THE DARK SIDE OF CHARITY GAMBLING Americans spend $10 billion a year at charity-sponsored bingo and casino games. But only about 10% goes to help the needy. Here's why.

(MONEY Magazine) – When retired Army Lt. Col. Chuck Luce, 62, became executive director of the South Carolina Association for Retarded Citizens in January 1990, he was confident that the group's high-stakes bingo games, which had been going on for about two years, would continue to help fund its advocacy programs. Among the expected beneficiaries: Luce's son Steve, 37, who has Down's syndrome (father and son are shown at right). But two weeks later, Luce got a shock. He picked up the morning paper and read that promoters associated with ARC's games had been arrested for skimming cash from his charity. Two of the three were later convicted. After the thieves were ousted, ARC tried to run big-time bingo on its own but without much success. "We were so naive," says Luce. "We kept thinking that the revenues from bingo would come up to what we expected." They never did. As Chuck Luce learned, only a fraction of what's spent on charity gambling goes to the needy. Still, gambling is booming. Americans this year will shell out an estimated record $10 billion at more than 75,000 bingo and casino games sponsored by local charities and affiliates of the likes of the American Cancer Society, the American Red Cross and the National Kidney Foundation. That $10 billion is more than half the value of the gaming chips that will be sold this year in Nevada and Atlantic City combined -- and triple the amount the nation's 2,100 United Ways collected last year. And while money spent on legal gambling at casinos and state lotteries has grown about 10% annually since 1982, charity-gambling revenues have shot up by more than 15% a year, according to Eugene Martin Christiansen, president of Christiansen/Cummings Associates, a New York City gaming consultant. One reason: Increasingly, charities have turned to gaming to compensate for reduced federal aid and private donations. Don Hall, who oversees the bingo and casino nights for the 10 Boys and Girls Clubs of King County, Wash., concedes that "there's a moral question about using gambling to support a program for children." But, he adds, "we need the $350,000 that gambling brings us every year." There's no question that charity gambling -- legal in every state except Arkansas, Hawaii, Tennessee and Utah -- helps finance a wide array of services from assisting AIDS patients in Rochester, N.Y. to paying for training of retarded athletes in the Special Olympics of Grand Forks, N.D. But if you're one of the millions of charity gamblers or are thinking about taking a chance at a casino night to aid a worthy cause, brace yourself for the following: MONEY estimates that, on average, charities keep only about 10% of the money they take in from gambling, and the percentage is shrinking. A 21-state study by the National Association of Fundraising Ticket Manufacturers, a nonprofit charity-gambling booster group, shows that in the best circumstances, charities held on to 35% of their 1991 gross receipts on average -- in Georgia. By contrast, charities in Florida, Minnesota and North Carolina kept only about a nickel out of every dollar spent gambling. In addition, the South Carolina Tax Commission found last December that just 1% of the state's $272 million in bingo sales benefited the charities. Moreover, as the cost of running the games has risen and more nonprofits have begun competing for the same gambling dollars, the slice of the pie that charities keep has gotten thinner. In Colorado, for example, the share that charities net from gambling has plummeted from 32 cents on the dollar in 1979 to 15 cents in 1991. Various industry watchdogs like to see charities devoting at least 50% of their total income to good works. Too often, the odds are stacked in favor of professional players -- and sometimes the games are fixed. Gambling analysts say that professionals can often cheat the volunteers who run games like blackjack and craps at casino nights. Last spring, for example, police in Hebron, Ind. told four charity- blackjack players to leave town after they were suspected of marking and palming cards. That sort of cheating happens frequently, according to law- enforcement officials. Worst of all, garden-variety crooks and mob associates have increasingly infiltrated the games, skimming cash and charging charities exorbitant fees. Last March, police raids on a pair of Filipino charity casinos in Prince George's County, Md., a Washington, D.C. suburb, turned up evidence that they collected $5 million but reported only $1 million to authorities. A grand jury is considering the case. A May 1991 raid by the Lebanon County D.A. on King Hall Bingo in Harrisburg, Pa., used by local Jaycees among others, turned up a tub with $10,000 in cash and a document shredder. According to a Pennsylvania Crime Commission report, the hall was run by Joseph H. Greenstone of Ventnor, N.J. and Boynton Beach, Fla., who has been associated with a variety of mobsters, including murdered Philadelphia crime boss Angelo Bruno. Police found notes about bingo payoffs, known in Philadelphia as "street taxes," in Bruno's pocket when he was killed. Greenstone told MONEY the Pennsylvania crime report is "malarkey." The Pennsylvania report also said "the operation of fraudulent charity bingo is a near-perfect form of white-collar crime." That's because investigations are time consuming and expensive and police are generally too busy with street crime to pay much attention to bingo. Every regulator and law-enforcement official and many charity officials interviewed by MONEY said skimming is a persistent, widespread problem at a significant minority of all types of charity-sponsored games. Says one state regulator: "The corrupt part of the barrel is small, under 10% of the 1,600 charities we license to run games. But it is a very, very rotten part of the barrel." (For advice on checking out a charity-gambling operation before you play, see the box on page 136.) What's going on here? How is it possible that players can spend $10 billion but the charities actually get only $1 billion of it? Here's how: Between roughly 50% and 80% of the take goes to pay winners (the minimum bet at casino games is generally $1 to $5, $2 for a sheet of nine bingo cards). Fair enough. The rest of the gambling income, however, goes for the high cost of running games such as bingo, blackjack and the especially popular pull-tabs -- also known as break-open, tickets, paper slot machines and pickle jars. In a pull- tab game, you buy a card for $1 or so and pull a tab on it to see whether the hidden numbers or symbols match the winning ones. Often the charity pays fees of 30% to 40% of the gambling income to professional promoters who are mostly -- but not always -- legitimate. In larger games, promoters are often professional crooks attracted to charity games because they're cash businesses with fat profit margins. Even the legitimate promoters often go to small, cash-strapped charities offering what to them looks like a bonanza. Typically, the promoter guarantees the charity a monthly check for $500 or $1,000 or 5% of net profits. In return, the promoter gets the use of the charity's nonprofit status to obtain a lucrative bingo or gambling license. Once the pros take over, they can -- and often do -- charge the charities unconscionable fees. Take the case of one of the biggest charity-bingo games in the country -- Big Bucks Bingo -- which operates one Saturday night a month in tiny Clearwater, S.C.; it's run by promoter Cecil Barnes, 67, a former state tax agent, banker and roller-rink owner. Big Bucks Bingo, which is held in a discount department store that went bust in a shabby strip shopping center, nonetheless attracts busloads of players from as far as Ohio (about 400 miles) and New York (roughly 800 miles) by offering a raft of $1,000 games and a $15,000 jackpot. The first three games this year, sponsored by American Legion Post 130, brought in $602,735. Barnes' fee: $219,577, or roughly a third of + the bingo income. The American Legion post received a mere $3,465, or one-half of 1% of the money. Barnes says it's fair that he makes much more from bingo than the sponsoring charity. "Only my money is at risk here, not the American Legion's," he says. "I never let my charities be at risk for anything." Enforcement of charity-gambling laws is usually lax. Some states even effectively encourage cash skimming. For instance, South Carolina limits the amount of money most charities can collect from players to $13,000 a day. Says Harry Cooper, chief policy official for the state's tax commission: "What business is going to say, 'Sorry, we can't take any more money today?'" Any cash coming in above that level, he says, is simply not reported by the charity. Last February, John Engberg, 65, of Austin, who headed a national charity known as the Regular Veterans Association, and two other men were indicted after South Carolina tax agents said they grossed $35 million over three years but reported turning over only $20,000 to charity. Engberg told MONEY the case, which has yet to come to trial, "is without merit." Even when the local laws are tough, as they are in Minnesota and North Dakota, which both experienced charity-gambling scandals a few years ago, regulators and police say enforcement is complex and difficult. Says Bill Gambrell of the South Carolina attorney general's office: "These are complicated financial crimes. And it is difficult to get juries worked up about bingo." The odds of getting many tougher new laws seem slim. Says Jim Osborne, a Prince George's County, Md. regulator of charity casinos: "Elected officials are reluctant to pass effective charity-gambling laws because they don't want to be perceived as putting excessive regulations on charities." And perhaps more to the point, the states like the tax revenues the games bring in. Minnesota, where more money is wagered on charity gambling than in any other state, received $55 million in fees and taxes from charity gambling in 1991 -- two-thirds as much as the charities kept. South Carolina collects six times as much in taxes on charity-bingo operations as the charities that sponsor bingo kept. In addition, gambling has drawn little attention from the two big charity watchdogs -- the Philanthropic Advisory Service of the Council of Better Business Bureaus and the National Charities Information Bureau. That's because most of the action is at small, local charities. The national charities that the watch-dogs monitor look to gambling for only a tiny portion of their revenues. For instance, an American Heart Association spokesman says gambling generated less than $200,000 of the group's $249 million estimated income in its last fiscal year. A few states and localities, however, have taken steps to crack down on charity-gambling abuses and get more of the winnings to the groups that truly need the money. For example, after North Dakota officials learned about cheating at charity-blackjack games last year, legislators decided they would require organizations to install eye-in-the-sky video cameras in 251 of the sites by June 30, 1994. Prince George's County, Md. in August gave its sheriff authority to regulate charity casinos and pursue cash skimmers. Previously, land-use officials had the job. And Virginia lawmakers now require that a percentage of gambling proceeds, set by each city, go to the sponsoring charity. A 6% minimum took effect this month in Richmond.

Many law-enforcement officials believe that the charities must do a better job protecting themselves. They say that charity volunteers need to become more actively involved in running the games and learn the rules better. Says South Carolina's Gambrell: "The problem is that charities look upon gambling as a windfall because they think they can make money with no work." The scandals are driving some charities out of gaming, including Luce's ARC. The group quit bingo altogether in September 1990. Sadly, the loss of revenues and $20,000 in state-ordered penalties has forced ARC to slash its budget 75%, to $25,000. "Ours is a cautionary tale," says Luce, "about how trying to do good can go so very wrong."