BILL ANALYSIS �
AB 1691
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Isadore Hall, Chair
AB 1691 (Jones-Sawyer) - As Introduced: February 13, 2014
SUBJECT : Charitable raffles.
SUMMARY : 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. Specifically, this bill :
1)Defines an "eligible organization" as a private, nonprofit
organization established by, or affiliated with, a team from
the Major League Baseball, National Hockey League, National
Basketball Association, National Football League, Women's
National Basketball Association, Professional Golfers
Association, Ladies Professional Golfers Association, National
Association for Stock Car Auto Racing, or Major League Soccer
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 (3)(c) of the Internal
Revenue Code, and is exempt from taxation as specified.
2)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, in which all
of the following are true:
a) Each ticket sold contains a unique and matching
identifier.
b) Winners of the prizes are determined by draw from the
tickets that have been sold for entry in the draw. A
random number generator may be used to select the winning
ticket. The prize paid to the winner is comprised of
one-half or 50 percent of the net receipts generated from
the sale of raffle tickets for a raffle.
c) The draw is conducted in California under the
supervision of a natural person who is 18 years of age or
older.
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d) Fifty percent of the net receipts generated from the
sale of raffle tickets for any given 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.
3)Specifies that a beneficial purpose excludes purposes that are
intended to benefit officers, directors, or members of the
eligible organizations.
4)Specifies that funds raised by raffles shall not be used to
fund any beneficial, charitable, or other purpose outside of
California.
5)Specifies that nothing in this bill precludes an "eligible
organization" from using funds from sources other than the
sale of the raffle tickets to pay for the administration or
other costs of conducting a raffle.
6)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 met:
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 to
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 worker's compensation
purposes
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
raffle, and in no event may compensation be paid from revenues
required to be dedicated to beneficial or charitable purposes.
8)Clarifies that no raffle, as permitted in this bill, may be
conducted, nor may tickets for a raffle be sold, within an
operating satellite wagering facility or racetrack inclosure
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or within a gambling establishment.
9)Specifies that a raffle may not be operated or conducted in
any manner over the Internet, nor may raffle tickets be sold,
traded, or redeemed over the Internet.
10)Clarifies that 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 tickets over 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) List 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, including the eligible
organization's name, address, telephone number, facsimile
number, or e-mail address.
11)Specifies that no individual, corporation, partnership, or
other legal entity shall 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.
12)Specifies that an eligible organization may conduct no more
than one major league sports raffle per home game.
13)Prohibits an employee from selling raffle tickets in any
seating area designated as a family section.
14)Specifies that an eligible organization shall disclose to all
ticket purchasers the designated private, nonprofit, eligible
organization for which the raffle is being conducted.
15)Specifies that an eligible organization that conducts a
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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.
16)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 20 days from the end of the season by the
eligible organization to the designated private, nonprofit
organization for which the raffle was conducted.
17)Specifies that an eligible organization may not conduct a
raffle unless it registers annually with the Department of
Justice (DOJ).
18)Requires DOJ to furnish a registration form via the Internet
or upon request to eligible nonprofit organizations.
19)Requires DOJ to 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
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 the responsible fiduciary of the
organization.
20)Specifies that DOJ may require an eligible organization to
pay an annual registration fee of ten dollars ($10) to cover
the actual costs of the department to administer and enforce
the provisions of this bill.
21)Specifies that DOJ may, by regulation, adjust the annual
registration fee as needed to ensure that revenues will full
offset, but do not exceed, the actual costs incurred by DOJ.
The fee shall be deposited by the department into the General
Fund.
22)Specifies that DOJ shall receive moneys for the costs
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incurred pursuant to the provisions of this bill subject to an
appropriation by the Legislature.
23)Requires DOJ to adopt regulations necessary to effectuate the
provisions of this bill, including emergency regulations.
24)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.
25)Specifies that once registered, an eligible organization must
file annually thereafter with DOJ a report that includes all
of the following:
a) The aggregate net 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 eligible
recipient organization to which proceeds were directed, and
the amount of those proceeds.
26)Requires DOJ to annually furnish to registrants a form to
collect the information required by the provisions of this
bill.
27)Specifies that the registration and reporting provisions of
this bill do not apply to any religious corporation sole or
other religious corporation or organization that holds
property for religious purposes, to a cemetery corporation, as
defined, or to a charitable corporation organized and operated
primarily as a religious organization, educational
institution, hospital, or a health care service plan, as
defined.
28)Specifies that DOJ may take legal action against a registrant
if DOJ determines that the registrant has violated any
provisions of this bill or a regulation adopted pursuant to
the provisions of this bill, 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
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taken pursuant to this provision does not prohibit the
commencement of an administrative or criminal action by the
Attorney General, a district attorney, city attorney, or
county counsel.
29)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. DOJ may seek recovery of the
costs incurred in investigating or prosecuting an action
against a registrant or applicant, as described. A proceeding
conducted under this subdivision is subject to judicial
review, as described.
EXISTING LAW
1)Authorized, 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 define 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.
6)Required DOJ to conduct a study and report to the Legislature
by December 31, 2003 on the impact of charitable raffles in
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California. The study was required to include information on
whether the number of raffles has increased, the amount of
money raised through raffles and whether this amount has
increased, whether there are consumer complaints, and whether
there is an increased fraud in the operation of raffles.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill : According to the author, AB 1691 would
allow professional sports franchises to operate game-day 50/50
charitable raffles in which 50% of the proceeds go to the ticket
holder and 50% of the proceeds go to the local charities
designated by the professional sports team for that particular
event or to the professional sports team's own charitable
foundation.
The author contends that this measure will maintain the
protections currently in law while allowing technological
advances to help raise more money for charities. Advances in
raffle technologies now allow for secure, real-time transactions
and auditing, as well as statutory prohibitions on raffle
operators taking a percentage of the raffle proceeds, the 90/10
restriction actually impairs charities from reaching their full
potential at large venues. Limiting the size of the prize has
actually hindered the overall results of charitable raffles and
made them less attractive for participants.
Finally, the author argues that this reform would allow fans who
attend professional sporting events to voluntarily participate
in a raffle that benefits charities in their local communities.
These designated California charities, in turn, would be able to
substantially increase their contributions and services to the
neediest Californians in their communities.
Background : Charitable raffles have been legal in the State of
California since July 1, 2001, with the successful passage of AB
639 (McPherson) in the 1999-2000 legislative session and voter
approval of Proposition 17. Prior to the passage of the bill,
it was illegal to conduct raffles in California because raffles
are considered lotteries and are prohibited under California
Law.
Despite their previous illegality, raffles had long been a
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popular fundraising tool used by various nonprofit
organizations. 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 constitution 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 the raffle
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 percentage 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 AB 639
(McPherson), there have been various attempts to change the
percentage allocated for charitable purposes but have always
failed passage.
Following the legalization of charitable raffles, DOJ adopted
regulations establishing the Nonprofit Raffle Program. In order
to legally conduct raffles, eligible organizations must register
with DOJ each year that they plan to conduct raffles. Nonprofits
must also obtain written approval from DOJ that they are
registered prior to conducting a raffle, and the raffle must be
conducted in accordance with the various statutory requirements.
Money raised through 50/50 raffles : From information provided
by the author's office, the amount of money that was being
raised in other states through 50/50 raffles has been quite
large. The Phoenix Coyotes, a professional hockey team that
plays in a venue that seats roughly 18,000 people, conducted
various 50/50 raffles throughout the 2013-14 season. Only three
times did the gross ticket sales fall below $10,000 dollars and
actually grossed over $38,000 dollars on one occasion. Overall
the Phoenix Coyotes averaged around $18,000 per 50/50 raffle,
meaning that on an average, the 50/50 raffles that were
conducted at their games resulted in a prize for the winner of
$9,000 and $9,000 raised for charity. These numbers are sure to
increase in larger venues such as in baseball and football
games. As an example the largest gross receipts for the Arizona
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Diamondbacks was approximately $100,000 dollars, meaning that a
single individual won $50,000 dollars and $50,000 was giving to
charity in that particular game.
Different rules for charitable raffles : As previously stated,
charitable raffles are already permitted by California law.
Though the charitable raffles that would be permitted in this
bill are very similar to the provisions that charitable raffles
already abide by, there are two main differences that are
important to point out.
The first is differences in percentages that would be allocated
to charities and to the winner. Current law requires that 90% of
the gross receipts generated from the sale of raffle tickets are
used by the eligible organization to provide support for the
beneficial or charitable purposes of that organization that
conducted the raffle or be donated to another eligible
organization. The provisions of AB 1691 provide that 50% of the
net receipts generated from the sale of raffle tickets.
The second major difference has to do with the way that raffle
tickets can be dispensed. Under current law, charitable raffles
are prohibited from conducting "by any means, or otherwise
utilize, any gaming machine, apparatus, or device, whether, or
not that machine, apparatus, or devices meets the definition of
a slot machine." AB 1691 contains no such prohibition, in fact
the bill specifically allows for a random number generator to be
used to select the winning tickets. While the random number
generator may or may not be slot machine as define by current
law, charitable raffles that are currently allowed in California
are prohibited from using the type of random number generator
that AB 1691 would allow.
If successful, AB 1691 would thus create two different types of
charitable raffles in the state of California. While it must be
noted that all nonprofits could in theory take advantage of the
provision set forth by AB 1691, a simple affiliation with a
professional sports franchise would suffice, there would still
exist two different types of charitable raffles. It is remains
unclear why two different set of rules for similar charitable
raffles are needed.
DOJ report to the Legislature : As previously stated, AB 639
(McPherson) required DOJ to report to the legislature on the
impact of charitable raffles in California by December 31, 2003.
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The report found that from the first to second year of the
program, the number of organizations registered with DOJ
increased substantially. In the first year, 762 organizations
registered. In the second year, there were 1,016 organizations
that registered.
In that first year 324 of the organizations filed reports with
DOJ, indicating that 656 raffles were conducted. The reports
filed indicate that $4,049,792 in gross receipts from ticket
sales for all raffles reported. The amount of money raised by
each raffle varied widely, ranging from a low of five dollars to
a high of $398,929. The average amount of money per raffle
raised from ticket sales was $6,173. The amount to charity in
the first year was $3,560,901.
In the second year, 379 of the registered organizations filed
reports indicating that 652 raffles were conducted. The reports
indicated $5,936,054 in gross receipts from ticket sales for all
raffles reported. The amount of money raised by each raffle
varied widely, ranging from a low of eight dollars to a high of
$2,392,861. The average amount of money raised per raffle from
ticket sales was $9,104. It is important to note that this
average was highly elevated by one raffle which brought in well
over 2 million dollars in ticket sales. The amount to charity in
the second year was $5,455,803.
Arguments in support : According to the Los Angeles Dodgers
Foundation, more than 100 professional sports franchises in 26
states successfully operate 50/50 charitable raffles at sporting
events in order to maximize donations to community philanthropic
causes. These raffles utilize cutting-edge, in game
technologies, partially developed in California, and that are
secure, fully transparent, and proven to enhance the fan
experience. Not surprisingly, the results have been
overwhelmingly successful for teams, fans, and charities alike.
Franchises across the country operating 50/50 charitable raffles
have found and documented a significant, immediate increase in
philanthropic contributions. Last year, the 50/50 raffles
conducted by the Arizona Diamondbacks raised nearly $1 million
dollars that will directly benefit local charities and support
their philanthropic efforts.
Point Streak Technologies also writes in support stating that
across North America, more than 100 professional sports
franchises successfully operate 50/50 charitable raffles at
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sporting events in order to maximize donations to local
community philanthropic causes. Results of 50/50 raffles that
our company operates have been stellar and now are being held in
more than 22 States and 10 Canadian Provinces. Organizations
such as the MLB's Chicago Cubs, Boston Red Sox's, Atlanta
Braves, Arizona Diamondbacks, Cincinnati Reds and Pittsburgh
Pirates have each generated over $500,000 for their local
charities through their 50/50 raffles. AB 1691 would allow
fans who attend professional sporting events to voluntarily
participate in a raffle that benefits charities in their local
communities. These designated California charities, in turn,
would be able to substantially increase their contributions and
services to the neediest Californians in their communities.
Letters of concerns : The Barona Band of Mission Indians, the
Pala Band of Mission Indians, and the Viejas Band of Kumeyaay
Indians have submitted letters of concerns to the committee.
All are concerned with the 50/50 split in AB 1691. As the
Barona Band of Mission Indians argue, this practice would allow
the prize pool to be driven by ticket sales, so that the
operator is not dependent on outside donations to the charity to
make an attractive prize pool. This makes non-profit raffles
more like lottery gaming, where 50% of the revenue from ticket
sales goes to the winner. There are wide-ranging reasons for
the existing 90/10 split on revenues from raffles mandated by
Penal Code 320.5, where at least 90% of the revenue from ticket
sales goes to the charity sponsoring the raffle to use for its
chartered purposes. The remaining 10% can be applied to the
costs of the raffle including overhead, administration, and
prize rewards. While we recognize that a 10% split does not
provide for very large rewards prizes to the raffle winners,
existing law does allow charities to use their other funds to be
applied to prizes. This is why it is common for service and
merchandise providers to donate prizes directly to charities.
The current structure outlined in California law keeps raffles
focused on supporting charities and non-profit organizations,
rather than gambling and gaming.
Arguments in Opposition : The Yocha Dehe Wintum Nation writes in
opposition of the bill stating that the use of random number
generators to select the winning ticket and the extremely high
prize payout is highly atypical of raffles. Random number
generators are the same technology used in slot machines. While
similar technology is used in devices other than slot machines,
AB 1691 creates another application that is ripe for abuse and
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unregulated gambling. The Yocha Dehe Wintum Nation also states
that AB 1691 is a significant change in existing law. They
state that the desire to aid charitable organization is
commendable; however, they believe that this approach
contravenes the purposes and rationale of the charitable/lottery
exception as implemented in current law and requires that 90% of
the gross revenue from ticket sales must go to the charity
sponsoring the raffle.
The California Tribal Business Alliance (CTBA) also writes in
opposition to the bill, stating that the bill fundamentally
changes the nature of charitable raffles. Per the admission of
the sponsor, the bill will allow for a scheme in which the prize
pool is driven solely by the ticket sales and not the altruistic
purpose of giving to help a charitable cause. In essence, the
bill transforms charitable raffles into unregulated large-scale
lotteries where the winning jackpot could be upwards of tens of
thousands of dollars and the wagerers may not even know the name
of the charitable purpose for whom they purchase tickets.
CTBA also argues that the bill would allow the use of random
number generators like those customarily found in slot machines.
This is a significant concern insofar as this would allow for
the outcome of a raffle wager to be decided by the same
mechanism and technology that decides the outcome of a slot
machine wager.
Author amendments : The author will be presenting amendments in
committee that will change the percentage to be used to benefit
the charitable organization from 50% of the net receipts to 50%
of the gross receipts.
Policy considerations :
1)SB 639 (McPherson), the bill that initially authorized
charitable raffles, required DOJ to perform a study on the
impact on charitable raffles practices in California.
Therefore the committee may wish to consider an amendment to
the bill to require DOJ perform a study on the impact of this
bill. The study shall include, but not limited to, which
charities were conducting raffles every year, information on
the number of raffles conducted per year, the amount raised
for charities per year, how the money raised through
charitable raffles conducted under SB 639 compared to the
money raised through charitable raffles under SB 1691, and
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whether there are consumer complaints. The committee may wish
for this report to be completed by March 31, 2019.
2)If the committee decides to require a study, the committee may
also wish to place a December 31, 2019 sunset on the bill to
allow the Legislature to review the study, better understand
the amount of money that is being raised through charitable
raffles, and whether enforcement is sufficient.
3)The bill currently restricts eligible organizations from
conducting no more than one raffle per home game. In leagues
such as MLB that can have up to seven home games per week,
this could result in raffles being conducted up to 7 games per
week. The committee may wish to restrict the number of
charitable raffles to no more than two raffles per week per
sports organization. This would bring the raffles authorized
under this bill to the number of raffles that are authorized
per week for charitable bingo.
4)The bill currently allows DOJ to charge an eligible
organization to pay an annual registration fee of $10 to cover
the actual costs of administering and enforcing the provisions
of this bill. While the bill does allow DOJ to increase this
annual registration fee through regulation, the committee may
nonetheless wish to increase the initial fee to $50.
Prior Legislation : SB 200 (Correa), Chapter 38, Statutes of
2009. The bill authorized eligible organizations to advertise
raffles over the Internet.
AB 1588 (Soto), 2007-2008 Legislative Session. The bill would
have decreased the percentage of gross receipts from the sale of
raffle tickets required to go to beneficial or charitable
purposes from 90% to 50% for a 50/50 raffle and from 90% to 60%
for a dream home raffle, as defined. (Never heard in Assembly
Governmental Organization Committee)
SB 1369 (Cedillo), Chapter 748, Statutes of 2008. The bill
authorized remote caller bingo as a game in which specific
tax-exempt organizations, as defined, may use audio or video
technology to link designated in-state facilities for playing
bingo pursuant to a local ordinance and state regulation and
oversight. The bill provided that remote caller bingo could only
be played using traditional paper or other tangible bingo cards
and daubers, and shall not be played using electronic devices.
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In addition, the bill provided that prizes for remote caller
bingo could not exceed 37% of the gross receipts of the game and
overhead may not exceed 20%, as defined.
AB 423 (Longville) 2003-2005 Legislative Session. The bill would
have decreased the percentage of gross receipts from the sale of
raffle tickets required to go to beneficial or charitable
purposes from 90% to 50% for a 50/50 cash raffle. (Never heard
in Assembly Governmental Organization Committee)
SB 639 (McPherson), Chapter 778, Statutes of 2000. The bill
permitted raffles to be conducted by private, nonprofit
organizations, for the purposes of providing financial support
for beneficial charitable works if, among other criteria, at
least 90% of the gross receipts from the sale of raffle tickets
are used to benefit or provide support for the charitable or
beneficial purposes of the conducting nonprofit.
SCA 4 (McPherson), Resolution Chapter 123, Statutes of 1999.
Placed Proposition 17 on the March 2000 ballot, which was
approved by the voters to authorize charitable raffles in
California, provided that at least 90% of the Gross receipts
from the raffle go directly to beneficial or charitable
purposes, as defined.
REGISTERED SUPPORT / OPPOSITION :
Support
Anaheim Ducks Foundation
Anaheim Ducks Hockey Club
Anaheim Ducks Learn to Play Hockey
Anaheim Ducks S.C.O.R.E Program
Angeles Baseball Foundation
Angels Baseball LP
Auto Club Speedway
Auto Club Speedway Foundation
Giants Community Fund
Los Angeles Angels of Anaheim
Los Angeles Dodgers
Los Angeles Dodgers Foundation
Orangewood Children's Foundation
Partners in School Innovation
Playworks, Education Energized
Pointstreak Sports Technologies
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Sacramento Kings
Sacramento Kings Foundation
Sacred Heart Community Service
San Francisco Giants
San Jose Sharks
Sharks Foundation
TurningWheels For Kids
Vision To Learn
Opposition
California Tribal Business Alliance
Yocha Dehe Wintun Nation
Analysis Prepared by : Felipe Lopez / G. O. / (916) 319-2531