I write this public comment as Counsel for Cheers–a Virginia nonprofit entity which qualifies to hold a Virginia charitable gaming license–to address 3 issues on the proposed regulations: (1) "No Tipping"; (2) "Ban on Concurrent Tournaments"; and (3) "Use of Proceeds". For the reasons stated herein, the 3 regulations addressed in this comment will not withstand a challenge in Court given that they violate state and federal law, are discriminatory, arbitrary, and capricious, conflict with the Virginia Code, and exceed the authority granted by the Virginia General Assembly to regulate the conduct of Texas Hold’em poker tournaments for eligible charities like Cheers.

Texas Hold’em Poker was legalized by the General Assembly in 2020, under the auspices of SB 936, for the benefit of qualifying charities and signed into law by Governor Northam. In 2022, the General Assembly passed SB 402, which vested the power in VDACS to write regulations in order to effect the purposes of SB 936, i.e., the legalization of Texas Hold’em Poker. Notably, the definitions from SB 936 remained intact, except that SB 394 – also passed in 2022 – added one additional limitation that charitable organizations could not host Texas Hold’em games which had “no predetermined end time” or where the players wagered “actual money or poker chips that [had] cash value.”

Since July 1, 2022, VDACS has been tasked with writing the regulations.[1]  It has taken nine months to finally release those regulations for comment.  During that time, nonprofit charities – which had a legal right under SB  936 to play poker free from criminal penalty and had successfully played the game in 2020-2021 without any prosecution – were faced with a minimum civil penalty of $25,000 if they continued to host games.  So, they waited in good faith for VDACS to complete the regulations and re-open the game.

Having reviewed the draft regulations with my client, I offer two (2) key observations:

• They are strikingly inconsistent with regulations on casino gaming (or even like forms of charitable gaming); and
• They are intentionally designed so that charitable Texas Hold’em Poker will fail.  

Permit me to elaborate.

• “No Tipping.”  11VAC20-30-60(P).  The most offensive regulation states that dealers for Texas Hold’em games/tournaments cannot be “tipped.”  There is no basis in state law for this prohibition, either in SB 936 or elsewhere.   As a practical matter, service employees – especially those in the gaming industry – rely on “tips” for their income.  This is an accepted custom and practice for those who work at the tables.  There is zero restriction in Virginia on dealers at professional casinos, who play for much higher stakes, receiving tips; neither the casinos nor their employees would stand for that.  From a broader perspective, there is no state or federal law which precludes service employees for private companies from getting tips from satisfied customers. Conversely, this regulation would contravene existing state and federal laws that protects employee’s rights–as part of their “wage”–through the receipt of “tips” from their employer. See Va. Code § 40.1-28.9(B) (“determining wage of tipped employee”); see also Fair Labor Standards Act (“FLSA”), 29 U.S.C. 203 et seq. (§ 3(m)(2)(A)). In essence, this prohibition would violate public policy–under both state and federal law–by stripping protections set in place for employees since the Great Depression.  That is inhumane. In short, this regulation is inconsistent with state and federal law and industry practice and is only intended to have charitable gaming fail.

• “Ban on Concurrent Tournaments.” 11VAC20-30-90(F). Another offensive rule prohibits “concurrent tournaments.”  In other words, only one tournament can be played at a time. (Imagine a restaurant serving only one party at a time).  The purpose of SB 936 was to allow qualified charities to host “poker tournaments” and “poker games” which are defined terms. SeeVa. Code § 18.2-340.16.  Nothing in those definitions suggests or infers that only one tournament can be played at a time.  Again, that would be wildly inconsistent with the rules applied to private casinos, where industry practice is that dozens of games are played at one time, with the winning players advancing to the “final table.”[2]  Again, there is no articulated reason for this restriction other than it will make Texas Hold’em Poker financially unfeasible for charities and, therefore, cause this expansion of charitable gaming to fail. The Code is clear: it permits “Texas Hold’em pker tournaments[.]” See Va. Code § 18.2-340.28:2 (“Conduct of Texas Hold’em poker tournaments…”) (all five subsections–“(A)”-“(E)”–contain the word in plural form: “tournaments”). The Virginia General Assembly (“GA”) used the word “tournaments”–in its plural form–rather than “tournament”–in its singular form–and the GA’s intent is determined by giving words their ordinary, plain meaning in interpreting the foregoing. See, e.g., Mirant Potomac River, LLC v. Commonwealth, No. 2067-08-2, 2009 Va. App. LEXIS 287, at *18-20 (Ct. App. June 23, 2009) (court engaging in statutory interpretation to the word “purchase” and applying its ordinary meaning because the term is “unambiguous”). State agencies are not afforded great deference when a court reviews an agency’s regulation that conflicts with statute, and “regulations must neither exceed the scope of the authority delegated nor be inconsistent with it.” See id., 2009 Va. App. LEXIS at *15-16 (citations omitted). The proposal for banning concurrent tournaments violates Va. Code § 18.2-340.28:2(A)-(E) and would be an exercise of authority beyond the scope permitted by the GA. See, e.g., id., 2009 Va. App. LEXIS at *31 (holding that “Board’s regulation prohibiting compliance through any acquisition of allowances exceeds the scope of its authority” under the Code). 

• “Use of Proceeds.”  11VAC20-30-170.  For years, VDACS has permitted charities the flexibility to conduct games and pay related expenses, without adding gratuitous rules not faced by private gaming entities.  The best example of this is the rule utilized for “electronic pull tabs,” in which charitable operators are expected to pay a minimum of 20% of the “adjusted gross” from the game for the benefit of the charity.[3]  As long as the charities meet that standard, the remaining division for associated costs (e.g., rent, insurance, labor, etc.) is not relevant.  However, when it comes to Texas Hold’em Poker, VDACS is demanding that charities follow the “bingo” standard in that 10% of the unadjusted gross must be paid to the charity, before deducting winnings.  That standard ignores the fact that payouts in Texas Hold’em must be consistent with casino games, which have a much tighter margin, or else customers will go elsewhere.  In addition, Texas Hold’em tournament requires the use of specialized personnel, i.e., professional dealers, while bingo callers are typically volunteers.  There are increased costs from rent, security, insurance, and game supplies.  The bottom line is that a Texas Hold’em operation is much more like a professional casino operation than Bingo which can be played in any venue.    The proposed rules regarding “use of proceeds” would, again, destroy the ability of charities to play this game.

These are just a sampling of the regulations that we find extraordinary.  Again, the easiest test for the logic of a regulation is as follows: “Does a professional casino follow this rule if it is conducting the same activity?” If the answer is “no,” then the rule is presumptively discriminatory against charities.  That alone renders it “arbitrary and capricious,” especially since charities that play these games are already subject to scrutiny by the IRS to ensure compliance with their charitable mission. There is no need for VDACS to duplicate that review. 

These proposed regulations–as addressed above, supra, and in the public comments to date–stifle the ability to properly conduct Texas Hold’em poker tournaments. For the foregoing reasons, they will not withstand a challenge in Court given that they violate state and federal law, are discriminatory, arbitrary, and capricious, conflict with the Virginia Code, and exceed the authority granted by the Virginia General Assembly to regulate the conduct of Texas Hold’em poker tournaments for charities. 

In summary, we believe the regulations are fundamentally anti-charity and anti-poker.  We ask that they be revisited across the board.  Thank you.  

Sincerely,

J. Chapman Petersen, Esq.