BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 549| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 549 Author: Hall (D), et al. Amended: 6/2/15 Vote: 27 SENATE GOVERNMENTAL ORG. COMMITTEE: 10-0, 4/14/15 AYES: Hall, Berryhill, Block, Gaines, Galgiani, Hernandez, Hill, Lara, McGuire, Vidak NO VOTE RECORDED: Hueso SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SUBJECT: Charitable raffles SOURCE: American Legion - Department of California AMVETS Department of California California Council of Chapters California State Commanders Veterans Council Jewish War Veterans Department of California Military Officers Association of American VFW - Department of California Vietnam Veterans of America - California State Council DIGEST: This bill authorizes an eligible organization, as defined, to conduct a 50/50 raffle for the purpose of directly supporting a specified beneficial or charitable purpose in California, or financially supporting another private, nonprofit, eligible organization. SB 549 Page 2 ANALYSIS: Existing law: 1) Authorizes, under the California Constitution, to permit private, nonprofit, eligible organizations to conduct raffles as a funding mechanism to support beneficial and charitable works if at least 90% of the gross receipts from the raffle go directly to beneficial or charitable purposes in California. 2) Prohibits any raffle to be conducted by means of, or otherwise utilize any gaming machine, apparatus, or device, whether or not that machine, apparatus, or device meets the definition of a slot machine as currently defined in California law. 3) Defines a "raffle" as a scheme for the distribution of prizes by chance among persons who have paid money for paper tickets that provide the opportunity to win these prizes and where specified conditions are met. 4) Defines an "eligible organization" as a private, nonprofit organization that has been qualified to conduct business in California for at least one year prior to conducting a raffle and is exempt from taxation by the Internal Revenue Service. 5) Authorizes, under the California Constitution, for the Legislature to amend the percentage of gross receipts required to be dedicated to beneficial or charitable purposes by a statute passed by a 2/3 vote of each house of the Legislature. This bill: 1) Authorizes an eligible organization, as defined, to conduct a 50/50 raffle for the purpose of directly supporting specified beneficial or charitable purposes in California, or financially supporting another private, nonprofit, eligible organization. 2) Defines an "eligible organization" as a private, nonprofit organization established by, or affiliated with, a team from SB 549 Page 3 the Major League Baseball, National Hockey League, National Basketball Association, National Football League, Women's National Basketball Association, or Major League Soccer; or a private, nonprofit organization established by the Professional Golfers' Association of America, Ladies Professional Golf Association; or National Association for Stock Car Auto Racing that has been qualified to conduct business in California for at least one year prior to conducting a raffle, is qualified for an exemption under section 501 (c)(3) of the Internal Revenue Code, and is exempt from taxation as specified. 3) Defines "raffle" as a scheme for the distribution of prizes by chance among persons who have paid money for paper tickets that provide the opportunity to win these prizes, in which all of the following are true: a) Each ticket sold maintains a unique and matching identifier. b) Winners of the prizes are determined by a manual draw from tickets that have been sold for entry in the manual draw. An electronic device may be used to sell tickets. The ticket receipt issued by the electronic device to the purchaser may include more than one unique and matching identifier, representative of and matched to the number of tickets purchased in a single transaction. The prize paid to the winner is comprised of one-half or 50 percent of the gross receipts generated from the sale of raffle tickets for a raffle. c) The manual draw is conducted in California under the supervision of a natural person who meets all of the following requirements: i) The person is 18 years of age or older. ii) The person is affiliated with the eligible organization conducting the raffle. SB 549 Page 4 iii) The person is registered with the Department of Justice (DOJ). d) Fifty percent of the gross receipts generated from the sale of raffle tickets for any given manual draw are used by the eligible organization conducting the raffle to benefit or provide support for beneficial or charitable purposes, or used to benefit another private, nonprofit organization. 4) Specifies that a beneficial purpose excludes purposes that are intended to benefit officers, directors, or members and specifies that funds raised by 50/50 raffles shall not be used to fund any beneficial, charitable, or other purpose outside of California. An eligible organization is allowed to use funds from sources other than the sale of raffle tickets to pay for the administration or other costs of conducting a raffle. 5) Specifies that an employee of an eligible organization who is a direct seller of raffle tickets shall not be treated as an employee for purposes of workers' compensation if the following conditions are satisfied: a) Substantially all of the remuneration, whether or not paid in cash, for the performance of the service of selling raffle tickets is directly related to sales rather than the number of hours worked. b) The services performed by the person are performed pursuant to a written contract between the seller and the eligible organization and the contract provides that the person will not be treated as an employee with respect to the selling of raffle tickets for workers' compensation purposes. 6) Specifies that an employee selling raffle tickets shall be deemed to be a direct seller, as described. 7) Specifies that a person who receives compensation in connection with the operation of the raffle shall be an employee of the eligible organization that is conducting the SB 549 Page 5 raffle, and in no event may compensation be paid from revenues required to be dedicated to beneficial or charitable purposes. 8) Specifies that a raffle ticket shall not be sold in exchange for Bitcoin or any other cryptocurrency. 9) Specifies that a raffle otherwise permitted under this section shall not be conducted by means of, or otherwise utilize, any gaming machine that meets the definition of a slot machine, as defined. 10)Specifies that a raffle otherwise permitted under this section shall not be conducted, nor may tickets for a raffle be sold, within an operating satellite wagering facility or racetrack inclosure. 11)Specifies that a raffle shall not be operated or conducted in any manner over the Internet, nor may raffle tickets be sold, traded, or redeemed over the Internet. An eligible organization shall not be deemed to operate or conduct a raffle over the Internet, or sell raffle tickets over the Internet, if the eligible organization advertises its raffle on the Internet or permits others to do so. Information that may be conveyed on an Internet Web site includes, but is not limited to, all of the following: a) Lists, descriptions, photographs, or videos of the raffle prizes. b) Lists of the prize winners. c) The rules of the raffle. d) Frequently asked questions and their answers. e) Raffle entry forms, which may be downloaded from the Internet Web site for manual completion by raffle ticket purchasers, but shall not be submitted to the eligible organization through the Internet. f) Raffle contact information, partnership, including the eligible organization's name, address, telephone number, facsimile number, or email address. SB 549 Page 6 12)Specifies that an individual, corporation, partnership, or other legal entity shall not hold a financial interest in the conduct of a raffle, except the eligible organization that is itself authorized to conduct that raffle, and any private, nonprofit, eligible organizations receiving financial support from that charitable organization. 13)Prohibits an eligible organization from conducting more than one raffle per home game. 14)Prohibits the sale of raffle tickets in any seating area designated as a family section. 15)Requires the eligible organization to disclose to all ticket purchasers the designated private, nonprofit, eligible organization for which the raffle is being conducted. 16)Specifies that an eligible organization that conducts a raffle to financially support another private, nonprofit eligible organization shall distribute all proceeds not paid out to the winners of the prizes to the private, nonprofit organization within 15 days of conducting the raffle. 17)Specifies that any raffle prize remaining unclaimed by a winner at the end of the season for a team with an affiliated eligible organization that conducted a raffle to financially support another private, nonprofit eligible organization shall be donated within 30 days from the end of the season by the eligible organization to the designated private, nonprofit organization for which the raffle was conducted. 18)An eligible organization shall not conduct a raffle unless it has a valid registration issued by DOJ. The DOJ shall furnish a registration form via the Internet or upon request to eligible nonprofit organizations. The DOJ shall, by regulation, collect only the information necessary to carry out the provisions of this bill. This information shall include, but is not limited to, the following: a) The name and address of the eligible organization. b) The federal tax identification number, the corporate SB 549 Page 7 number issued by the Secretary of State, the organization number issued by the Franchise Tax Board, or the California charitable trust identification number of the eligible organization. c) The name and title of a responsible fiduciary of the organization. 19)Specifies that DOJ may require an eligible organization to pay a minimum annual registration fee of $5,000 to cover the reasonable costs of DOJ to administer and enforce the provisions of this bill. 20)Specifies that an eligible organization shall pay, in addition to the annual registration fee, $100 for every individual raffle conducted at an eligible location to cover the reasonable costs of DOJ to administer and enforce the provisions of this bill. This fee shall be submitted in conjunction with the annual registration form. 21)Specifies that a manufacturer or distributor of raffle-related products or services shall not conduct business with an eligible organization for purposes of conducting a raffle unless the manufacturer or distributor has a valid annual registration issued by DOJ. 22)Specifies that DOJ may require a manufacturer or distributor of raffle-related products or services to pay a minimum annual registration fee of $5,000 to cover the reasonable costs of DOJ to administer and enforce the provisions of this bill. 23)Requires an eligible organization to register the equipment used in the sale and distribution of raffle tickets, and shall have the equipment tested by an independent gaming tested lab. 24)Requires a person affiliated with an eligible organization who conducts the manual draw to annually register with DOJ. 25)Specifies that DOJ may require a person affiliated with an eligible organization who conducts the manual draw to pay a minimum annual registration fee of $10 to cover the SB 549 Page 8 reasonable costs of DOJ to administer and enforce the provisions of this bill. 26)Specifies that DOJ may, by regulation, adjust the annual registration fees as needed to ensure that revenues will fully offset, but not exceed, the reasonable costs incurred by DOJ pursuant to the provisions of this bill. The fees shall be deposited by DOJ into the General Fund. 27)Specifies that DOJ shall receive the moneys for the costs incurred by the provisions of this bill by an appropriation by the Legislature. 28)Specifies that DOJ shall adopt regulations necessary to effectuate the provisions of this bill, including emergency regulations. 29)Requires DOJ to maintain an automated database of all registrants. Each local law enforcement agency shall notify DOJ of any arrests or investigation that may result in an administrative or criminal action against a registrant. DOJ may audit the records and other documents of a registrant to ensure compliance with the provisions of this bill and may charge a registrant the direct costs associated with an audit. 30)Specifies that DOJ may investigate all suspected violations or any activity that the registrant has engaged in that is not in the best interests of the public's health, safety, or general welfare as it pertains to charitable raffles. 31)Requires an eligible organization, once registered, to annually file with DOJ a report that includes the following: a) The aggregate gross receipts from the operation of raffles. b) The aggregate direct costs incurred by the eligible organization from the operation of raffles. c) The charitable or beneficial purposes for which proceeds of the raffles were used, or identify the SB 549 Page 9 eligible recipient organization to which proceeds were directed, and the amount of those proceeds. 32)Specifies that failure to submit the annual report to DOJ shall be grounds for denial of an annual registration. 33)Requires DOJ to annually furnish to registrants a form to collect this information. 34)Specifies that DOJ may take legal action against a registrant if it determines that the registrant has violated provisions of this bill or a regulation adopted, or that the registrant has engaged in any conduct that is not in the best interests of the public's health, safety, or general welfare. An action taken by DOJ does not prohibit the commencement of an administrative or criminal action by the Attorney General, or district attorney, city attorney, or county counsel. 35)Specifies that an action and hearing conducted to deny, revoke, or suspend a registry, or other administrative action taken against a registrant shall be conducted pursuant to the Administrative Procedure Act. The DOJ may seek civil remedies, including imposing fines and may seek recovery of the costs incurred in investigating or prosecuting an action against a registrant or applicant. A violation of this section shall not constitute a crime. 36)Specifies that the provisions of this bill shall remain in effect only until December 31, 2020, and as of that date is repealed, unless a later enacted statute, that is enacted before December 31, 2020, deletes or extends that date. Background Purpose of the bill. According to the author, across the United States more than 100 professional sports franchises are successfully operating 50/50 charitable raffles at sporting events in order to maximize donations to local charities. These types of charitable raffles are raffles in which 50% of the proceeds go to the winner, and 50% of the proceeds go to the local charities designated by the professional sports team for that particular event. The author further argues that results of 50/50 charitable SB 549 Page 10 raffles in other states have been stellar, and are now being held in more than 29 states and 10 Canadian provinces. This bill provides an opportunity for fans who attend professional sporting events to voluntarily participate in a raffle directly benefiting charities in their local communities. History. Charitable raffles have been legal in the State of California since July 1, 2001, with the successful passage of SB 639 (McPherson, Chapter 778) in the 1999-2000 legislative session and voter approval of Proposition 17. Despite their previous illegality, raffles had long been a popular fundraising tool used by various nonprofit organizations. Thus in 2000, local law enforcement authorities and members of the nonprofit community decided to sponsor legislation to legalize some raffles and bring the then illegal raffles out of the shadows and provide for regulation to these types of raffles. Because a constitutional amendment was needed, Proposition 17 in 2000 was approved by California voters with 59% of the vote to exempt charitable raffles from the prohibition against lotteries provided that the Legislature established reasonable statutory regulations and that 90% of the gross receipts from raffles go directly to beneficial or charitable purposes. The breakdown of 90/10 would ensure that these charitable raffles were conducted for the sole purpose of charitable giving. Proposition 17 also authorized the Legislature to change the percentages of gross receipts that must go directly to charitable purposes with a two-thirds vote of the Legislature and approval by the Governor. Since the passage of both Proposition 17 and SB 639 (McPherson), there have been various attempts to change the percentage allocated for charitable purposes but the legislation always failed passage. Prior/Related Legislation AB 1691 (Jones-Sawyer, 2014) would have authorized an eligible organization to conduct a 50/50 raffle for the purpose of directly supporting specified beneficial or charitable purposes in California, or financially supporting another private, nonprofit, eligible organization. (Held in Assembly Appropriations Committee) SB 549 Page 11 FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee, annual costs of approximately $2.9 million for investigations and enforcement to DOJ (General Fund). Additionally, the first year costs would include approximately $576,000 for software changes to accommodate the new license type, and configuration and testing of existing software changes. These costs will be partially offset by fee revenue. SUPPORT: (Verified 6/1/15) American Legion - Department of California (co-source) AMVETS - Department of California (co -source) California Council of Chapters (co -source) California State Commanders Veterans Council (co -source) Jewish War Veterans Department of California (co -source) Military Officers Association of American (co -source) VFW - Department of California (co -source) Vietnam Veterans of America - California State Council (co -source) AEG Anaheim Ducks Hockey Club Anaheim Ducks Foundation Anaheim Ducks Learn to Play Program Anaheim Ducks S.C.O.R.E. Angels Baseball Foundation Auto Club Speedway Children's Hospital of Orange County Children's Hospital of Orange County at Mission Clippers Foundation Donor Network West Giants Community Fund Girls Incorporated of Orange County Impact Foundatoin Junior Blind of America Kings Care Foundation Los Angeles Angels of Anaheim Los Angeles Dodgers Los Angeles Dodgers Foundation Los Angeles Galaxy SB 549 Page 12 Los Angeles Galaxy Foundation Los Angeles Kings Military Officers Association of America, Alta Chapter Orangewood Children's Foundation Pacific Club IMPACT Foundation Padres Foundation Rancho Cordova Police Activities Leagues Sacramento Kings Sacramento Kings Foundation Sacramento Republic Football Club San Diego Padres San Francisco Giants San Francisco Giants Community Fund San Jose Sharks San Jose Sharks Foundation South County Outreach University of Southern California Veterans of Foreign Wars Veteran Tickets Foundation OPPOSITION: (Verified 6/1/15) California Coalition Against Gambling Expansion California Tribal Business Alliance CalNonprofits Pala Band of Mission Indians Viejas Band of Kumeyaay Indians Yocha Dehe Wintun Nation ARGUMENTS IN SUPPORT: According to supporters of this bill, currently more than 100 professional sports franchises operate 50/50 charitable raffles at sporting events in order to maximize donations to community philanthropic causes. Supporters argue that the results have been overwhelmingly successful for teams, fans and charities alike. Using cutting-edge, transparent and secure in-game technologies, sports franchises across the country have documented a significant and immediate increase in philanthropic contributions to charitable foundations. Supporters argue that due to a restriction in law passed before these technologies existed, California teams face an uneven playing field when it comes to charitable raffles. ARGUMENTS IN OPPOSITION: According to CalNonprofits, this bill creates a carve-out with special rules for an exclusive set SB 549 Page 13 of nonprofit organizations affiliated with major league sports teams while all other charities, such as school bands, churches, and garden clubs, would be limited to the current 90/10 rule. CalNonprofits further argues that current law ensures that the primary purpose of any charitable raffle is to benefit a charity and that raffles with the 50/50 split move away from that intent, and may inadvertently put more focus on gambling to win a cash prize. Prepared by:Felipe Lopez / G.O. / (916) 651-1530 6/2/15 22:21:34 **** END ****