The Virginia Department of Agriculture and Consumer Services (Department) offers the following comments on the proposed Texas Hold’em Poker Tournament Regulations (11VAC15-50 et seq.).

The Department believes that certain provisions of the proposed regulations (i) will allow the Charitable Gaming Board (Board) to take actions that are not in compliance with the Virginia Administrative Process Act (APA) and (ii) are insufficient to carry out provisions of the Charitable Gaming Statute (Va. Code § 18.2-340.15 et seq.) to ensure the integrity of charitable gaming in Virginia. 

Compliance with Provisions of the Administrative Process Act

In subsection B of 11VAC15-50-20 of the proposed regulations, the Board has given itself authority to adjust, outside of the APA, the amount of operator compensation that may be counted towards a qualified organization’s minimum use of proceeds for its lawful religious, charitable, community, or educational purposes for which the organization is specifically chartered or organized.  The Department questions whether the Board has authority to adjust the amount of operator compensation that may be counted towards a qualified organization’s minimum use of proceeds, unless such adjustment is made in accordance with the APA.  The Department recommends that subsection B of 11VAC15-50-20 be amended as follows:

B. In accordance with § 18.2-340.19 A 1 of the Code of Virginia, as a condition of receiving a poker tournament permit, a qualified organization shall use a minimum of 2.5% of gross receipts from its poker tournaments for (i) those lawful religious, charitable, community, or educational purposes for which the organization is specifically chartered or organized; (ii) those expenses relating to the acquisition, construction, maintenance, or repair of any interest in real property involved in the operation of the organization and used for lawful religious, charitable, community, or educational purposes; or (iii) the cost of compensating an operator who is contracted by the qualified organization to administer its poker tournament. However, the amount from this compensation that may be counted towards the minimum use of proceeds shall not exceed .25% of the gross receipts generated from the poker tournament, and it may be adjusted by the board at its discretion on an annual basis.

Compliance with Provisions of the Charitable Gaming Statute to Ensure Integrity of Charitable Gaming

In addition to the comments above regarding compliance with the Administrative Process Act, the Department is concerned that the proposed regulations will allow a conflict of interest to exist between the charity and a Texas Hold’em poker tournament operator, as defined in Section 10 of the proposed regulations.  The Department expressed this concern regarding the potential conflict of interest to the Board at the Board’s meeting on October 13, 2020.  The proposed regulations allow a charity or any person affiliated with the charity to negotiate a contract with itself and an operator to administer the charity’s Texas Hold’em poker tournament.  The Department believes that the operator of a Texas Hold'em poker tournament should be independent of the charity to ensure a contract is negotiated in good faith by both parties.  In addition, the proposed regulations do not prohibit any person affiliated with the charity to be employed by the operator of the Texas Hold'em poker tournament.  As such, an operator may compensate any person affiliated with the charity in order to secure the contract with that charity.  By allowing of this type of compensation, the proposed regulations are allowing a quid pro quo and, therefore, not promoting the highest level of integrity within charitable gaming.  This type of compensation is not allowed in other forms of charitable gaming in Virginia.  The Department provided draft regulations to the Board, on October 13, 2020, that addressed the potential conflict of interest between the charity and the Texas Hold’em poker tournament operator. 

The Department recommends that the Board revise 11VAC15-50-30 to include the following provisions:

No qualified organization or its members or any person affiliated or associated with the qualified organization, their immediate family member, or person residing in their household shall directly or indirectly have any interest or ownership in an operator that is contracted by the qualified organization to administer its poker tournament.

Notwithstanding 11VAC15-50-140 B 16, no qualified organization or its members or any person affiliated or associated with the qualified organization, their immediate family member, or persons residing in their household shall directly or indirectly receive any remuneration or payments related to the administration of its poker tournament from the operator who is contracted by the qualified organization to administer its poker tournament.

No qualified organization, its members, any person affiliated or associated with the qualified organization, their immediate family, or persons residing in their household shall be employed, contracted, or otherwise compensated by an operator that is contracted by the qualified organization to administer its poker tournament.

The Department further recommends that the Board revise 11VAC15-50-140 to include the following provision:

Require the operator to prohibit its directors, officers, owners, partners, tournament managers, employees, independent contractors, or agents from employing, contracting, or otherwise compensating any person affiliated or associated with a qualified organization, their immediate family, or persons residing in their household for which the operator is contracted to administer the qualified organization’s poker tournament.