In charity poker vs. regulators, who's holding the cards?

RUN OF THE CARDS: In the last decade, public poker games have proliferated across Michigan as a quirk in the state’s bingo law allows such gambling in support of charitable groups. As play, and revenue, has grown, casinos have cried foul, arguing that these “millionaire party games” are poorly regulated and vulnerable to criminal activity. (Bridge illustration/A.J. Jones)

It’s a two-handed game. On one side of the table, Michigan’s casinos, controlled by big-money firms and well-heeled Indian tribes. On the other, thousands of small charitable groups – booster clubs, Lions, Kiwanis, churches – woven into the very fabric of their communities.

Between them, Gov. Rick Snyder and his administration, dealing the cards that will determine the future scope – or even the very future – of charitable poker in Michigan.

In the decade since the state decided Texas hold ’em counted as a charitable game under Michigan’s bingo law, the amount of charitable gambling has exploded, doubling four times between 2004 and 2009 alone. In 2012, about $184 million in revenue flowed through these “millionaire party games.”

This surge, in turn, created its own cottage industry – bars transformed into large-scale poker rooms to handle hour after hour of daily play and organizers to match the licensed charities with time slots at these new gambling meccas.

While giving community charities a new source of fast money – and poker players as much action as they could desire -- the transformation has left Michigan’s casinos frustrated.

“It is completely out of control now,” said Peter Ellsworth, a lawyer in Lansing who lobbies for the MGM Casino in Detroit. “(The oversight) allowed it to develop full-time poker rooms – mini-gambling halls.”

In 2012, Gov. Rick Snyder transferred oversight of the poker games from the Michigan Lottery to the Michigan Gaming Control Board, which also oversees casinos. He also issued (in 2011) a moratorium on new licenses for poker suppliers and locations. game-sponsoring charities.

Last December, the Gaming Board shut down one of the largest poker venues in the state, Snookers in Macomb County, after finding “material violations” of state law, such as diverting poker proceeds and filing inaccurate financial documents.

The board’s order stated that Snookers’ owner and an employee even admitted to investigators that they “routinely” altered records to cover the fact they were selling more chips to players than allowed by law.

Charities and poker venues are worried about Lansing’s direction, but the Gaming Board’s director, Richard Kalm, said recently that the agency “(has) been exploring the lifting of the moratorium soon.”

For its part, the Snyder administration is discussing whether the games pay for themselves, at least in terms of the regulatory costs. Sources close to the administration said there was also discussion on whether the games should be taxed, in part because they could be seen as competition to full casinos in the state who either pay taxes or a portion of their proceeds to the state.

Lifting the moratorium will depend on determining if the state’s gaming board has enough resources to adequately regulate the games and how many locations will be needed across the state, Kalm said. He would put no date to when the moratorium may be lifted.

Kalm also said the board is still adding staff to help regulate the games.

David Brown, head of the Michigan Charitable Gaming Association, said industry officials had always been told the moratorium would be temporary, and the longer it goes on, the greater potential for problems for charities and suppliers.

From bingo to big poker

While charities can hold millionaire parties at any facility, most choose to use established poker venues, such as the popular Lansing club Trippers or Northville Downs in that Detroit suburb.

The Traxler-McCauley Act from the early 1970s that allowed bingo also set up the basic rules for millionaire parties and which charities can operate them. Mostly those charities tend to be church-related groups, veterans groups and school groups, but other charities can participate. To look at the state list of licensed game operators is revealing as to the range of different charities operating the games, from local chambers of commerce to school booster clubs to groups like the Lansing Art Gallery.

Millionaire parties originally involved a variety of casino games generally played by members of the charities, but they have evolved into primarily poker, specifically hold ’em.

A charity can get a license to hold a game for four consecutive days a total of four times a year. While the venues provide the room, tables and dealers, only a member of the charitable group is supposed to handle the chips issued to players.

Rick Hert, who runs the one-man West Michigan Film Office, says charity poker provides his group $2,000 to $3,000 a year, which happens to be 100 percent of his operating budget.

"I play poker myself sometimes, and it's a good opportunity to make some money," Hert said. Despite its similar name, the West Michigan Film Office has no relationship with the state-run Michigan Film Office in Lansing. Hert promotes West Michigan as a location for filmmakers in pursuit of state financial incentives.

The West Michigan Film Office raises money at TJ's Charity Card Room in Grand Rapids, and Hert said he's lucky to have a place there.

"It's incredibly difficult to find (an open date)," he said. "Rooms are booked a year or two in advance."

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Brown, of the Charitable Gaming Association, says that’s typical: “It’s all small, local charities -- children’s groups, veterans, animals, etc.” He added that these are groups that would have a hard time raising the sort of money they can in a poker room, and with very little work.

Donna Gartside, of the DeWitt Lions Club in mid-Michigan, agrees: "It's the most amount of money for least amount of work. It takes two people per shift, six people a day." By way of contrast, for their other big fundraiser -- the ox roast -- the food tent alone takes 20 people every two hours, she said. The $10,000 to $15,000 they raise via poker is more than half of all the money they collect in a year.

A review of listings on upcoming games is a roster of charitable Americana: Kiwanis, Elks, Moose, Eagles, athletic booster clubs, Jaycees, American Legion, VFWs. So if the Snyder administration looks to apply the regulatory brakes, it will face plenty of media-genic opponents.

But regulation – more of it – is needed to deal with the cultural shift, says Ellsworth, the Lansing attorney, who applauds Snyder’s decision to move charity poker oversight from the Lottery to the Gaming Control Board.

“Going back to the Milliken administration (in the 1970s), I was doing liaison work with the Lottery. Charitable gaming was what you did in the basement of a parish on Saturday night. It was not hard-core gambling,” he said.

In the current form, Ellsworth argues, these poker rooms and their charity sponsors have been largely unregulated.

“The definition of qualified organizations is really loose. Any group of 15 senior citizens can form a qualified organization; lots of outfits that aren’t really charities,” he said, adding that his perspective is personal and does not necessarily reflect the views of MGM.

Big bucks and big bucks

Even as fast as the poker world has grown and as eagerly as small charities have flocked to it, charitable poker is still small potatoes in both the world of nonprofits and of gambling.

For all of 2012, the net profit for charity groups – the more than 2,500 licensed that year -- using poker fundraisers was about $16 million (from revenue of about $184 million). The vendors running the games took in a similar amount, with the rest of the money going to the players themselves.

By comparison, the three Detroit casinos reported $1.4 billion in revenue in 2012. Michigan Lottery generates a net income of about $700 million.

And a report for the Michigan Nonprofit Association says the nonprofit sector in Michigan had more than $200 billion in annual revenue, though the report only covered the small share of nonprofit groups that had at least $25,000 in receipts.

“The MNA has never taken a position on charitable gaming and we remain neutral on the subject,” said spokesman Ted Jones last week.

While casinos have doubled their lobbying at the State Capitol since 2009, there’s little evidence of a legislative push to restrict the poker rooms – and Ellsworth says legislation isn’t needed, if the Snyder team acts.

“What they need to do is cut way, way back on number of charities allowed at a venue and number of nights that venue can run charitable gaming … really it’s just a scheduling change. You don’t need a change in the rules or statute to do that. … The Gaming Control Board executive director has authority to approve venue and schedules. From that authority you can limit number of orgs per night at each venue,” he explained.

“By enforcing rules that are there now, you can get a higher percentage of money to charitable organizations.”

Editor's note: This story was produced in a collaboration between Bridge Magazine and the Gongwer News Service.

John Lindstrom is publisher of Gongwer News Service Michigan, a subscription service that covers daily activities at the Capitol and in state government. Lindstrom is a graduate of Michigan State University and has worked in Michigan journalism for more than three decades.

Bridge Senior Editor Derek Melot and Staff Writer Nancy Derringer contributed to this report.