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April 1, 2025
ITEM TITLE
Gaming Operations: Approve an Updated Operating Agreement with Seven Mile Casino Report Number: 25-0059
Location: 285 Bay Boulevard
Department: City Manager
G.C. § 84308 Regulations Apply: Yes
Environmental Notice : The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines. Therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required. Notwithstanding the foregoing, the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines.
Recommended Action
Adopt a resolution approving an updated Operating Agreement with Seven Mile Casino.
SUMMARY
Cardroom operations are regulated by state and local government. The Gambling and Control Act (Business and Professions Code section 19800 , et seq.) created a comprehensive scheme for statewide regulation of legal gambling under a bifurcated system of administration involving the Bureau of Gambling Control within the Attorney General’s Office and the five -member California Gambling Control Co mmission appointed by the governor.
Locally in Chula Vista, cardroom operations are regulated by the Chula Vista Municipal Code and a City Council-adopted Gaming Plan and Operating Agreement. The Operating Agreement implements the requirements imposed by Gaming Plan Section 5.5.
In 2019, the Chula Vista City Council approved a five-year Cardroom Operating Agreement which expired on June 30, 2024 and was administratively extended to allow for additional negotiations.
The proposed Operating Agreement would allow Seven Mile Casino a n initial year of operations through April 14, 2026, with four additional, one -year extensions, and change the License Fee structure to include both a Per Table Fee and a Gross Gaming Revenue Fee.
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ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because the pr oposed activity consists of a governmental fiscal/administrative activity which does not result in a physical change in the environment . T herefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Notwithstanding the foregoing, it has also been determined that the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the State CEQA Guidelines. Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Background
Cardrooms are one of California’s oldest forms of legal gambling with operations ranging from “mom and pop” storefronts, to larger, more sophisticated establishments. Historically, card clubs were regulated by local governments. Beginning in the mid -1980s the State gradually increased its regulatory oversight. The stated primary purpose of this increased oversig ht by the State was to attempt to prevent criminal activity from being associated with these businesses.
In 1997, then Attorney General Daniel Lungren and Senate Pro Tem Bill Lockyer introduced and passed the California Gambling Control Act. (SB 8 was enacted; the language is in Business and Professions Code: 19800 - 19987.) The Gambling Control Act developed the California Gambling Control Commission ( the “State Gambling Commission”) and the Bureau of Gambling Control (the “Bureau”) in the California Department of Justice. The State Gambling Commission and the Bureau are responsible for the development of policy, regulatory oversight, and enforcement of the States gaming laws at California cardrooms.
With these changes, California cardrooms are now regulated at both the local and state levels. Of the 80 or so cardrooms in California, the largest are Commerce Casino and Hawaiian Gardens Casino, with approximately 374 tables each. The largest cardroom in San Diego County is the Ocean’s Eleven Casino in Oceanside, which is currently operating 50 tables.
History of Village Club Card Room (now Seven Mile Casino) Ownership and Operations The original Village Club card room operated at its Broadway location from 1946 until 2015. Harvey Souza managed the business from 1963 to 2015. In 2015, the Village Club Card Room moved its operations to a 20- table cardroom located at 271 and 285 Bay Boulevard, Chula Vista, California. The relocated busin ess was renamed “Seven Mile Casino”.
On March 3, 2015, the City Council approved Resolution 2015 -057, ratifying Chief Bejarano’s approval of Stone Chula Vista Holdings, LLC members “financial interests” in Village Club Card Room’s license after reviewing t heir applications and conducting background checks. The Stone Chula Vista Holdings, LLC P a g e | 3
members were told they would need to re -apply for approval with the Chief of Police if and when they proposed to exercise their option and obtain a direct interest in the cardroom license.
In 2016, Stones Corp. exercised its option and entered into agreements to purchase 100 percent of Seven Mile Casino from VC Inc. (Village Club Card Room) , conditioned upon approval of the State Gambling Commission and the City.
In February 2017, the City Attorney’s Office reviewed the transfer and ownership documents in connection with this transaction and found no issues of concern in its review. The Police Department reviewed and approved the Seven Mile Casino security plan, financial interests, experience, and expertise to operate a cardroom in accordance with state gaming laws and approved of the transfer.
On March 23, 2017, the State Gambling Commission issued a Temporary State Gambling License to Stones Corp. and approved the transfer of the interests in Seven Mile Casino from VC Inc. to Stones Corp. The State Gambling Commission’s approval was preceded by a substantial due diligence review of the Stones Corp. principals including review of the various financial and ownership intere sts of the principals and entities involved in the transfer, and confirmation of compliance with the Business and Professions Code.
In 2019, the City Council approved a five-year operating agreement through June 30, 2024 with an ability to extend for an additional five years. The quarterly table fee increased from $7,990 to $9,000 for FY 2019 -20 (12% increase) and then $9,540 for FY 2020 -21 (6% increase). A 3% increase occurred every subsequent year. A provision in the 2019 agreement anticipated the potential opening of the Gaylord Pacific Resort and Convention Center prior to 2024, and would have automatically approved an additional five year extension term and changed the licensing fee from a per table fee to a percentage rate structure once the Gaylord Pacific Resort and Convention Center opened. That provision, however, did not go into effect prior to the expiration of the 2019 agreement because the Gaylord Resort has not yet opened. In the time period preceding the expiration of the 2019 Operating Agreem ent, negotiations between the City and Seven Mile Casino/Stones Corp. regarding a new Operating Agreement commenced.
Proposed Operating Agreement
In 2024, Stones Corp. approached the City requesting amendments to the Operating Agreement governing their Seven Mile Casino cardroom operations on Bay Boulevard.
While Seven Mile Casino currently operates 20 tables, they will be seeking to increase their tables and capacity if allowed by the state. Additionally, there are currently anticipated material changes to the types of games that may be allowed to be played in cardrooms in California; such changes could take place as early as this year. These variables require any new operating agreement to be flexible enough to respond to such legal changes and practical realities. Additionally, staff recommend ensuring fees are imposed to cover the cost of the additional services required to support the operation of an expanded cardroom.
Additionally, due to the significant investment in the redevelopment of the Chula Vista Bayfront, it is anticipated that Seven Mile Casino will see an increasing in patrons from the hospitality industry.
After several months of discussions between the parties , the following proposed amendments to the Operating Agreement are being recommended by staff:
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• One-year Operating Agreement through April 14, 2026 with four additional, one-year extensions that occur automatically absent any Material Law Change; • Increase the quarterly table fee from $10,737 to $10,952 (2% increase) effective January 1, 2026, and increasing 2% every year after;
• Confirm a gross gaming revenue fee set at one (1) percent of gross gaming revenue effective October 1, 2025; and
• In the event of any Material Law Changes, where games can no longer be played in the same manner as previously licensed, the City and operator will meet and confer to evaluate an alternative license fee. If an alternative agreement cannot be reached prior to the effective date of the Material Law Change, the City Manager in consultation with the Director of Finance may implement an interim license fee valid until the date of City Council’s approval of a revised license fee or six months, whichever is sooner.
These terms represent a projected increase in license fees that support police, fire, and other City services.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property -related financial conflict of interest under Californ ia Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of the Political Reform Act (Cal. Gov’t Code §87100, et seq.).
Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
There is not impact to the estimated current year license fee revenue of $858,960 which is included in the FY 2025 City Council Adopted budget.
ONGOING FISCAL IMPACT
The increase in estimated license fee revenue will not be generated by Seven Mile Casino until fiscal year 2026 and will generate approximately $ 1,109,373 which represents about a 30% increase over fiscal year 2025 revenues. These funds will be included in the City Manager proposed 2026 budget and are considered discretionary revenues and support overall general fund services such as police, fire, libraries , and recreation.
ATTACHMENTS
1. Card Room Operating Agreement
Staff Contact: Adrianna Relph, Special Projects & Legislative Manager, City Manager’s Office