Is a bingo equipment revenue-share lease between a manufacturer and distributor legal in Texas?

Plain-English summary

Senator Eddie Lucio, Jr. asked whether section 2001.556 of the Occupations Code, the anti-price-fixing provision of the Bingo Enabling Act, prohibits a revenue-share leasing agreement between a manufacturer of bingo equipment and a distributor. The Attorney General concluded that it does, when the agreement lets the manufacturer control the price the distributor charges bingo-game conductors.

Section 2001.556 says the price of bingo supplies and equipment in the competitive marketplace must be set by the manufacturer, distributor, or supplier and may not be set in concert with another manufacturer, distributor, or supplier. The opinion had analyzed this provision at length in an earlier opinion, JC-0296, holding that the ban covers vertical price-fixing agreements between a manufacturer and a distributor, not just horizontal agreements between two manufacturers or two distributors, and that the broad language of subsection (b) reaches leases as well as sales. The senator's request disagreed with that reading, and two briefs argued against it, but the opinion noted they raised no authorities or legal developments it had not already considered, so it simply applied section 2001.556 as construed in JC-0296.

In a revenue-share lease, the manufacturer leases equipment to the distributor for a percentage of the revenue the distributor earns by subleasing it, and the distributor leases to the conducting charity for a percentage of the conductor's bingo revenue. The opinion explained that the percentage the distributor takes from the conductor is in substance the price of the equipment. So an agreement that lets the manufacturer approve or dictate that percentage controls the price the conductor pays, which is exactly the price fixing section 2001.556 forbids between a manufacturer and a distributor.

The senator argued that section 2001.405, which bars conducting bingo on premises leased for a percentage of game receipts, shows the Legislature knew how to ban percentage arrangements and chose not to ban percentage equipment leases. The opinion disagreed, explaining that the rule about a landlord's economic stake in a game says nothing about contractual relationships between manufacturers and distributors. The opinion was careful to say it was not holding that all revenue-share leases are prohibited (other provisions, like section 2001.407, could bear on that) and that it does not review or construe specific contracts, so it answered only in general terms.

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Bingo Enabling Act provisions cited here may have been amended since 2002, and the opinion itself rested on a prior opinion (JC-0296) interpreting the same statute, so confirm the current statutory text and any later opinions before relying on this result.

What the opinion meant for those who asked

Senator Lucio (what the opinion held): The opinion concluded that section 2001.556 prohibits a revenue-share leasing agreement between a bingo-equipment manufacturer and a distributor if the manufacturer controls the price the distributor charges to bingo-game conductors, applying its earlier construction of the statute in Opinion JC-0296.

Bingo equipment manufacturers and distributors (what the opinion held for them): The opinion treated the percentage of conductor revenue that a distributor takes as the price of the equipment, so a manufacturer's right to approve or set that percentage was price fixing barred by section 2001.556. The opinion did not declare all revenue-share leases unlawful, only those in which the manufacturer and distributor agree on the price charged to the conductor, and it declined to evaluate any specific contract.

Common questions

Are revenue-share bingo equipment leases banned in Texas?
Not categorically. The opinion concluded that a revenue-share lease violates section 2001.556 only if the manufacturer controls the price the distributor charges the conductor. It did not hold that every such lease is illegal.

Why is a percentage arrangement treated as a "price"?
The opinion explained that, in a revenue-share lease, the percentage of the conductor's revenue the distributor takes is the price the conductor pays for using the equipment. So letting the manufacturer dictate that percentage controls the price.

Doesn't section 2001.556 only ban agreements between competitors?
No. The opinion, following its earlier Opinion JC-0296, concluded the ban reaches vertical agreements between a manufacturer and a distributor as well as horizontal agreements between two manufacturers or two distributors.

Did the Attorney General review the actual contracts at issue?
No. The opinion stated that the office does not review or construe specific contracts, so it answered the question generally and expressed no opinion on any particular agreement.

Background and statutory framework

Section 2001.556 of the Occupations Code, part of the Bingo Enabling Act (chapter 2001), provides that a manufacturer, distributor, or supplier may not, by express or implied agreement with another manufacturer or distributor, fix the price at which bingo equipment or supplies may be sold, and that the price of bingo supplies and equipment in the competitive marketplace must be established by the manufacturer, distributor, or supplier and may not be established in concert with another. Tex. Occ. Code Ann. § 2001.556 (Vernon 2002). In Attorney General Opinion JC-0296 (2000), the office construed this provision, concluding it prohibits vertical price-fixing agreements between a manufacturer and a distributor and applies to leases as well as sales, and observing that the provision is concerned less with competitive pricing than with strict regulation of the relationships among manufacturers, distributors, and those who conduct bingo. The request letter and two industry briefs disagreed but raised nothing new, so the opinion applied JC-0296's construction.

Applying that construction, the opinion reasoned that the percentage of a conductor's revenue a distributor takes under a revenue-share lease is the price for the equipment, so a manufacturer's contractual right to approve or set that percentage controls the price the conductor pays and constitutes prohibited price fixing. The opinion rejected the argument that section 2001.405, which prohibits conducting bingo on premises rented for a percentage of game receipts or net proceeds, implies that percentage equipment leases are permitted; that premises-rental rule concerns a landlord's economic stake in a game and does not govern manufacturer-distributor relationships. Tex. Occ. Code Ann. § 2001.405 (Vernon 2002). The opinion declined to hold that all revenue-share leases are prohibited, noting other provisions such as section 2001.407 could be relevant, and reiterated that the office does not construe specific contracts. Tex. Occ. Code Ann. § 2001.407 (Vernon 2002).

Citations

Statutory provisions:

• Tex. Occ. Code Ann. ch. 2001 (Bingo Enabling Act) (Vernon 2002)
• Tex. Occ. Code Ann. § 2001.556, § 2001.556(b) (Vernon 2002)
• Tex. Occ. Code Ann. § 2001.405 (Vernon 2002)
• Tex. Occ. Code Ann. § 2001.407 (Vernon 2002)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0450
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2002/jc0450.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected (including the senator's name, which the scan rendered as "Lucia"); the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

January 14, 2002

The Honorable Eddie Lucio, Jr.
Chair, Committee on Border Affairs
Texas State Senate
P.O. Box 12068
Austin, Texas 78711

Opinion No. JC-0450

Re: Whether section 2001.556 of the Occupations Code prohibits a revenue-share leasing agreement between a manufacturer of bingo equipment and a distributor of bingo equipment (RQ-0417-JC)

Dear Senator Lucio:

You ask whether section 2001.556 of the Occupations Code prohibits a revenue-share leasing agreement between a manufacturer of bingo equipment and a distributor of bingo equipment.[1] Section 2001.556 prohibits price fixing by manufacturers, distributors, and suppliers of bingo equipment and provides that the price of bingo equipment "in the competitive marketplace shall be established by the manufacturer, distributor, or supplier and may not be established in concert with another manufacturer, distributor, or supplier." Tex. Occ. Code Ann. § 2001.556(b) (Vernon 2002). If under a revenue-share leasing agreement the manufacturer controls the price the distributor charges to bingo-game conductors for leased equipment, the agreement violates section 2001.556.

Section 2001.556, a provision of the Bingo Enabling Act, id. ch. 2001, provides:

(a) A manufacturer, distributor, or supplier may not by express or implied agreement with another manufacturer or distributor fix the price at which bingo equipment or supplies used or intended to be used in connection with bingo conducted under this chapter may be sold.

(b) The price of bingo supplies and equipment in the competitive marketplace shall be established by the manufacturer, distributor, or supplier and may not be established in concert with another manufacturer, distributor, or supplier.

Id. § 2001.556.

This office addressed this provision at length in Attorney General Opinion JC-0296, in which we were asked whether under section 2001.556 a manufacturer of bingo equipment and a distributor of bingo equipment could agree as to the price at which the distributor would sell bingo equipment to a charity. We were also asked whether our answer would change if the bingo equipment were leased rather than sold.

Relying on the express language of the statute, particularly the wording of subsection (a) of section 2001.556, and the overarching purpose of the Bingo Enabling Act to regulate relationships between interests in the bingo industry, we concluded that the statute prohibits a vertical price-fixing agreement between a manufacturer and a distributor as well as horizontal price-fixing agreements between two or more manufacturers or between two or more distributors. See Tex. Att'y Gen. Op. No. JC-0296 (2000) at 3-6; see also id. at 5 ("section 2001.556 appears to have a different purpose than antitrust law . . . . [I]t appears that this provision is concerned less with free enterprise and competitive pricing than with strict regulation of manufacturers and distributors of bingo equipment and their relationships with persons who conduct bingo."). We also concluded that section 2001.556 does not distinguish between bingo-equipment sales and leases, relying particularly upon the broad language of subsection (b):

[S]ubsection (b) of [section 2001.556] states more broadly that "[t]he price of bingo supplies and equipment in the competitive marketplace shall be established by the manufacturer, distributor, or supplier and may not be established in concert with another manufacturer, distributor, or supplier." Tex. Occ. Code Ann. § 2001.556(b) (Vernon 2000). Based on the broad language of subsection (b), which is not limited to sales, we conclude that the section 2001.556 prohibition on price fixing applies to pricing of bingo equipment generally, and applies to the pricing of leases as well as sales.

Id. at 6. Your request letter indicates that you disagree with our construction of section 2001.556, as do two briefs we received on this matter.[2] However, neither the request letter nor the briefs raise authorities we did not consider in our earlier opinion nor do they point to any subsequent developments in the law. Thus, rather than extensively reanalyze the statute or our prior opinion here, we simply apply section 2001.556 as we construed it in Attorney General Opinion JC-0296.

You ask about the legality under section 2001.556 of a "revenue-share leasing agreement" between a manufacturer and a distributor, which you describe as follows:

Several manufacturers of bingo cardminding equipment operate through "revenue share" leasing arrangements with their distributors. Under a typical revenue share arrangement, a manufacturer leases equipment to the distributor in exchange for a percentage of the revenues that the distributor earns by subleasing the equipment. The distributor leases the equipment to conducting organizations at a particular bingo hall, in exchange for a portion of the revenues that the conductors receive from their bingo customers. The conductor retains the ability to set the prices to the end customer, which results in fluctuation of the conductor's lease payment to the distributor, and in turn the distributor's lease payment to the manufacturer. This arrangement reduces the financial risk to the charity in a lease with the distributor.

Obviously, the amount of money the manufacturer receives is dependent on the amount of money the distributor receives from the conductors. Therefore, it is common in the industry for the manufacturer to have the right to approve the terms of the distributor's contract with the conductors. If the distributor proposed to lease the equipment to conductors at, for example, 5% of the conductors' revenue, the transaction likely would not make economic sense to the manufacturer and the manufacturer could refuse to lease equipment at that rate to its distributor.

Request Letter, supra note 1, at 1 (emphasis added). Although you have not expressly stated whether these agreements control the price at which the distributor leases equipment to bingo-game conductors, we assume this to be the case, based on your statement that the manufacturer has "the right to approve the terms of the distributor's contract with the conductors." Id.; see also id. at 3-4 ("[T]he revenue share lease necessarily requires some sort of agreement or approval from the manufacturer regarding the distributor's contract with the conductor."). As we understand it, under a revenue-share leasing agreement, the bingo-game conductor leases equipment from a distributor for a percentage of the conductor's revenue rather than a fixed monetary price. This percentage share is in fact the price the distributor charges the conductor for the use of the equipment. An agreement that allows a manufacturer to dictate the percentage of revenue the distributor will take from the conductor, controls the price the conductor pays the distributor. If these agreements do indeed control the price at which the distributor leases equipment to bingo-game conductors, then they involve price fixing between a manufacturer and distributor and are prohibited by section 2001.556.

You suggest that even if section 2001.556 applies to leases in general, it does not apply to revenue-share leases, citing section 2001.405 of the Occupations Code. That statute provides as follows:

Bingo may not be conducted at a leased premises if rental under the lease is to be paid, in whole or part, on the basis of a percentage of the receipts or net proceeds derived from the operation of the game or by reference to the number of people attending a game.

Tex. Occ. Code Ann. § 2001.405 (Vernon 2002). You argue that it is significant that "[t]here is no similar prohibition against setting an equipment lease payment based on the amount of revenue derived from the use of the equipment," because "[h]ad the Legislature or the Lottery Commission sought to prevent percentage leases for cardminding equipment, certainly they could have done so." Request Letter, supra note 1, at 3. We disagree. The legislature's express prohibition of certain kinds of rental arrangements in section 2001.401, which essentially precludes the landlord of a game from having an economic stake in the game, has no bearing on what is and is not permissible in contractual relationships between bingo-equipment manufacturers and distributors under section 2001.556. Moreover, we do not necessarily conclude that section 2001.556 prohibits all revenue-share leasing agreements, which would involve consideration of provisions beyond the scope of your request. See, e.g., Tex. Occ. Code Ann. § 2001.407 (Vernon 2002) (generally governing equipment and supply transactions). Rather, we conclude that section 2001.556 prohibits revenue-share leasing agreements in which the manufacturer and the distributor agree on the price that the distributor will charge the conductor.

In sum, if under a revenue-share leasing agreement the manufacturer controls the price that the distributor charges to bingo-game conductors for leasing equipment, the agreement violates section 2001.556. As this office does not review or construe specific contracts,[3] we answer your question generally and do not express any opinion with respect to any particular contract.

[1] Letter from Honorable Eddie Lucio, Jr., Chair, Committee on Border Affairs, Texas State Senate, to Honorable John Cornyn, Texas Attorney General (Aug. 13, 2001) (on file with Opinion Committee) [hereinafter Request Letter].

[2] See Brief from Brian J. O'Toole, Kasling, O'Toole & Hemphill, L.L.P., to Honorable John Cornyn, Texas Attorney General (Oct. 12, 2001) (on behalf of Trend Gaming Systems, L.L.C., and GameTech International); Brief from Jane Thompson, Thompson Allstate Bingo Supply, Inc., to Susan D. Gusky, Chair, Opinion Committee, Office of Texas Attorney General (Oct. 8, 2001) (on file with Opinion Committee).

[3] See, e.g., Tex. Att'y Gen. Op. Nos. JC-0032 (1999) at 4 (contract interpretation beyond purview of this office); DM-383 (1996) at 2 (interpretation of contract not appropriate function for opinion process); DM-192 (1992) at 10 ("This office, in the exercise of its authority to issue legal opinions, does not construe contracts."); JM-697 (1987) at 6 ("review of contracts is not an appropriate function for the opinion process").

                                    SUMMARY

            A revenue-share leasing agreement violates section 2001.556 of the Occupations Code, which precludes a bingo-equipment manufacturer, distributor, or supplier from agreeing to fix the price of bingo equipment, if under the agreement the manufacturer controls the price that the distributor charges to bingo-game conductors for leasing equipment.

                                          Yours very truly,

                                          JOHN CORNYN
                                          Attorney General of Texas

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General, Opinion Committee