Port: Gambling in North Dakota has become a cut-throat, billion-dollar industry with little oversight
State gambling revenues have grown over 560% since 2018, overwhelming state oversight and setting off a turf war among charitable gaming organizations.
MINOT, N.D. — If you were to ask the average citizen if gambling were legal in North Dakota, you'd probably be told that it's not. At least not outside of the Indian reservations, some bingo halls, and a few sleepy blackjack tables in the corner of the local bar.
Maybe they'd remember to throw the state lottery into the mix, too.
Overall, though, they'd maintain that gambling is mostly verboten here. And they'd be wrong.
Gambling in North Dakota has become a nearly $2 billion industry, and that's just if we're looking at charitable gaming. According to estimated numbers for fiscal year 2022, obtained from the Gaming Division of the North Dakota Attorney General's Office, gross proceeds from charitable gaming came in at over $1.7 billion.
It's a recent development, driven in no small part by the legalization of electronic pull-tab machines, which, though different in some fundamental ways, have a user experience that is not all that distinct from slot machines. In 2022, electronic pull-tab machines accounted for almost 90% of the gross proceeds from charitable gambling.
Gross proceeds from charitable gaming overall are up nearly 560% since 2018, the last year before the state legalized electronic pull tabs.
The proliferation of electronic pull tab machines has been remarkable. Deb McDaniel, the director of gaming for the Attorney General's Office, declined to comment on the impacts of these machines on the state but did give me some basic data. She said there are now over 4,400 devices operating at over 1,000 sites in the state.
Tribal casinos, as a basis for comparison, operate just 3,500 slot machines at five casinos.
Yet McDaniel's office doesn't seem to have the resources to handle this growth in gaming. While her office has six auditors and three gambling tax specialists, she has only two gambling investigators who travel in the field to cover not only the 1,000 sites where charitable gaming interests are operating electronic pull tab machines, but also to make inspection visits to the tribal casinos as well.
Those latter visits will be fewer now. They were done monthly, but the new gaming compact signed between the tribes and Gov. Doug Burgum reduced the mandatory inspections to once a year.
Still, just two people to ensure that the electronic pull tab machines at over 1,000 sites across the state are being operated lawfully? And in a manner that's both fair to the gaming public and the establishments hosting them?
Net proceeds, which is to say the total revenue available to these charities after taxes and expenses, have increased roughly 244% since the year before electronic pull tabs were introduced in the state. Who is ensuring that these funds are being used for legitimate charitable purposes?
If you noticed a difference between the growth in net proceeds and gross proceeds — 244% growth for the former and 560% growth for the latter — the discrepancy may speak to another concern.
According to testimony presented by McDaniel to the state Legislature in August of last year, about 90% of funds gambled on an e-tab machine are returned to the players in the form of winnings; the next largest recipient of funds are the manufacturers and distributors of the machine.
They make about $3.80 out of every $100 gambled, while just $3.50 goes to charitable purposes.
E-tab machines have become so lucrative, not only for charitable gaming organizations but even more so for the distributors and manufacturers, that it's kicked off something of a turf war over lucrative locations amid a larger push to expand the presence of the machines into gas stations and restaurants.
According to business filings obtained from the Secretary of State's Office and state liquor license data from the Attorney General's Office, several organizations involved in charitable gaming have purchased the bars and restaurants where their gaming takes place.
It's difficult to quantify how many charities have taken this step — they often purchase the establishments and liquor licenses through secondary corporate entities — but there are enough high-profile examples to suggest that this is a growing trend.
The North Dakota Association for the Disabled, which was the top earner in gross proceeds with over $86.8 million in the fiscal year 2022, owns Pub 21 in Bismarck, and Southgate Casino, Bar, and Grill in Grand Forks, through DBLD Inc. Additionally, through corporate entities formed as subsidiaries of DBLD, the group owns the Grainhopper Bar in Minot, and just purchased the Bordertown Bar & Grill in West Fargo. The group purchased the first three businesses well before the e-tabs era.
Minot Youth Hockey, with $41.7 million in gross proceeds in 2022, owns and operates Aces Lounge and Casino in Minot through Ice Time LLC.
Bismarck Hockey Boosters, with $27.4 million in gross proceeds in 2022, is purchasing the Tap In Tavern in Bismarck, though the transaction hasn't yet been completed.
'It's a dog-eat-dog world'
Not everyone involved with charitable gaming is enamored with the trend toward owning hospitality businesses that serve alcohol. Reed Argent, the board president for the Minot Junior Golf Association, which had $26.7 million in gross revenues in 2022, told me that "the day this organization buys a bar is the day I resign from the board." He said he didn't want to be critical of what other organizations are doing but that it isn't something he is prepared to support.
But those organizations that have purchased hospitality businesses say it can be the right move. Some representatives of charitable organizations have told me that they feel like they have to own, or at least consider owning, the businesses where their gaming takes place in order to protect themselves from being pushed out by other interests.
"I've heard that," Mike Motschenbacher, the executive director of the North Dakota Gaming Alliance, and also a Republican state representative from the Bismarck area, told me when I contacted him. "If another charity wants to come into a really good site, buying it prevents that from happening."
"It's a dog-eat-dog world, to be honest," he added.
Mikayla Jablonski Jahner, the executive director of Bismarck Hockey Boosters, told me her organization doesn't want to purchase and own a bar. "It's not something we're looking forward to," she said. But in an interview, both she and one of her board members, treasurer Rick Geloff said they felt they had to act to protect their revenue.
"We need to protect our revenue," Geloff said. "In no way is our position that we want to compete with these businesses.
Don Santer, the CEO of NDAD, said his organization got into the hospitality business decades ago because he was "fed up dealing with bar owners that aren't rational," adding that if they own the establishment, "we don't have to worry about getting kicked out."
He expressed concern about the potential for turf wars over gaming locations. "There are a lot of rumors about things being done behind the scenes that could give charitable gaming a bad name," he said, though he didn't cite specific examples. He did say that one problem is bar or restaurant owners who want arrangements that might be illegal or unethical.
He said they might tell charities, especially smaller organizations that might not be sophisticated and run by volunteers, "If you don't give it to me, I'll find someone who will."
He also said he'd heard rumors about gaming machine distributors pitching charities on package deals where they handle everything and pay the charity "the bare minimum" while they keep the rest.
"I'm not sure how they're getting away with that if they're doing it," he said.
A call for comment made to the offices of Minot Youth Hockey was not returned.