February 16, 1988
Mr. John P. Abbott
Attorney at Law
P.O. Box 278
Brandon, South Dakota 57005
Official Opinion No. 88-01
Ability of an organization qualified under SDCL 22-25-25 to contract with a private individual to conduct bingo and lottery games
Dear Mr. Abbott:
You have requested an official opinion from this Office in regard to the following facts:
FACTS:
A private individual has informed the City Commission of the City of Brandon (a South Dakota Municipal Corporation and hereinafter referred to as the "City") of his plan to contract with organizations which qualify under SDCL 22-25-25 to conduct on behalf of the said organizations, bingo and lottery activities. The private individual himself is not a qualifying organization under SDCL 22-25-25.
The private individual would provide to each qualifying organization a twenty-four hour lease for the assembly hall, all required chairs, tables, miscellaneous bingo supplies, electronic score board and game operation center. In addition, the private individual would handle all promotion of the bingo/lottery games and all related services as well as all necessary labor if requested by the exempt organization. In exchange, the exempt organization would pay a flat fee for all rent, equipment and services rendered. The contract proposed by the private individual guarantees that the organization will retain a minimum of 15% of the gross revenues regardless of the flat fee.
A qualifying organization has petitioned the City for permission to hold a bingo or lottery game. However, the City has passed a Resolution which sets forth the City's objection to the conducting of any bingo game or lottery of any organization which is not a qualifying organization under SDCL 22-25-25, or the conducting of a bingo game or lottery by a non-qualifying individual or organization who is in the business of "conducting" bingo games or lottery by renting space and equipment to otherwise qualifying organizations.
Based on the foregoing facts, you have asked the following questions:
QUESTIONS:
1. May a private individual, who is not a qualifying person under SDCL 22-25-25, conduct for profit, bingo and lottery games and otherwise provide all space, equipment, promotion and/or labor services to organizations which qualify under SDCL 22-25-25, in exchange for a pre-determined fee or percent of gross game revenue, whichever is less?
2. Do the restrictions placed upon a qualifying organization by SDCL 22- 25-25(2) through (4) preclude a qualifying organization from contracting with a non-qualifying bingo/lottery if the non-qualifying operator receives a percentage rent, and/or is employed to substantially operate the bingo or lottery games, and/or receives compensation in excess of Thirty Dollars ($30.00) for space, equipment, promotional and/or labor services rendered to the qualifying organization?
3. Does the City have full and complete discretionary authority to veto any proposed bingo and/or lottery games even though the exempt organization meets all the criteria of SDCL 22‑25‑25(1) through (5), both inclusive, or in other words,
4. Is the veto authority of the City pursuant to SDCL 22-25-25(6) exercisable only if a qualifying organization fails to meet the criteria of SDCL 22‑25‑25(1) through (5).
GENERAL DISCUSSION:
The South Dakota Constitution generally prohibits games of chance. Authorized charitable bingo and lottery games and the State Lottery are excepted from this prohibition. Article III § 25 provides:
The Legislature shall not authorize any game of chance, lottery or gift enterprise, under any pretense, or for any purpose whatever provided, however, it shall be lawful for the Legislature to authorize by law, bona fide veterans, charitable, educational, religious or fraternal organizations, civic and service clubs, volunteer fire departments or such other public spirited organizations as it may recognize, to conduct games of chance when the entire net proceeds of such games of chance are to be devoted to educational, charitable, patriotic, religious or other public spirited uses. However, it shall be lawful for the Legislature to authorize by law, a state lottery which is regulated, controlled, owned and operated by the state of South Dakota, either separately by this state or jointly or in cooperation with one or more other states. The entire net proceeds of such lottery shall be devoted to the operation of state government or such other purpose as the Legislature shall determine.
The legislature has implemented the charitable bingo and lottery exception through SDCL 22-25-25 which reads:
The game "bingo" as defined in § 22-25-23 or lottery as defined in § 22-25-24 may not be construed as gambling or as a lottery within the meaning of § 22‑25‑1, provided that:
(1) The bingo game or lottery is conducted by a bona fide nationally chartered veterans, religious, charitable, educational, or fraternal organization, local civic or service club, political party or volunteer fire department or political committee on behalf of a candidate for a political office which exists under the laws of the state of South Dakota;
(2) The proceeds therefrom do not inure to the benefit of any individual;
(3) No separate organization or professional person is employed to conduct the bingo game or lottery or assist therein;
(4) No compensation of any kind in excess of thirty dollars in value is paid to any person for services rendered during any bingo session in connection with the conduct of the bingo game or in consideration of any lottery. However, the provisions of this subdivision do not apply to games or lotteries conducted in connection with any of the following events: a county fair conducted pursuant to § 7-27-3, the state fair conducted pursuant to chapter 1-21, or a civic celebration recognized by resolution or other similar official action of the governing body of a county, city, town, or village;
(5) No prize in excess of two thousand dollars is awarded at any one play of bingo and no lottery prize is in excess of eighteen thousand dollars in value. However, a lottery prize of eighteen thousand dollars or less in value may also be given to a person who sells a winning lottery ticket or share as long as the winning lottery ticket or share is selected at random; and
(6) The organizations authorized under subdivision (1) of this section, before conducting a bingo game or lottery give thirty days' written notice of the time and place thereof to the governing body of the county or municipality in which it intends to conduct the bingo game or lottery, and the governing body does not pass a resolution objecting thereto. However, any organization that conducts a lottery and tickets or shares for such lottery are sold state-wide shall provide written notice of such lottery pursuant to this subdivision only to the secretary of state and to the governing body where the drawing for such lottery is held. A municipality pursuant to § 9-29-5 may by ordinance prohibit within the municipality the sale of lottery tickets or shares for such lottery issued pursuant to § 22-25-25.
Municipalities have authority to control gambling within their boundaries through the authority granted them in SDCL 9-29-5, which provides:
Any municipality may suppress gambling, gaming and gambling houses, lotteries and all fraudulent devices and practices used for obtaining money or property. Any municipality may enter any place where any such activity is practiced or allowed to be practiced, and seize and destroy any instrument, device or thing used for such purpose found therein. The provisions of this section do not apply to any lottery owned or operated by this state.
With these general principles in mind your individual questions will now be addressed.
IN RE QUESTIONS NO. 1 AND 2:
The answer to your first question as presented is easily found in the language of SDCL 22-25-25. Subsection (1) exempts from criminal liability only games "conducted by" a qualified organization. Subsection (2) prohibits "proceeds" "inure[ing]" to any "individual." Subsection (3) prohibits the hiring of a separate organization or person to "conduct" the game or to "assist therein." Finally, subsection (4) limits compensation of any person for "services rendered" in connection with a bingo session or lottery to thirty dollars.
Under your facts the private individual, not the qualified organization, would be "conducting" the game and therefore subsection (1) would be violated. The individual or individuals who conducted the game would be receiving proceeds from the game and thus subsection (2) might be violated. A separate person would be employed and thus subsection (3) would be violated. Also, the individual or individuals conducting the game would be receiving compensation in excess of thirty dollars in violation of subsection (4). Accordingly, the operation as you have portrayed it would not fit the gambling exclusions of SDCL 22‑25-25.
This does not mean that a qualified organization cannot rent facilities and equipment from a nonqualified person or organization to conduct a bingo game which otherwise complies with SDCL 22-25-25. Reasonable costs for such facilities and equipment together with other reasonable expenses may be paid by the qualified organization. The state constitution authorizes the Legislature to allow games of chance where "the entire net proceeds" (emphasis added) are used for charitable or public spirited uses. The use of the words "net proceeds" recognizes the deduction of reasonable expenses. Although the term "proceeds" (emphasis added) is used in SDCL 22-25-25(2) this does not mean that reasonable expenses cannot be paid by the qualified organization. The Nebraska Supreme Court found that a provision of its state's constitution which required "proceeds ... be used solely for charitable or community betterment purposes without profit to the promoter ..." allowed the payment of "reasonable and necessary expenses" incident to the operation of the game. State v. City Betterment Corp., 250 N.W.2d 601, 603, 605 (Neb. 1977). To find that an organization cannot rent facilities and equipment would limit bingo operations to organizations which currently have buildings large enough to house bingo games or ones which financially have the ability to purchase a building. Neither the South Dakota Constitution nor statutes imply such an intention.
The question of whether the rental charge may be based upon percentage of the gross revenue from the bingo operation can only be answered by comparing the reasonable costs for renting comparable facilities and equipment to the anticipated amount derived from applying this percentage to anticipated gross revenues. Neither the Constitution nor state statutes provide any firm guidance on this question. Therefore, one must rely on the recognition of the necessity to pay for "reasonable and necessary" expenses found in the use of the terms "net proceeds" and "proceeds" in the Constitution and SDCL 22-25-25. Whether use of a percentage of the gross revenues to determine the amount of the rent is reasonable would have to be determined on a case-by-case basis.
A qualified organization having rented facilities and equipment must "conduct" the bingo game itself. The Constitution and SDCL 22-25-25 do not allow an organization to sell its qualified status to another nonqualified organization to conduct the bingo operation in the name of the qualified organization. Members of the qualified organization, (not another organization or professional persons hired by the non-qualifying organization), must conduct the bingo game or lottery. The members of the qualified organization who provide services in conducting the game or lottery cannot be paid more than thirty dollars per bingo session or lottery.
In summary, the answer to your first question is NO, a nonqualified person may not conduct a bingo game on behalf of a qualified organization. However, a qualified organization may rent facilities and equipment to conduct the game itself. The rental charge may be based upon a percentage of gross proceeds if this amount is comparable to flat rate rental charges for similar reasonable and necessary facilities and equipment. The answer to your second question is YES, the provisions of SDCL 22-25-25(2) and (4) preclude a qualified organization from contracting with a nonqualified individual to conduct the game. However, reasonable and necessary equipment and facilities may be rented as noted previously.
IN RE QUESTIONS NO. 3 AND 4:
The State Legislature has given municipalities the authority to regulate gambling through the provisions of SDCL 9-29-5. This authority is a part of the general police powers of a local government. 38 Am.Jur.2d, Gambling, § 13. This power is also recognized in SDCL 22-25-25(6) which requires notice be given to the municipality thirty days in advance of the game to allow it an opportunity to pass a "resolution objecting thereto." When a municipality is given such authority it cannot authorize gambling activity prohibited by statute or reduce the restrictions set by state law. 38 Am.Jur.2d, Gambling, § 13. The municipality can generally, however, set additional requirements so long as they do not conflict with state law. Id. See also, Amvets Post 100 v. Richland County Council, 313 S.E.2d 393 (S.C. 1984). Furthermore, the ordinance must have a rational relationship to a legitimate governmental interest and be reasonably related to the public good to pass constitutional scrutiny. Cleburne v. Cleburne Living Center, 473 U.S. 432, 87 L.Ed.2d 313, 105 S.Ct. 3249 (1985); Thereiot v. Terrebone Parish Police Jury, 436 So.2d 515, 520 (La. 1983). I believe the Legislature intended to allow local governments to go beyond provisions of SDCL 22-25-25 to regulate charitable bingo and lotteries.
Therefore, in summary, my answers to your third and fourth questions are that the municipality may be more restrictive in regulating bingo games and lotteries within its jurisdiction as long as the ordinance or resolution is reasonably related to a legitimate governmental interest and otherwise passes constitutional examination. In addition a municipality may completely prohibit the conducting of any lottery or bingo by adopting resolutions of disapproval in every case; however, allowing some games and disapproving others will raise equal protection problems under both state and federal constitutions and may implicate first amendment rights under the United States Constitution.
Respectfully submitted,
Roger A. Tellinghuisen
Attorney General
