December 1, 2006
TEXAS HOLD'EM TOURNAMENTS FOR CHARITABLE FUNDRAISING
By: Veronica Rose, Principal Analyst
You want to know something about Texas hold'em tournaments and under what circumstances organizations that qualify to conduct charitable gaming may hold such tournaments in Connecticut and other states.
“Texas hold'em” is a seven-card poker game in which players wager money against each other on the strength of their hands by placing bets in a common pot. The player with the strongest hand at the conclusion of play wins the pot. Hold'em is currently the most popular poker variant, according to industry sources.
Our limited review of state statutes and regulations reveals that Connecticut, California, New York, and Texas are among the states that prohibit hold'em tournaments. Delaware, Indiana, Michigan (www.michigan.gov/cg), Massachusetts, and Ohio are among the states that allow charitable gaming organizations to conduct hold'em tournaments as fundraisers.
With regard to Connecticut, both the Connecticut attorney general and the Division of Special Revenue (DSR), which regulates gaming in Connecticut, have concluded that conducting Texas hold'em in bars violates state law. Additionally, DSR has indicated that such gaming would violate agreements that the state has with the Mashantucket Pequots and Mohegans. Under the agreements, the tribes give the state 25% of their gross slot machine revenue in exchange for the exclusive right to conduct certain games, including poker.
This report briefly highlights laws governing hold'em as they pertain to charitable gaming in two states that prohibit hold'em (Connecticut and New York) and four that authorize it (Delaware, Indiana, Massachusetts, and Ohio).
It does not appear that charitable gaming organizations in Connecticut may legally conduct poker games, including hold'em, as fundraisers. By law, they may conduct, subject to DSR regulation, certain specified gaming activities, collectively referred to as charitable games. Poker is not among them. The law defines poker as gambling (CGS Section 53-278a). It is illegal to gamble, solicit, or induce others to gamble, or be present when others are gambling. A violation is a class B misdemeanor, punishable by imprisonment of up to six months, a fine of up to $1,000, or both (CGS Section 53-278b).
The law exempts people from prosecution and punishment for playing poker (and gambling generally), when such gambling is “incidental to a bona fide social relationship,” as long as no one, other than the participants, receives anything from the game. Also, the Mashantucket Pequots and the Mohegans may legally conduct poker games at the two tribal casinos. They may do this under agreements with the state that give them the exclusive right to conduct “commercial casino games” in exchange for a monetary payment to the state (25% of gross slot machine revenue from each tribe).
Both DSR and the attorney general have indicated that the hosting of poker games or tournaments at commercial bars or similar establishments violates state law (see attached letters). As far as we have been able to determine, neither one has issued a ruling specific to charitable gaming organizations.
The gaming activities that charitable gaming organizations may currently conduct as fundraising activities include bingo, bazaars, raffles, and sealed ticket sales (see OLR Report 2005-R-0754 attached). Additional information on charitable gaming is available by contacting DSR at 1-800-338-6331 or 860-594-5480 or by visiting the division's website at: http://www.ct.gov/dosr/site/default.asp.
Under New York law, the New York State Racing and Wagering Board is responsible for determining authorized games of chance for charitable gaming purposes. The law prohibits the board from authorizing games that involve players betting against each other (NY General Municipal Law §186(3)). The board-approved list of permissible charitable games of chance does not include Texas hold'em, according to the board (http://www.racing.state.ny.us/about/about.home.htm). Because hold'em is not an authorized game of chance, organizations legally authorized to conduct games of chance cannot conduct hold'em games as fundraisers.
Additional information is available by visiting the board's website at http://www.racing.state.ny.us/charitable/char.home.htm.
Delaware law allows sponsoring organizations to conduct “no limit Texas hold'em poker” games as fundraisers, subject to regulation by the Delaware Gaming Control Board (Del. Code Ann. tit. 28 § 1803). The law defines a “sponsoring organization” as any veterans', religious, or charitable organization; volunteer fire company; or fraternal society (Del. Code Ann. tit. 28 § 1802).
An organization may hold up to four tournaments per year, as long as they are held at least 75 days apart. It must pay a $250 license fee to the board whenever it holds a tournament. It cannot start tournaments before 1:30 p.m. or allow them to continue for more than six hours.
Players must be at least age 21 (Del. Code Ann. tit. 28 § 1831). The organization may charge a tournament entry fee of up to $150 (Del. Code Ann. tit. 28 § 1825). It cannot award any prize valued at more than $2,000, and the aggregate value of all prizes awarded in any single tournament cannot exceed $8,000 (Del. Code Ann. tit. 28 § 1828).
The law contains other legal requirements governing tournaments, which include: tournament rules; record, reporting, and licensing requirements; and penalties for violations.
Additional information is available from the Gaming Control Board at 302-744-4530.
Under Indiana law, qualified organizations may conduct charitable gaming, subject to regulation by the Indiana Gaming Commission. Pursuant to the commission's regulations, an organization may hold poker tournaments to raise funds, under one of two licenses. All other poker tournaments involving bets, participation fees, and prize awards are illegal, except for tournaments held on a licensed Indiana riverboat, according to the Indiana Department of Revenue and the Indiana Attorney General's Office.
To be eligible to conduct charitable gaming in Indiana, the organization must be a bona fide religious, educational, senior citizens', veterans', or civic organization that meets specified criteria. It must (1) operate without profit to its members, (2) be exempt from taxation under Section 501 of the Internal Revenue Code, and (3) have been continuously in existence in Indiana for at least five years. Bona fide political organizations that meet certain limited criteria also qualify.
The organization may conduct games that involve betting on card games, including hold'em, up to four days in any year. Only the organization's members may staff the tournaments, and all proceeds must go to the organization.
Additional information is available at the commission's website at http://www.in.gov/gaming/charity/.
Massachusetts law allows qualified organizations to hold special bazaars as fundraisers. Bazaars (also referred to as Las Vegas or Casino nights) may include games of chance such as roulette, craps, blackjack, and poker, including Texas hold'em (Mass. Gen. Laws Ann. chap. 271 § 7A). The following are qualified organizations under the law, provided they were organized and actively functioning as nonprofit organizations in the state for at least two years:
1. veterans' organizations,
2. churches or religious organizations,
3. fraternal or fraternal benefit societies,
4. educational or charitable organizations,
5. civic or service clubs; and
6. other clubs or organizations operated exclusively for nonprofit purposes.
The organization must get a local permit to hold the bazaar and follow all the legal requirements for holding the tournament. It cannot hold more than three bazaars in a calendar year or more than one on any day, and it cannot hold a poker tournament at the same time as a bingo or beano event.
Only organization members can promote and staff tournaments. One member must be in charge of the tournament and file financial reports with the commission. Another must be responsible for the proceeds.
The organization may award merchandise prizes of any value or cash prizes up to $25. Players cannot bet on game results or receive prizes out of pools. The organization must pay the commission 5% of its gross proceeds.
Other legal requirements for operating a tournament include: posting house rules; filing required reports; and maintaining accurate records, including reports of the amount and source of all proceeds, all expenses and disbursements, prize winners, and prizes awarded.
The commission may revoke a bazaar permit if the permittee violates the law. Also it can bar the organization from holding a permit for up to three years. In some cases, violators may be subject to civil and criminal penalties, including fines of up to $1,000 and imprisonment for up to one year.
Additional information on poker tournaments or similar fundraising activities is available from the Attorney General's Office, Division of Public Charities (617-727-2200, ext. 2101).
Ohio law authorizes certain philanthropic and nonprofit organizations to conduct limited gaming, including games of chance, as fundraisers for charitable purposes (Ohio Rev. Stat. § 2915.02). Games of chance are “gambling activities where games such as Texas hold'em, blackjack, poker, and other similar games are played to raise funds for a charity” (Office of Charitable Gaming, Ohio Lottery). Thus, qualified organizations may conduct hold'em tournaments to raise funds, subject to applicable laws.
To be eligible to conduct charitable gaming, an organization must qualify as an IRS 501 (c)(3) tax-exempt organization and be one of 14 types specifically defined in law (Ohio Rev. Stat. § 2915.01). They include religious, educational, veterans', fraternal, volunteer firefighters', and sporting associations. With some exceptions, the organization must have been in continuous existence for at least two years immediately prior to conducting the games of chance.
The organization may not sell, lease, or transfer its right to conduct games of chance. In other words, unqualified organizations cannot conduct charitable fundraisers on behalf of a charity, even if the charity benefits from the proceeds.
The organization may conduct the games on premises it has owned for at least one year or on premises it leases from a government entity or fraternal organization. It may conduct the games only at “festivals of the charitable organization that are conducted either for a period of four consecutive days or less and not more than twice a year or for a period of five consecutive days not more than once a year” (Ohio Rev. Stat. § 2912.02). It may not conduct the games at any for-profit establishment, such as a hotel, restaurant, tavern, store, arena, hall or any other place of public accommodation. And it may not pay anyone for promoting or operating the games, directly or indirectly.
Organizations that conduct charitable gaming, including hold'em, must maintain accurate financial records of proceeds, which must then be reflected in their annual financial reports to the Internal Revenue Service and the attorney general. Failure to do so violates both state and federal law and could be deemed a breach of fiduciary duty resulting in civil litigation and penalties. Prizes are the only allowable expense an organization may deduct from the proceeds received from conducting games of chance. The rest must be used by, or donated to, either a 501(c)(3) organization or a government entity.
The organization may not pay anyone to operate or help operate the games of chance. More detailed information about the provisions governing charitable gaming is available at the attorney general's website at www.ag.state.oh.us.