The rapid expansion of electronic pull-tab machines has raised concerns among lawmakers in several states over the future of charitable gaming and the need for additional regulations over how these devices operate.
Charities have benefited financially from the devices, but lawmakers in at least two key charitable gaming markets are also now looking into where they are located, and what organizations can conduct gaming.
In North Dakota, lawmakers have begun a study of the state’s charitable gaming industry and electronic pull-tabs with the goal of introducing legislation in the next legislative session in 2025.
Republican state Senator Janne Myrdal, chair of the Interim Judiciary Committee that will oversee the year-long study, said the key issues are where electronic pull-tab machines, also known as e-tabs, are located and what organizations can conduct charitable gaming.
“The legislature has struggled over the last three or four sessions to know how to do it best to profit the charities and the people of North Dakota,” Myrdal said. “This is about how we make the law on charitable gambling applicable with the intent of law and maybe some changes need to be made.”
The Republican-controlled legislature approved electronic pull-tabs in 2017, and the machines began appearing across the state the following year. Currently, there are 4,700 e-tab machines in North Dakota.
Deborah McDaniel, director of the Charitable Gaming Division within the North Dakota Attorney General’s Office, said charitable gaming is in a state of evolution.
“We are on the cusp and the state of North Dakota needs to decide where you want to take this charitable gaming,” McDaniel told lawmakers during the study committee’s first hearing on Thursday (August 31).
She stressed that the intent of legalizing the machines was to give nonprofit organizations the privilege to conduct gaming to help support their primary fundraising purpose.
“The money generated by some has become their primary source of income rather than a way to simply supplement their means of support and fundraising,” McDaniel said. “Gaming and trust accounts have become very large, and it brings up the question of the term charitable organization and the use of charitable proceeds.”
In fiscal year 2023, e-tabs generated $1.9bn in gross gaming revenue, including cash and replayed winnings, contributing $205m to charities and $72m designated for charitable purposes. The machines, which are taxed at 12 percent, generated $24m in state revenue.
McDaniel admitted the definition of charitable organization in North Dakota was pretty broad, but the conversations she has been having with her staff was over the statutory definition of a “public-spirited organization.”
According to North Dakota state law, a public-spirited organization means an organization whose primary purpose is for scientific research, amateur sports competition, safety, literary, arts, preservation of cultural heritage, educational activities, educational public service, youth, economic development, tourism, and community medical care.
A public-spirited organization can also be involved in community recreation, or similar organization, which does not meet the definition of any other type of eligible organization.
McDaniel said the definition essentially means that a nonprofit organization recognized by the secretary of state’s office that has fulfilled its primary purpose for two years can receive a state gaming license.
Myrdal questioned whether this broad definition led to more license applications being submitted to the attorney general’s office.
“Yes,” McDaniel replied. “We used to average 300 licensed organizations every year. We are now pushing 350 licensed organizations and we have over 20 organizations that want to conduct gaming.”
However, McDaniel told the committee there are not enough sites available for them to host electronic pull-tab machines because multiple charitable organizations are prohibited from operating electronic pull-tab machines at the same locations.
North Dakota state law does not prescribe specific locations for charitable gambling, but gaming is usually found in bars and restaurants. Lawmakers noticed that a broad interpretation of the term “alcohol beverage establishment” led to e-tabs being installed in gas stations and convenience stores.
Senate Bill 2304, which was passed during the 2023 legislative session, mandates the current study, and redefines the term “alcohol beverage establishment” to specifically exclude “a liquor store, gas station, grocery store, or convenience store.”
“I think we can all agree the cattle has gotten out of the paddock a little bit and we need to rein them back in,” Myrdal said.
It is a somewhat different story in Minnesota, where the state legislature passed a $72bn budget this year, which included new restrictions on electronic pull-tabs.
Starting in 2025, e-tabs will no longer be allowed to use “open all” options and bonuses as part of the games.
Traditional paper pull-tabs only allow players to reveal their symbols individually, while the “open all” feature in e-tabs allows players to reveal rows of symbols at once.
A Minnesota Gambling Control Board (MGCB) spokesman confirmed Tuesday (September 5) that the agency will start enforcement of the new standards on January 1, 2025.
Minnesota legalized pull-tabs in 2012 to raise money for the $1.1bn U.S. Bank Stadium in Minneapolis. The success of e-tabs allowed the state to retire $377m in outstanding bonds on the stadium in June, sending an estimated $150m annually to the state’s general fund, the Minneapolis Star-Tribune reported.
Under the statute that regulates e-tabs, players “must activate or open each electronic pull-tab ticket and each individual lone, row, or column of each electronic pull-tab ticket.”
Electronic pull-tabs grossed $1.94bn in fiscal year 2022, and paper pull-tabs generated an additional $2.13bn, according to the MGCB’s most recent report. Net receipts for both electronic and paper pull-tabs were $570,578, with the profits going to local nonprofits and charities.