Michael Menefee

Program Manager, Office of Charitable and Regulatory Programs

Virginia Department of Agriculture and Consumer Services

102 Governor Street

Richmond, VA 23219

RE:      Promulgation of regulations for Texas Hold’em poker tournaments by the Department of Agriculture and Consumer Services

Dear Mr Menefee:

I submit this comment in support of the intended regulation, but to argue against its current procedural path as it seems likely subject to the Administrative Process Act, despite the recent 2022 Acts of Assembly that the agency cites to authorize its action. Therefore, the agency should proceed with an abundance of caution to avoid future challenges to this important and necessary regulation.

1. On Balance, the Regulations Are Net Beneficial for Virginians

1. The Regulation May Create Additional Revenue Streams for and Increase Public Engagement with Qualified Organizations

As a former grants and acquisitions specialist within the Federal Government and later with a 501(c), I understand that nonprofit, charitable, and other qualified organizations are confronted with a constant fundraising challenge. As the public resumes in-person gatherings following the pandemic, this regulation is timely and well-suited to these circumstances; and the possible direct benefits for charitable organizations that choose to engage in charitable gaming as a method of fundraising are clear.[1] The agency should, however, clearly state these benefits in real terms. The adequacy of the accompanying Economic Analysis Review is discussed below in Part II.

Similarly, qualified organizations often use events such as charitable gaming to increase awareness of the organization’s causes. Charitable gaming therefore represents a “win-win” in which individuals, while possibly netting-out financially are nonetheless made aware of the organization’s mission and campaign(s) – a situation which might spur further non-gaming giving.

2. The Regulation Will Protect Consumers Engaged in Charitable Gambling

This regulation takes several steps to positively protect consumers from unfair operation of Texas Hold’em Poker Tournaments. There are numerous sub-regulations relating to the training, certification, and best practices of operators[2], rules related to record-keeping, as well as rules designed to prevent conflicts of interest and fraud.[3] While they may increase administrative costs for operators and qualified organizations, they represent a necessary addition to the regulatory regime in an area (gaming), that is uniquely prone to fraud and deception.

3. The Regulation Contains Substantive Issues and Represents a Windfall for “Charitable Gaming Suppliers”

An initial observation is the illogic of the “Re-Buy” rules. Any person familiar with Texas Hold’em Poker, or card games generally, knows that re-buys (or “re-buy-ins”) occur when a player has lost all their chips; 11VAC20-30-10, however, defines re-buys as “a player's purchase of additional poker chips at a predetermined time and for a predetermined fee”, and stipulates in 11VAC20-30-100(G), that “Re-buys may only occur before a player has lost all of his poker chips and may only bring the player up to the original amount of poker chips provided at the beginning of the tournament. A player who has lost all of his poker chips may not re-buy and is eliminated from the tournament.” Another commentor has pointed out that this conception of “re-buys” represents another gaming concept, “add-ons”.[4] The regulations are therefore likely confusing for both experienced and amateur players, as well as for operators and qualified organizations. The regulation ought to be changed to rewrite or strike the offending portions of 11VAC20-30-100(G) or else the regulation might be found arbitrary and capricious, as it imposes an operating ruleset on charitable gaming that is contrary to public practice and understanding with no stated or apparent legitimate policy justification, and is more onerous than the regulations imposed on other gaming entities.

The regulation states that dealers for Texas Hold’em Poker Tournaments cannot be “tipped.”[5]  There appears to be no basis in state law or federal law for the proposition that service employees for private companies may not receive tips from satisfied customers. As a former service employee, I can personally speak to the wage power bestowed by the ability to receive tips. Rather, this regulation would contravene state and federal employment law.[6] Other commentors have expressed concern over this particular sub-regulation, and I join this opposition.

Lastly, the regulation contains several onerous requirements for operators and qualified organizations in sourcing equipment used in charitable gaming. For example, 11VAC20-30-100(I)(1) requires that “all tournament chips used in a poker tournament must be purchased from a charitable gaming supplier permitted pursuant to § 18.2-340.34 of the Code of Virginia”. 11VAC20-30-100(J)(1) places a similar sourcing requirement on playing cards. On their face these sourcing requirements might seem harmless, but the requirements go further; for example, “The tournament chips shall bear the following: a. The name, logo, or other identification of the charitable organization or operator issuing the tournament chip; b. The word ‘Tournament;’ c. The tournament value of the poker chip. No monetary word or symbol, such as dollars ($) or cents (¢), shall be used on any poker chip; and d. The phrase ‘No Cash Value.’” 11VAC20-30-100(I)(2). What results is a ban on standard, unbranded poker equipment and a mandate that operators and qualified organizations purchase bespoke poker equipment undoubtedly sourced by a few (or even one) “charitable gaming supplier” – and even then, it must be again approved by the Department (“All poker tournaments shall be conducted using tournament chips approved by the department” 11VAC20-30-100(I)(2)).  Not only do these represent an undue burden on smaller organizations and operators that might not afford customized gaming equipment, the issue is compounded by the creation of an exclusive (state-permit required) industry. I urge the agency to revisit these requirements and demonstrate a sound policy rationale or explanation of the costs and benefits related to such rules.

2. Contrary to the Notice of Intended Regulatory Action and Memorandum of the Attorney General, this Action is Subject to the Constraints of the Administrative Process Act

The agency claims exemption from the formal rulemaking procedures imposed by the Administrative Process Act. The Proposed Regulation Agency Background Document accompanying the NOIRA states that”

“Section 18.2-340.19 of the Charitable Gaming Law requires VDACS to adopt regulations that prescribe the conditions under which a qualified organization may manage, operate, or contract with operators of, or conduct Texas Hold’em poker tournaments . . . Chapters 554 and 609 of the 2022 Acts of Assembly include an enactment clause that exempt the initial adoption of these regulations from the Administrative Process Act, except that the agency must provide an opportunity for public comment on the regulations prior to adoption.” (emphasis added)

The Memorandum of the Attorney General accompanying the NOIRA similarly states:

“[T]he promulgation of these regulations is exempt from the requirements of the Administrative Process Act pursuant to the third enactment clause of Chapters 554 and 609 of the 2022 Acts of Assembly. I note that the third enactment clause of Chapters 554 and 609 of the 2022 Acts of Assembly mandate that the Department take this regulatory action.”

It is understandable that two executive departments (the Virginia Department of Agriculture and Consumer Services, or VDACS, and the Attorney General) would not plainly admit its regulation is subject to the more burdensome requirements of the Administrative Process Act, Virginia’s companion version of the Federal Administrative Procedure Act. But this is contrary to the ordinary meaning of the current law and relies on a mistaken view of Virginia’s legislative history.

First, a brief history of charitable gaming law in Virginia is in order. Texas Hold’em Poker was legalized by the General Assembly in 2020, under the auspices of SB 936, for the benefit of qualifying charities. 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. However, this mandate does not automatically impose on the Department informal rulemaking authority in contravention of the Administrative Process Act.

The plain text of the Administrative Process Act offers numerous exemptions, and the one seemingly relied upon by the Attorney General and VDACS is found in § 2.2-4002. (“Exemptions from chapter generally”) It states: “the following entities shall be exempted from the provisions of this chapter[:] . . . Any rules adopted by the Department of Agriculture and Consumer Services for the approval and conduct of game variations for the conduct of raffles, bingo, network bingo, and instant bingo games, provided that such rules are (i) consistent with Article 1.1:1 (§ 18.2-340.15 et seq.) of Chapter 8 of Title 18.2 and (ii) published and posted.” Notice the striking omission of  Texas Hold’em Poker (or any card game). Expressio unius est exclusio alterius, and the exemption for VDACS regulation glaringly omits any on any reference to Texas Hold’em or poker.

As for the legislative history referenced by the Attorney General, the 2022 Acts of Assembly only altered a single phrase within this exemption, replacing “Charitable Gaming Board” with “Department of Agriculture and Consumer Services”, but never altering the substantive exemption that only applies to regulations of “raffles, bingo, network bingo, and instant bingo games”. The department may satisfy its legislative mandate to regulate Texas Hold’em Poker Games, but it must do so through the formal procedures specified in the Administrative Process Act. The regulation would specifically need to conform with the requirements of § 2.2-4007.04. (“Economic impact analysis”) The current economic impact analysis likely does not conform to these requirements, and would thus any final rule may be subject to being struck down due to procedural deficiencies.

In summary, I ask that the Department revisit the regulations in anticipation of possible required conformity with the Administrative Process Act, and that the concerns raised above and by other commentors be considered in developing a final rule.