Lucky 7: The Casino Industry and Philanthropy

Lucky 7: The Casino Industry and Philanthropy

In some states, casinos are required by law to give a portion of their profits to community foundations which, in turn, are required to grant it out as well as allowed to put a portion into their endowments . . . just one of the overlooked fundraising opportunities from casinos. Rick Cohen uses a fundraising framework to report on his investigation into the casino industry.

Casinos seem to have fool-proof systems for getting money out of their customers. Wouldn't it be nice if we  had such a system for getting donations from the casinos?

The casino industry is huge: approximately 500 commercial casinos earned $31.4 billion in gross gaming revenue [4] (total dollars wagered minus the winnings distributed to bettors) in 2009. As a reference point, the roughly $35 billion in revenue earned by the retail sporting goods industry in the same year was diffused through a much larger group of 20,000 companies.

[An additional $2.1 billion is earned by charitable gaming, such as nonprofit bingo. In other words, we in the nonprofit sector are members of the casino industry. And note that these numbers don't include the mammoth industry of government-operated lotteries.]

Un-mapped territory

To understand casino giving, we contacted top experts in the casino industry and pored over philanthropic databases for many hours. We discovered a stunning fact: no one seems to know much about anything. We couldn't get reliable, documented answers on the scope of giving, what kinds of nonprofits are funded by casinos, how casino giving compares to giving by riverboat and Indian gaming, or the degree to which casino foundations are mandated by local governments as part of giving gambling licenses. One casino industry-recommended economist even wrote in an email that he was "not aware that casinos engage in philanthropy."

Casinos do, of course, publicize efforts such as United Way campaigns and employee volunteerism. For example, Harrah's, Boyd Gaming, and Ameristar are always in the top ten corporate donors to the United Way of Southern Nevada [5]. But the casino trade associations don't report on philanthropic giving, and you won't find casino execs active in the go-to venues for high-minded corporate philanthropy, such as the Committee for Encouraging Corporate Philanthropy.

And what about the Foundation Directory? The subscription-required Foundation Directory Online surprisingly has little information. The directory uses Standard Industrial Code (SIC) categories, but lists nothing for casinos (SIC 71321) or casino hotels (SIC 72112), although a very few show up under "amusement and recreation services/misc." In addition, many of the top casino companies are privately owned (rather than publicly traded), and therefore less accessible for mining by nonprofits and the Foundation Center.

Harrah's as an example

Harrah's acquired Caesar's Entertainment in 2005 and is now the largest gambling company in the world [6] with 100,000 employees and $8.9 billion dollars in annual revenue. Like many corporations, Harrah's Foundation gave most of its grants where its largest casinos are located: Nevada, Illinois, DC, Louisiana, and New Jersey.

The grants generally go to nonprofits serving in the areas of health, youth, and "diversity," the latter a common theme in giving due to many casinos' proposed and actual locations in African-American communities such as Gary, East St. Louis, Biloxi, Tunica, and Tupelo. One Blue Avocado reader reported that the Harrah's Foundation has been very supportive of "countless elders in communities where their employees live and work" through her nonprofit organization.

Harrah's also plays the role of good corporate citizen, with large seven-figure grants to the University of Nevada, for example. And Harrah's -- like all of the casinos with operations in the Missisippi River Delta -- set up disaster relief programs for casino workers and their families whose livelihoods were disrupted by Hurricane Katrina.

Like most of the casino industry, Harrah's also gives generously to the National Center for Responsible Gaming [7] and the American Gaming Association, which produce research on gambling-related "disorders." Between 2006 and 2008, Harrah's provided $1.2 million to these organizations.

In short, Harrah's -- like many casinos -- gives where it has employees, to "good citizen" institutions such as universities, to foster goodwill among the communities likely to be negatively impacted by the presence of casinos, and, understandably, to support research that shows gambling to be a treatable disorder [8] (example: drug treatments for "pathological gambling").

Raising money from casinos

Casinos are no longer just in Las Vegas and Atlantic City. Dozens of small and large communities now have casinos, including towns such as Gary (Indiana), Tupelo (Mississippi), Detroit, Cripple Creek (Colorado), New Orleans and many other communities. And if there isn't one near you now, there may be in the future.

While less is known about the philanthropic practices of most casinos, there are opportunities that warrant further exploration:

1. Sometimes it's casino employees that are giving, not necessarily the casinos

Much of casino philanthropy is actually the charitable giving of casino employees through payroll deductions, frequently matched to some extent by the corporations themselves. For example, Isle of Capri Casinos (with properties in Colorado, Florida, Iowa, Louisiana, Mississippi, and Missouri) says it has "donated millions" to local charities, but the highlighted charitable activity of the corporation [9] appears to be the casino employees' donations and volunteering.

Concerned as they are about their impact on local employment, the casinos are extraordinarily attentive to employees' charitable interests. Some casinos are moving toward running their own campaigns rather than depending on the United Way as an intermediary campaign manager, and some are following employee donations with corporate funds. Nonprofit outreach and cultivation of employees and their unions (such as SEIU and UAW) where they exist could be potentially lucrative. Note typical interests in human services, employee assistance, and racial issues.

2. Casinos are vulnerable in their localities . . . giving local nonprofits an opening

Think like a casino. That doesn't mean having to know how to play baccarat, but it means recognizing the casinos' social and political challenges. Look to see where there is local opposition to gambling, perhaps around gambling addiction, alcohol, health issues, and particular populations targeted by gaming, such as retirees, the Chinese, and young people. It's in just those areas where the casinos will want to make a mark in charitable giving to foster goodwill; ask them to support your efforts with grants and sponsorships.

According to a casino industry expert from the University of Nevada, "most giving is done for pragmatic reasons, such as community support in areas where they have casinos, [that are] trying to overcome the negative stigma associated with gambling by making . . . targeted contributions."

Example: the Diamond Jo Worth casino in Northwood, Iowa, has been lauded in the local press [10] for its $3 million in charitable giving since 2006 for scholarships, school supplies, and preschool tuition in the area.

For nonprofits, one key lesson is to approach local casinos in a radius of the casino employee's commuting range. These are often smaller communities in semi-rural areas where there may be few institutional funders.

The lousy national economy hasn't skipped gambling [11], so small grants, sponsorships, and event donations are the logical first kinds of charitable support to seek from corporations feeling declines in revenue.

3. Make sure governments require giving when they give licenses

It's likely that the most significant giving from casinos comes as a result of government regulation. Casinos have to obtain government licenses to operate, including additional licenses for slot machines and so forth. In the licensing and regulating processes, local communities can force the gambling industry to make significant donations back to communities.

When casinos first opened in Atlantic City, the law required them to make donations for local public projects. Hilariously, Caesar's Palace (now Harrah's) tried to suggest that its statue of Julius Caesar be counted as public art. The resulting uproar forced them to invest in an affordable housing development instead and eventually led to a change in the law, requiring casinos to invest 1.25 percent of their gross revenues into redevelopment projects approved by the Casino Reinvestment Development Authority [12] or pay an extra 2.5 percent in casino taxes to the state.

Iowa requires charitable giving by casinos as part of its oversight structures. But in contrast, Ohio, whose voters recently authorized casinos in four cities, no charitable give-backs were included in the calculus, and sources told Blue Avocado that they don't see local authorities taking action either. Ohio nonprofits and others: get into the policy mix. Local politicians may be glad to have a little "feel good" in the legislation authorizing gambling.

4. Read 'em and weep? Look in the laws and applications

Where there are authorizing laws, read them carefully for hints on grantseeking. Particularly in the states and localities that are inviting land-based and riverboat casinos, look at the applicable laws as well as the applications that have been submitted by the casinos. As part of their pitches, casinos argue that they bring community benefits and often make commitments about their charitable giving in addition their financial bona fides. Typical is the casino application recently pitched for a site in South Philadelphia [13], in which charitable giving commitments were clearly an important sweetener in the pitch. The same applies to the riverboat casinos in many smaller communities and some land-based casinos in troubled urban centers such as Detroit. Look for the casinos' applications and mine them for implicit and explicit charitable commitments.

5. Talk to the community foundations

In some areas casinos are putting money into established public charities such as the United Way and community foundations.

Iowa is again a good example: the Iowa County Endowment Fund Program [14] requires a small proportion of casino revenues to be donated to community foundations in the 85 counties of the state that do not have state-licensed casinos. The community foundations are mandated to spend -- grant out -- 75% of what they receive and devote the remaining 25 percent to building their endowments.

For some of these communities, this is big time money. Between 2005 and 2010, the participating community foundations, typically in smaller, rural counties, have grown their assets from $16.8 to $55 million and distributed more than 9,300 grants totaling $30.2 million. Rural Iowa will get some nicely funded human service and education facilities out of this program, hopefully with nonprofits funded to operate the facilities.

6. Ask the people who have gotten rich from casinos: the owners

And don't forget the casino owners, many of whom want to be seen as philanthropists. Gambling mogul Kirk Kerkorian [15] -- the 119th richest American -- recently transferred his $200 million Lincy Foundation to the University of California at Los Angeles (UCLA) which will manage the gift as a donor advised fund, half devoted to UCLA, the other half open to applications from nonprofits in Los Angeles and perhaps elsewhere.

Because the casinos and their owners sometimes see themselves as bucking conventional wisdom--heck, they're gamblers--they will occasionally fund against the grain and support controversial social causes such as lesbian and gay groups and Latino and African-American advocacy organizations. Of course, perhaps the most outlandish "contribution" from a casino (Las Vegas Sands) is billionaire Sheldon Adelson's role [16] as the most generous funder of Newt Gingrich's array of 501(c)(3), (c)(4), PAC, and 527 organizations.

7. Get to know Indian tribes with gaming

Remarkably, it appears that the revenues of tribal casinos [17] are now almost equal to those of commercial casinos. Roughly half of the officially recognized tribes in the United States operate casinos, although most of them are very small compared to the mammoth Foxwoods and Mohegan Sun casinos in Connecticut.

[Indian tribes are recognized in the United States as sovereign nations, which is why they are able to operate casinos. According to law, no one can establish a casino in a state that prohibits them, but tribes can do so as sovereign entities on their sovereign territories.]

Tribes operate casinos primarily to generate revenues for their often otherwise impoverished communities. "Dividend day [18]" is crucial to many tribes, especially as they fend off the now increasingly common -- and incorrect -- stereotype of the casino-made rich Indian. As a result, their distribution of profits to Native American tribal members can be considered a type of community giving.

Typical is the Prairie Band Potawatomi Nation [19] distribution plan, which makes 48 percent of casino revenues available as per capita grants and 28 percent for government (tribal) operations compared to only 1% for charitable giving. In the fourth quarter of 2010, the Prairie Band Potawatomi Nation made $83,000 in small charitable grants to local charities [20].

Tribal giving is beginning to be more intentional, more organized, with some tribes creating foundations and other grantmaking vehicles. As Indian tribes become not only grantmakers but significant employers, nonprofits can and should be reaching out to them to build relationships for a variety of future partnerships.

The silver lining doesn't mean we ignore the cloud

None of this should be taken as ignoring the social ills of gambling and what it says about our nation that so many communities are turning to casinos as their economic development crutches. Gambling is seen by many as a regressive tax because it disproportionately soaks the poor, and no one wandering through Las Vegas or Atlantic City can miss the deplorable images of women. At least one study suggests [21] that casinos decrease social capital in American communities.

Many nonprofits shy away from soliciting money from casinos. But casinos are an economic development reality in more and more cities and states. We in the nonprofit sector must respond to all the aspects of casinos: their effects on the local economy, on families, and on community nonprofits.

Is it worth going all-in on casino philanthropy? Only if you know when to lay the odds and when to take the odds.

Rick Cohen's investigative reporting appears in every other issue of Blue Avocado. His articles on the Decline & Fall of the Vanguard Foundation [22] recently won a Min Award for journalism. A memory from his days as Director of Housing and Economic Development for an unnamed city in New Jersey includes giving a conference speech in Atlantic City on real etate tax abatements, and then playing blackjack at the "cheapo $5 table" the rest of the day while waiting for the mayor so they could go home.

[23] > Read more [24]