Sweepstakes Cafes Down, Not Out

September 15, 2014
Sweepstakes Cafes Down, Not Out

Creative businesses have been trying to get around state video gambling laws for decades. Some found workarounds by exploiting loopholes in laws that were intended for arcades. Others managed to get state laws pertaining to gambling to take on a slightly different meaning by changing a few words with the help of state legislators, opening the door for unregulated gambling.

Many states have discovered that sweepstakes laws that are meant to apply to promotional contests opened the door for a new industry that closely resembles legalized video gambling. The language in these laws allows for a product to offer a secondary promotion.  Under this legal opinion, sweepstakes cafés were born.  It is a $10 billion industry, according to the American Gaming Association.

The main method of operating a sweepstakes café is to setup a network of computers in a retail store. These businesses sell time on the computers through a prepaid card.  Long distance phone cards are also used.

The cards sold come with a game that is played on the computers within the establishment. These devices take on a striking resemblance to online slot machines.

This business model has come under fire in recent years. Florida banned the machines in 2013. This may have also made online poker subscription sites that operate under sweepstakes laws illegal.

North Carolina banned sweepstakes machines in 2010. These devices began to appear after legalized video poker was phased out in 2007. A court battle that lasted two years went all the way to the North Carolina Supreme Court.  The state’s highest court declared the devices in question illegal.

The California Bureau of Gaming Control issued an advisory in December 2012 to clear up any ambiguity about sweepstakes cafes, explaining that the devices were illegal gambling machines. There was confusion at the local level about whether the games were legal before this advisory was distributed by the state.

Ohio banned sweepstakes cafes in 2013, one year after casinos opened in the state. Mississippi banned the games the same year. South Carolina, which was the poster child for unregulated video gambling gone wrong in the 90’s, also joined these states in 2013 in banning sweepstakes machines.

Traditional Casino Industry Opposes Sweepstakes Cafes

The American Gaming Association represents the commercial casino entertainment industry.  The group opposes sweepstakes cafes for several reasons.

“These illicit operators elude licensing, criminal background checks and other safeguards required of legitimate gaming operators to ensure the integrity of games, prevent the participation of minors and protect players’ safety,” Chris Moyer of the American Gaming Association told USPoker.

“Furthermore, these illegal gambling businesses threaten to undermine legitimate gaming operators because they pay zero gaming taxes, yet siphon gaming revenue from regulated casinos. As a result, states lose tax revenues intended to support critical public education, health and social programs,” Moyer continued as he shared the American Gaming Association’s concerns over sweepstakes cafes.

Sweepstakes Cafes Affect Online Poker Laws

New Jersey outlawed businesses that operate for the sole purpose of providing access to online gambling, including regulated sites. One of the major reasons for this was to combat sweepstakes cafes. It also makes it easier to enforce existing laws on the books. California bills have also included this language.

New Loopholes Found

The latest version of these games is back on the market. In some states, a pre-reveal option was added to comply with new laws. This removes chance from the equation and makes the games clearly not gambling, according to the operators.

In Alabama, the manufactures created a bingo display to comply with the state’s bingo laws. Video bingo has been a heated topic in Alabama for much of the past decade.

USPoker contacted a distributor of sweepstakes terminals to get an explanation as to how the current devices work.  We did not receive a response.

It takes a year or two for state legislatures to catch up to the latest invention. It only takes a few days to roll out the newest way around the law. It may be impossible to completely ban sweepstakes cafes without also taking promotions away from traditional retail outlets.

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