Bills hedge bets on charitable gambling reforms

Times may be tough in Michigan these days, but there’s at least one sector of the economy that’s seen a boom: charity-sponsored gambling.

Like a straight flush for lucky nonprofits, charity gambling has proved to be a rare winner as a reliable fund-raising tool for groups ranging from the Girl Scouts of Michigan to the Knights of Columbus. It’s also filled the coffers of the new supplier industry it’s spawned, not to mention state coffers too.

(Creative Commons photo by Jam Adams via Flickr)

The biggest charitable gambling winners to date are so-called millionaire parties – casino-style events featuring betting games like poker, blackjack, or roulette often hosted at bars or bowling alleys.

Last year, the state’s Charitable Gaming Division issued a record-setting 8,200 licenses for millionaire parties, or more than double the 4,043 issued in fiscal 2008, according to official figures provided to Michigan Messenger. In 2004, not quite 700 licenses were issued.

Already this current fiscal year, which began in October, the division is on pace to set another record issuing licenses for the popular events. In fact, a disclaimer currently featured on the millionaire party page of the Charitable Gaming Division’s website highlights the appeal –- and the present bottleneck. Citing the “unprecedented number of license applications,” the disclaimer indicates that the division isn’t accepting any new supplier license applications or any actual millionaire party license applications for an event at a location not already on file.

“This website will be updated when the licensing process resumes,” the notice tells visitors.

“The new charitable organizations that want to come into our program take a lot of time,” explained Mike Petersen, deputy commissioner for charitable gaming with the Michigan Lottery. The division qualified 1,300 such groups last year, he noted. “It’s a lot of work to go through their bylaws, their articles of incorporation to make sure they’re not a sham,” Petersen said.

Not only does the time spent reviewing all that paperwork lead to a healthy jackpot for the nonprofits — well in excess of $10 million last year – it also bolsters the state’s general fund. Petersen said that license fees for millionaire parties as well as other games such as bingo and raffles sanctioned by the division more than cover the agency’s $8 million budget – they also enabled the division to revert back an estimated $12 million to the general fund last year.

“The state really does have a severe financial problem,” he said, “and because we have extra money, that extra money goes to help solve a little tiny piece of the budget problem.”

New fees for ‘millionaire parties’?

The growth of charitable gambling has also caught the eye of state lawmakers in Lansing.

Last month just as the legislative session came to a close, some proposed reforms took a big step forward, including a mix of fee increases and a budget authorization to hire new staff at the Charitable Gaming Division to help process applications and issue licenses.

Sponsored by state Rep. Harold Haugh (D-Roseville), an amended version of his House Bill 5121 cleared the House Regulatory Reform Committee by a near-unanimous vote on Dec. 16. It would create a two-tier system of license fees for millionaire parties. The new fees would be set at $65 per day for small events and $100 per day for large ones; small millionaire parties would be defined as events conducted at a venue owned or rented by the nonprofit for the regular use of its members whereas large ones would refer to events put on at outside commercial locations.

Millionaire parties have been licensed by the state for decades — often called a “Las Vegas night” sponsored by a local charity. But in the last few years a new mini-industry has sprung up around them. Since charities often don’t own the tables, chips and other equipment to run those events, they have often opted to rent the equipment from a supply company.

A few years ago, one of those suppliers came up with the idea of having a permanent location to host those parties. There are now well over 100 of these permanent charity gaming operations in the state, many of them in bowling allies and restaurants, complete with professional dealers and supervisors to run the games just like a full-fledged casino.

It’s those permanent, supplier-run operations that Haugh’s bill distinguishes as large millionaire parties, as opposed to the old fashioned millionaire parties where the charity rents the equipment and puts on the party at their own location.

Both of the proposed fee increases would be higher than the current $50 per day fee for a maximum four-day license, but a significant change from Haugh’s original proposal offered last summer that called for $50 per day fees for small millionaire parties and $250 per day for large ones.

Petersen doesn’t think most nonprofits will be bothered by the new fees, even at the higher end. “I look at the financials that these charities send in after they have a four-day event, and that extra $50 a day, I don’t see it being a hindrance. They’re making thousands of dollars,” he said.

But he did concede that the original $250 per day proposal might have put a damper on nonprofits’ enthusiasm to host millionaire parties, a sentiment shared by others.

“The small organizations, small nonprofits were concerned about the fee increases so the representative did acknowledge that and in the [amended bill] some changes were made,” said Ryan Earl, Haugh’s legislative aide, in a recent interview. “The fees for the large millionaire parties were lowered, but intended to offset some of that, some of these other fees were slightly increased,” he added referring to increases in fees for bingo and raffle licenses.

The sum total is intended to buck up nonprofit fundraising by helping boost the Charitable Gaming Division’s bottom line.

“The state has been facing pretty difficult economic times. At the same time, nonprofit agencies have felt the same effects and the demand for these games has risen because it’s a great source of revenue for these nonprofit agencies,” Earl said. The big picture goal, he suggested, is “to ensure that the division has the resources to ensure that these games continue.”

While Petersen emphasized that increasing fee revenue won’t stay with the division, he quickly vouches for Haugh’s attempt to provide him with new workers. “We’d be able to hire four new staff people,” he said, referring to the authorization included in the bill. “That will help us.”

Local control for charitable gaming

Meanwhile, state Rep. Tom McMillin (R-Rochester Hills), doesn’t count himself a fan of the proposed fee increases or new employees for the Charitable Gaming Division apart from workers charged with policing illegal events. Instead, he’s offered his own series of proposals that would give local governments veto power over licensing millionaire parties as well as ensuring that charities or nonprofits collect at least 75 percent of the revenue generated by millionaire parties.

Presently, the suppliers that operate millionaire parties can take as much as a 50 percent cut of the house’s net win. McMillin’s bills, meanwhile, have yet to be scheduled for a committee vote.

“My focus is really to look at how things have changed in charitable gaming,” he told Michigan Messenger. “We’re seeing buildings being built specifically for these…” he said, pausing, “I call them mini-casinos.”

He doesn’t mean that as a compliment.

“They’re just making a pile of money off of tables and chairs that may cost a few thousand dollars,” McMillin said. “I would like to make sure that more of the money gets to the charitable organizations and away from this new kind of a business model.”

Charity Poker Solutions is one of the new businesses that has emerged to supply nonprofits with poker tables and other gambling equipment. In a commentary published last year in the Jackson Citizen Patriot, owner Patrick O’Dowd cheered the fact that companies like his have “revolutionized the fundraising efforts of countless charities” – citing more than $500,000 the company has raised not to mention the 40 jobs it’s created.

Even so, McMillin isn’t impressed.

“I’ve got to wonder do charities really like the idea that gambling is supporting their organization? A lot of these charities are, I hope, telling their children and the kids they’re helping that gambling is a bad thing,” he said, pointing to addiction issues as well as other social ills associated with high-stakes casino gambling.

“There’s a vast difference between the Knights of Columbus having a bingo party and blackjack maybe one time a year, than having a pool hall that’s going to line up and have $50,000 a night every night for 300 days a year,” he said signaling support for his Democratic colleague Haugh’s efforts to differentiate between small and large millionaire parties. “There’s just a huge difference.”

“If we’re talking about small amounts that might be one thing,” he added, “but we’re getting to the point that these are major operations now.”