September 19, 1988
James T. Goetz
Yankton City Attorney
311 West Third Street
P.O. Box 708
Yankton, South Dakota 57078
Official Opinion No. 88-45
Operation of video machines as a lottery under the provisions of SDCL 22-25-25
Dear Mr. Goetz:
You have requested an opinion from this Office with regard to the following factual situation:
FACTS:
Pursuant to the provisions of SDCL 22-25-25 Greater Yankton, Inc., a non-profit corporation organized and incorporated in South Dakota, has provided written notice to the Yankton City Council indicating that it intends to conduct a lottery at the Yankton Inn on a daily basis for one year. The lottery is to be conducted daily through the use of video machines which, apparently, are to be placed at various locations within the Yankton Inn complex. Their operation would be under the immediate supervision and control of Yankton Inn personnel. No specific information has been provided by the corporation as to the manner in which an individual will operate the video machines nor as to the precise type of games which will be played. There is no question, however, that money is to be paid in exchange for the chance of winning cash prizes.
The purpose of Greater Yankton, Inc. as stated in it's articles of incorporation is to "engage in charitable, benevolent and civic activities, and all other lawful activities for which corporations may be organized under the provisions of the South Dakota Non-profit Corporation Act." The corporation's board of directors, after the initial meeting of the present board, are to be appointed by the mayor of Yankton and approved by the city council. The original incorporators of Greater Yankton, Inc. intend to transfer 100% of their interest in the non-profit corporation to a separate group of people made up of individuals in the Yankton community that are preferably also selected by the mayor and approved by the city council. No officer or director of the corporation is to receive any compensation or benefits from the corporation but authorization has been given to pay reasonable compensation for services rendered to or for the corporation in carrying out its purposes. Any amounts remaining after such payments, if any, are apparently to be used for charities and community betterment in the Yankton area.
The Yankton Inn is presently owned by a limited partnership and is operated under contract by a separately established South Dakota corporation. The video machines are to be supplied and maintained by yet another company unidentified at this time.
At this point the city of Yankton has not become involved in any manner with Greater Yankton, Inc. and no decision has been made as to whether the city will get involved in the future as envisioned by the corporation's articles.
Based on the foregoing you have asked the following question:
QUESTION:
WHETHER THE OPERATION OF VIDEO LOTTERY MACHINES UNDER THE CIRCUMSTANCES DESCRIBED IS LEGAL UNDER THE PROVISIONS OF SDCL 22-25-25?
SDCL 22-25-24 defines a lottery as "a plan whereby for a valuable consideration money is raised by selling chances to share in the distribution of prizes. A "lottery" has three essential elements, chance, consideration and prize. AGR 51-52 pages 402-403.
For purposes of this opinion, I will assume that operation of the video machines constitutes a lottery as defined under SDCL 22-25-24.
As stated in Attorney General's Opinion 87-27 "only lotteries conducted within the guidelines set forth in SDCL 22-25-25 and the South Dakota Lottery (SDCL ch. 42-7A) are legal. All other lotteries are illegal under SDCL 22-25-26." SDCL 22-25-25 provides:
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.
The lottery scheme proposed by the incorporators of Greater Yankton, Inc. does not, in my opinion, meet all of the mandatory provisions of SDCL 22-25-25.
It does not appear that any of the business entities pegged for involvement in the proposed operation are organizations or groups authorized to legally conduct a lottery in this state.
SDCL 22-25-25(1) requires that "the lottery be 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." The fact that Greater Yankton, Inc. is a non-profit corporation organized for local charitable purposes does not, in itself, qualify it as an entity authorized to conduct a lottery. Obviously, in order to conduct a lottery under the statutes, Greater Yankton, Inc. would have to establish itself as a "local civic or service club" as contemplated under the statute.
Although there is little authority providing guidance as to what constitutes a "local civic or service club," one can, I believe, with reasonable certainty, conclude that Greater Yankton, Inc. as it presently exists is not a civic or service club under the statute. Further, I find it hard to accept that the corporation would achieve such status on a simple transfer of the original incorporators' interest to a separate group of individuals selected by the mayor and city council. The entity must be a "bona fide" local civic or service club. The articles of incorporation may state that the purpose of the corporation is to "engage in charitable, benevolent and civic activities," but from the facts presented, a question arises as to the real purpose of Greater Yankton, Inc. It appears that Greater Yankton, Inc. has been created to serve essentially as a conduit legitimizing the operation of video lottery machines at the Yankton Inn. Under such circumstances, any claim that the corporation is a "bona fide" local civic or service club may seriously be challenged.
Moreover, SDCL 22-25-25(3) prohibits any separate organization or professional person from being employed to conduct the lottery or assist therein. The lottery proposed, although under the ultimate management and control of Greater Yankton, Inc., would not, it appears, be conducted solely by officers and employees of that corporation. A number of other entities are to be involved to an appreciable degree with the lottery operations. A separate, unnamed, company would be retained to supply the video lottery machines, the limited partnership which owns the Yankton Inn would provide the premises for their operation, and finally, personnel of the corporation hired to manage the Yankton Inn would supervise and directly control play on the video lottery machines.
In sum, the lottery scheme, as presently proposed, appears contrary to the provisions of SDCL 22-25-25(1) and 22-25-25-(3). Additionally, insufficient information has been provided to determine whether the proposed video lottery would meet other requirements established under statute. Accordingly, a resolution should be adopted by the Yankton City Council as directed under SDCL 22-25-25(6) objecting to the lottery operation of Greater Yankton, Inc.
Respectfully submitted,
Roger A. Tellinghuisen
Attorney General
