Gaming crackdown shrinks pots for charities

Michigan gamblers’ taste for Texas Hold'em and other card games does more than enrich those with hot hands. It also pumps millions of dollars into community charities, where money raised from poker games pays for Little League and soccer teams, eyeglasses for children in poverty and numerous other good works in a state where government social services budgets shrink year by year.

But the ability of charities to raise money has been crimped the past few years by a crackdown on charity poker by the Michigan Gaming Control Board. Better known as the agency that regulates Detroit’s three casinos, the Gaming Board also took over regulation of charity poker events in 2012 and quickly went after alleged abusers.

Charity leaders admit that some bad actors took advantage of charity gaming. But they complain the Gaming Board has gone too far in the other direction, hurting their ability to do good work in their communities even as state spending on social programs declines.

As a result of the crackdown, the scope of charity gaming in Michigan has dwindled, and the revenue raised has dropped dramatically.

The Gaming Board reports that the total revenue from chip sales at charity games — essentially the amount of money bet — dropped from a peak of $197.3 million in 2011 to $86.3 million in 2014. That's a $111-million decline, but it's possible the difference may be even greater since the higher number may have underestimated the total revenue. Not all the money goes to charities as expenses must come out of that, but clearly the decline has been significant.

The abuses, as outlined by Gaming Board Director Richard Kalm, included widespread fraud at so-called poker rooms — bars, catering halls and other locations that operated virtual mini-casinos on behalf of hundreds of different charities. The Gaming Board has put poker rooms out of business for offenses as varied as skimming off the top of charity revenues, setting up fake charities as an excuse to operate games and accepting bribes.

Some poker rooms that were supposed to split profits with the charities they represented would first charge exorbitant prices for extras like back rubs for players.

“This was the Wild West,” Kalm told the Free Press in a recent interview. “The fraud was rampant."

Since 2012, the Gaming Board has imposed tough new regulations that led to legal challenges from the Michigan Charitable Gaming Association, but the state Court of Appeals this year mostly upheld the state agency. Those rules limit sharply the hours that individual charities can operate games, puts restrictions on the sites that host such games, and added new requirements on the charities such as needing three rather than two volunteers to staff games.

Some charities say the gambling revenue stream is more important than ever because public money for social services has been shrinking.

“The state doesn’t have any money to do much of anything,” said Kim Spalsbury, president of the Lions Club of Grand Ledge near Lansing, which uses its gaming revenue to pay for eye exams and other services for poorer residents. “We’re cutting back on almost every service offered, and here we are trying to supplement that and take care of people in our communities who are in need and you’re going to tell me that’s not good?”

Adversarial attitude

Charities complain not just of lost revenue but of what they call an adversarial attitude of Gaming Board inspectors, many of whom are retired law enforcement officers. Some charities say they’ve been cited by Gaming Board inspectors for such minor infractions as volunteers not wearing name tags, and that applications for licenses for events are arbitrarily denied or sometimes take months and lots of red tape before gaining approval.

“They keep changing the rules, and there’s oftentimes there’s no notification until the last minute,” said Spalsbury of the Lions Club. “I understand you want to make sure that the games are aboveboard and that people are being treated fairly and there’s no corruption, but that doesn’t mean that you have to have this attitude almost that all the suppliers and all the locations and all the charities are somehow an enemy. You almost feel like you are being treated like a criminal.”

Tony Macksoud of the Optimist Club of Lapeer and chairman of the charitable gaming association agreed.

“They just keep squeezing and squeezing,” he said of Gaming Board inspectors. “They only know one way: bust people and move on. It’s been extremely tough.”

Kalm denied that the enforcement under the law has been unfair. He said license approvals are often delayed now because his agency must background individuals from each charity that will be overseeing charity games, something that often wasn't done before. Once a charity goes through the time-consuming process this year, future license approvals should be easier, he said.

Kalm also said that charities can and do derive even more money from raffles, bingo and other types of gaming that is still open to them, in addition to charity poker events.

"We feel for the charities," Kalm told the Free Press. "It's tough to go out there and fund-raise. And this was the type of fund-raiser where there was very little work involved; there was a lot of cash to be made. But there was also major integrity issues with the gaming."

Since 2012, the Gaming Board has shut down two dozen so-called poker rooms, and nearly two dozen people have pleaded guilty to misdemeanor gaming violations, including stealing money from charities or operating games without a license.

These charity events are known in regulatory parlance as “millionaire parties,” a fanciful name for gatherings where the stakes remain low and, as Kate Hude, director of the trade group Michigan Charitable Gaming Association, said, “I think it’s safe to say there has never been a millionaire at any party.”

Some charities and nonprofit organizations host their licensed events on their own premises, like the Players Club, a men’s theatrical group with its historic playhouse on East Jefferson Avenue in Detroit. But many charities held their events in the so-called poker rooms — dedicated rooms at restaurants or meeting halls where supplier companies provided the cards, tables, chips and other equipment plus the dealers to conduct the games in exchange for a split of the profits.

Bogus charities

Charities themselves must supply volunteers to register players and exchange cash for chips. This system developed beginning in the early 2000s, when the professionalized poker rooms began to gain popularity and revenue from chip sales soared from less than $8 million in 2003 to roughly 20 times that by 2011.

Even charities agree that abuses crept into the system in years past, leading to the state’s crackdown beginning in 2012. Among those abuses: Some poker rooms allowed stakes to rise to casino-like levels, offering blackjack games for $50 a hand, or kept a bigger share of the profits than allowed under state regulations. Kalm said some poker room operators set up bogus charities and held games on behalf of those "charities" to keep all the revenues.

But charities complain that the Gaming Board’s crackdown has cut deeply into legitimate charitable efforts, which raise modest amounts of money from their events. The Players Club typically nets no more than about $3,000 from its annual event. The Lions Club of Grand Ledge holds four events a year and clears about $20,000 from them, and Spalsbury estimates the club is down about $7,000 this year because of the state's new restrictions.

Some leaders of the state's charities say the Gaming Board acts at the behest of the Detroit casinos, which pay vastly more in taxes to the state than the charity games and which openly oppose the charity events, which casinos maintain draw business away from them.

Kalm denied that, but Hude of the Charity Gaming Association sees "a conflict of interest that the same entity that is regulating the Detroit casinos who are obviously against our existence also regulates us.”

The charity events had been regulated under the state’s lottery office until 2012, when Gov. Rick Snyder transferred the regulation of them to the Gaming Board, which regulates the three Detroit casinos and audits the state's two dozens American Indian tribal casinos. Charity leaders say lottery regulators used to work more cooperatively with charities, offering seminars on how to hold better events and working hand in hand to correct mistakes.

But charities complain that the Gaming Board has abandoned that cooperative attitude.

“With this group, the Gaming Control Board, it’s 100% enforcement,” said Macksoud of the Optimist Club of Lapeer. “They don’t teach anybody anything; there are no classes, no seminars put on by them, there’s no meeting. When you do something, you’re not warned; all they do is show up and close you down. There’s a big difference dealing with someone who works through the administrative process and someone who’s just totally enforcement.”

Taking the charities' side in the dispute, state Sen. Rick Jones, R-Grand Ledge, has sponsored legislation to roll back some of the Gaming Board’s tougher rules. “Now, I do agree that there have been a couple of really bad actors out there, and I have no problem putting them in jail if they’ve been stealing and cheating,” Jones said last week. “But the vast majority of charities are trying very hard to follow the rules. It seems that the rules constantly change, and the state constantly makes it harder for them to operate and raise a few dollars for the charity.”

And Jones takes issue with Kalm himself.

“When I spoke with the director, he said: ‘I’m going to enforce this and basically there’s nothing you can do about it,' ’’ Jones said. “I have never been treated that way by any other director in the State of Michigan. He’s extremely hard to work with, so that’s why I’m trying to deal with the situation with legislation.”

Kalm denies ever being rude to Jones, saying he and his staffers have worked with the senator on multiple occasions. "Sometimes people perceive rudeness when you're not telling him what they want to hear," he said.

A mountain of information

Besides the poker rooms, another target of the Gaming Board’s crackdown has been the supplier companies that provide the tables, chips and other equipment, plus the dealers to operate the games. In an Oct. 8 letter to the state’s few dozen remaining supplier companies, the Gaming Board demanded a mountain of financial data from each and gave them barely two weeks to comply.

The required data included all company bank statements from 2012 onward, their check registers for that period, copies of all payroll reports including employee names, Social Security numbers and annual pay; three years’ worth of petty cash journals, and copies of all credit card statements from 2012 to now.

Patty Amigoni, founder and owner of Dearborn-based Casinos Wild, a supplier company, said the Gaming Board’s requirements are hard to meet on short notice. She recently requested and received an extension.

“I know they’re just doing their job, but some of the demands they put on are very, very overwhelming,” she said. “They go through everything with a fine tooth comb, which is what they're supposed to do, but it’s stressful.”

Contact John Gallagher: 313-222-5173 or gallagher@freepress.com. Follow him on Twitter @jgallagherfreep.