Citing too much red ink, state yanks bingo licenses

Last year, the Houston Spring Branch Lions Club received some bad and unexpected news from the state of Texas. The fraternal organization’s permission to raise money by sponsoring bingo games was being yanked.

The reason was strictly business: Instead of raising money to give away to charity, as Texas law requires, bingo actually had been costing the club thousands of dollars a year in losses.

The Houston-area Lions chapter isn’t the only nonprofit to lose its permission to gamble recently. Over the past year and a half, the Texas Lottery Commission, which regulates bingo, has quietly moved to pull the gaming licenses of just under a dozen charities that were consistently losing money sponsoring bingo.

The number is relatively small — more than 600 organizations sponsored bingo last year. And the game still earns many charities tens of thousands of dollars each to donate to good works annually. Yet it also appears to be the first time that Texas regulators have forced nonprofits out of the game for failing to earn money.

“The law hasn’t changed,” said Stephen Fenoglio, an Austin attorney who represents many bingo charities. “But (the agency’s) attitude has.”

In the face of concerns over ever-escalating bingo prizes and for-profit gaming businesses eating into the money meant to go to charity, legislators in recent years have tried to make bingo-playing organizations demonstrate that the game was being used for the purpose for which Texas voters approved it. While those efforts so far have failed, a Texas Lottery Commission spokeswoman said the agency has decided to start taking action on its own.

Although the commission always had the authority to deny a nonprofit a bingo license for failure to earn money, “this had not been acted upon by previous Charitable Bingo leadership,” Kelly Cripe said. The recent flurry of yanked bingo licenses “is in response to past concerns by members of the Legislature regarding bingo profits and whether or not charitable organizations are generating revenue through bingo.”

Studies have predicted that requiring charities to actually make money on bingo could result in an even bigger shakeout to separate the game’s winners from its losers. “A minimum charitable distribution requirement will likely put some bingo licensees out of the bingo business,” a November 2014 state Senate report concluded. But “it is a necessary change to ensure charities are receiving an appropriate financial benefit from lending their names to charitable bingo operations.”

Big prizes, small profits

Texans voted in 1980 to change the state constitution to allow legal bingo in the state specifically to benefit charities. While the game’s fortunes have been on a steady downward trajectory for a decade, an analysis of state filings shows that in many ways bingo is in deeper jeopardy than previously reported.

Thanks to the declining popularity of what many view as a musty game for the elderly, as well as relentless competition from gambling, both illegal and legal (see accompanying story), the Lottery Commission reports the number of charities licensed to sponsor the game has slid steadily, by 18 percent since 2010. Yet many of those organizations are idle, and the number of charities that actively host bingo games has plummeted. In 2010, there were 937 active licensees; by last year, there were only 623.

And although total gross receipts have never been higher — about $740 million in 2014 — charitable distributions from bingo also have never been lower. The main reason: In their desperation to attract players, organizers have been offering more and more prizes. In 2014, bingo players won $566 million — the highest amount ever awarded.

The swelling jackpots — as much as 90 percent of gross receipts — have resulted in bingo recently arriving at another dubious milestone that further illustrates how the game’s fortunes have shifted, raising more questions about whether it is fulfilling its legal mandate.

Although bingo’s primary mission is charitable giving, state law also requires prize winners to pay 5 percent of their winnings to the government, most of which goes into the state’s general fund. So as jackpots climb, the government earns more.

As a result, Texas bingo in 2013 officially became more valuable to the tax collectors than the nonprofits it was intended to benefit. That year, organizations sponsoring bingo got to keep or distribute $26.6 million for charity. The government, meanwhile, earned $27.6 million.

The trend has accelerated as prizes have grown. In 2014, the last year for which figures are available, the government’s bingo take grew to $27.9 million. The charitable distribution, meanwhile, continued to shrink to a new low, $25.9 million.

“While awarding a high prize percentage is likely to improve bingo’s appeal, it is done so at the detriment of charities,” the 2014 legislative report concluded. State figures show that among charities that sponsored bingo in 2015, 1 in 6 donated less than $1,000. One-tenth actually lost money on the game after expenses. The numbers represent slight improvements over earlier years.

In Bexar County, San Antonio Positive Solutions, a nonprofit affiliated with a charter school, started playing bingo to raise money to build classrooms, said Principal Arturo Suarez. In the fall of 2012, financial records show bingo proceeds produced $1,100 for the charity.

Since then, however, the nonprofit earned nothing on bingo. “It didn’t give us any positive net income whatsoever,” Suarez said. The charity stopped sponsoring the game late last year.

In South Austin, state records show Veterans of Foreign Wars Post 856 sponsored 108 bingo sessions last year — and reported an annual profit of $395. While in the past the veterans organization had earned enough to donate to local charities such as Meals on Wheels and More, Quartermaster Ron Dorsey said it has been unable to make any charitable contributions lately.

‘We sort of broke even’

Most of the bingo licenses revoked by the Texas Lottery Commission in recent months have been held by such small nonprofits: veterans organizations in Cameron, Port Lavaca, Dallas and Rio Grande City; a San Antonio church. The Knights of Columbus 5236, in Galveston County, lost money in 7 out of 8 quarters between mid-2012 and 2014 before regulators finally pulled its license.

Their demise highlights another trend that has influenced the finances of the game: the steady move toward large, for-profit bingo halls that form partnerships with nonprofits.

Well-maintained and well-managed halls in good locations can draw big crowds, producing generous paydays for charities. In Austin, Imagine Art, which sponsors bingo games at Big Star Bingo in North Austin, last year netted more than $150,000 for its mission of providing art instruction and studio space to the disabled, Lottery Commission figures show.

“Bingo completely changed our nonprofit,” said Debbie Kizer, the organization’s founder and executive director. “It’s been amazing.”

Yet big halls also can generate big bills, which can cut into charitable profits. In Conroe, where International Serving Hands of America played bingo at Tejas Bingo, the charity’s 2014 tax filing shows the previous year it grossed nearly the same as Imagine Art in Austin — $1.4 million. Instead of making money, however, International Serving Hands of America ended up with a $2,156 loss.

A year earlier, the Houston charity lost more than $30,000 on the game. “Bingo can be very good,” said Treasurer Phil Arnold. “And bingo can be very bad.”

One problem, he said, is that charities and for-profit halls can operate with competing incentives. State law permits commercial operators to get paid first. And because they earn money based on the number of bingo games they host, Arnold said it can be in the halls’ interest to hold more bingo, even when few people show up to play.

International Hands landed in the red because “the schedule was expanded, which diluted our crowd,” he said. “But it made more money for the commercial interests.”

Chris Matthews, bingo manager for Tejas, said the hall holds about 13 bingo occasions per week, which he said hadn’t changed in recent years. He said he didn’t know why International Hands didn’t earn more money, or why it left the hall, but said the facility is dedicated to making money for charities.

Nonprofit advocates stress it is the charities’ responsibility to keep an eye on games being played in their name. But small organizations, especially, can be seduced by the promise of effortless money. Although some states legally limit the involvement that for-profit hall owners have in the bingo games played on the premises — forcing the charities to manage expenses — Texas does not.

Without that oversight, the result can be less money for charitable causes. Bryan Matthys, of the Huntsville Kiwanis Club, said his fraternal organization was recruited a couple of years ago by a Conroe hall, Mega Bingo.

State law requires that when bingo is played in a charity’s name, at least one member of the nonprofit must be present. But Matthys said Mega Bingo simply had one of its paid employees join the Kiwanis Club. Matthys said he visited the hall, which is more than 30 miles away, only once a month, for about an hour.

Lottery Commission records show that between 2013 and 2015, Mega Bingo took in $10 million in gross revenue. “But by the time all the fees were paid, we sort of broke even,” said Matthys.

Most of the money went to pay prizes. Records show Mega Bingo also collected about $230,000 in rent and premises expenses, and nearly $250,000 in salaries. The charities in whose names the games were being played, meanwhile, including the Huntsville Kiwanis, collectively got to split about $6,000 a year in earnings, filings show.

Mega Bingo closed for business three months ago. The contact for the business on file at the Lottery Commission, Mary Lechler, declined to comment.

Similarly, financial records show that between 2013 and 2015, VFW Bingo Hall, where the Spring Branch Lions Club was reporting bingo losses before state regulators pulled its license, billed $3.5 million in expenses, including rent, facility costs and promotion. Although the state limits the amount of money commercial halls can charge for some items, such as rent, there is no limit on others. Court documents show VFW Bingo’s manager and his wife, who also worked at the hall, earned a combined $185,000 annually while the Lions Club was in the red.

By starting to penalize organizations that are posting too many losses, Fenoglio said state regulators are signaling that bingo charities need to show they’re giving away money, or else. “You’ve got to get creative, you’ve got to get Draconian,” he said. “Or you’re not going to be playing bingo much longer.”

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