.

Figure 4
The Bureau's Background Investigation Process Can Include Numerous Steps

Figure 4 lists out the various steps and procedures the bureau takes when performing its background investigations.

Source: Bureau background investigation procedures.

Note: This list does not include all of the steps the bureau takes in its background investigations, nor does the bureau perform all of the steps above for all applicants.

In most cases, the bureau has 180 days to complete its investigation process after receiving a complete application. When an investigation is complete, the bureau issues a report and accompanying licensing recommendation to the commission.3 For most application types, applicants must submit a deposit to cover the costs of the bureau's background investigation. Bureau staff use a time‑reporting system to account for the time and costs involved in reviewing each application, and the bureau refunds any unused portion of the deposit. If a background investigation's costs exceed the amount of the deposit, state law allows the bureau to request additional funds from the applicant.

The Commission

After the commission receives the bureau's report, it schedules the applicant for consideration by the five commissioners. Appointed by the Governor and confirmed by the Senate, the commissioners are responsible for granting or denying most initial gaming license applications within 120 days of receiving the bureau's report—which, combined with the bureau's 180‑day period, means that processing a license can take 300 days even if all time frames are met. The commissioners make certain decisions during their regularly scheduled licensing meetings, which they hold roughly every two weeks. The commission's records indicate that the commissioners consider an average of more than 200 card room and third‑party company applications at each of these meetings and approve the majority of them.

The commissioners may also decide to refer applicants to evidentiary hearings for a more involved consideration of their suitability. These hearings, which the commissioners oversee, involve sworn testimony by applicants, who may have legal representation if they choose to do so. Apart from mandating the denials that we describe on page 8, the Gambling Act gives the commission broad discretion in making determinations about individual applicants, requiring the commissioners to be satisfied with the applicant's character, honesty, and integrity.


IGLS performs a range of tasks for the bureau related to card rooms and third‑party companies. For example, at the commission's evidentiary hearings, IGLS attorneys present legal arguments in support of the bureau's licensing recommendations and evidence the bureau obtained during background investigations. In the past, another key IGLS responsibility has involved the review of legal documents associated with applications for owner licenses. Applicants for owner licenses are generally attempting to purchase all or part of card rooms or third‑party companies or to transfer existing ownership to a legal trust. Along with their applications, these individuals submit legal and contractual ownership documents, such as purchase agreements, financial documents, and trust documents. Until October 2018, IGLS was responsible for performing legal reviews of these transaction documents before the bureau forwarded its licensing recommendations to the commission. At that time, however, the bureau hired an in‑house deputy attorney general (in‑house attorney) to process all its legal reviews of transaction documents in an effort to expedite these reviews.

Enforcement Responsibilities

In addition to processing license applications, the bureau is responsible for enforcing card rooms' and third‑party companies' compliance with state laws and regulations. The bureau's Compliance and Enforcement Section (compliance section) conducts routine inspections of card rooms in which staff verify compliance with regulatory and legal requirements, such as the need to post signs that feature responsible gambling messages. Staff also verify the appropriateness of the number of tables in use and of the limits on wagering. In addition, bureau special agents may conduct investigations into suspected illegal activities at the bureau's discretion, in response to complaints, or in cooperation with other law enforcement agencies.

The bureau reports card room violations it identifies to the commission. Depending on the nature of the violations, the commissioners may review them in the context of licensing decisions, or the violations may be litigated in front of an administrative law judge. When a violation goes before an administrative law judge, IGLS attorneys represent the bureau at the administrative hearing. Ultimately, however, the commissioners are responsible for making the final determination regarding the violations, including about any disciplinary actions recommended by the administrative law judge, which can include license revocation or fines.

Equal Treatment of Applicants and Licensees

When the Joint Legislative Audit Committee (Audit Committee) approved this audit, it expressed concerns that the bureau and the commission may be treating certain applicants and license holders differently on the basis of race or ethnicity. The Audit Committee directed us to determine whether the bureau and commission have and adhere to policies and procedures to ensure all applicants and licensees are treated fairly and consistently. Because neither the bureau nor the commission comprehensively track the ethnicity of the applicants and license holders they regulate, we were unable to determine with certainty whether systematic discrimination has taken place. However, our review of individual applicant files did not identify evidence of discrimination on the basis of ethnicity or other related characteristics.

Nonetheless, as the subsequent sections of this report discuss, this audit found practices at both the bureau and commission that subjected applicants and licensees to inconsistent and unequal treatment. We found issues at both entities with the timeliness of their application reviews and the costs applicants and licensees paid. We also identified inconsistencies in the level of scrutiny to which the bureau subjected applicants. Some of these practices stemmed from missing or incomplete policies and procedures. As long as the bureau and commission allow inconsistencies in their practices, they risk fostering the perception that they may engage in discriminatory acts.


1 The commission issues some but not all gaming licenses known as work permits; local jurisdictions also issue some work permits. This report focuses on work permits that the commission issues. Go back to text

2 The prohibition on banked gaming, in which establishments have a stake in the games' outcomes, distinguishes card rooms from casinos operated by federally recognized tribes. These tribes can enter into agreements with the State that allow them to offer banked gaming and slot machines in their casinos. Go back to text

3 An exception is the bureau's processing of applications for the licensing of games, for which it makes the final approval decisions. Go back to text

Back to top