“Sweepstaking” reforms By Luke Haward October 21, 2014 at 8:55 am One of the most insidious and inherently absurd forms of gaming enterprise to have sprung up in the U.S. in recent years is approaching its tenth birthday. Internet sweepstakes cafes began around 2005; they have since spread widely across the country. These ventures have gone by many names in their efforts to remain on the good side of the law, including “cyber cafes” and even, recently, “skill game parlors”. Their business model involves presenting what they sell as “not a form of gambling”, with venues frequently proclaiming this in their window-fronts. So how do they get away with it? First, customers purchase “Internet time” which entitles them to both that time plus a number of “free” tickets in a sweepstake. Participants rarely use the computers at the stores for anything other than checking the results of their sweepstakes tickets. So most of the purchased Internet time goes unused. For the tickets, participants see simulated slot machine play, and can even act to stop the spinning wheel, just as in real play. But the spin has no bearingon whether a user has won a prize or not. The results are pre-determinedprior to play. The activity of controlling the slots has been described as “pseudo-interactivity” by some commentators. North Carolina was the first state to ban this form of business, in 2010, only to see it redefine itself as “pre-reveal” sweepstakes: As soon as users log into the system the pre-reveal tells them the cash value of any prizes won. Many operations have now set up such a “pre-reveal” option as an alternative to the slot machine visuals, which they describe as being an “entertainment display”. During the next effort to shut down that mutated form down, State Attorney General Roy Cooper was quoted as complaining that the venues were “lawyered up pretty well”. This is the nub of the issue, as total sweepstakes cafe revenues across the U.S. are estimated at around $10 billion. As revenues have increased, so have legal challenges to their existence, and so has the money they spend on legal defense and on lobbying. Such maneuvering around the legal definition of gambling has enabled these enterprises to exist in a legal gray area, one where they thrive, or at least survive, in some fairly unexpected locales. Even Utah, king of the gambling teetotaler states, has seen sweepstakes cafes appear. The consensus of political opinion seems to be that not only are these establishments irresponsible and deceptive in claiming not to be a form of gambling, but they also take away real, taxed revenue from licensed gambling venues. Several of the states suffering from the highest numbers of such businesses have taken steps in the last two years to get rid of them. Ohio, Florida, and Mississippi all passed legislation during 2013 to prevent the businesses from operating, and California, Connecticut and Colorado are passing bills to the same purpose this year. Florida is a great case to illustrate the trouble that legal departments have in dealing with this phenomenon. In that state, an estimated $1 billion was being spent per year on sweepstakes until legislation was passed last year. In March 2013 a major scandal erupted in Florida when a charity called Allied Veterans of the World was disclosed to be a front for a huge sweepstakes organization, with about 60 arrests in the initial sting operation. State officials said the company had made over $300 million in gambling profits. Lt. Governor Jennifer Carroll, who had consulted for the company, resignedjust one day after being questioned by police. The Florida legislature soon passed new laws to prevent the operation of sweepstakes cafes in the state. To ensure that sweepstakes cafes could not slip through a loophole, House Bill 155, Prohibition of Electronic Gambling Devices, was worded to define a slot machine as being any device which might be used to gamble. But such phrasing banned not only sweepstakes cafes, but also all (true) Internet cafes, and what’s more, technically, banned every smartphone and online computer in the state! (At least this is what is alleged in one lawsuit filed to prevent enforcement of the bill.) In Florida movements are of course afoot now to refine and remedy this over-enthusiastic slip of the legislative pen; still, it’s a perfect example of the trouble states are having in legally “fencing in” these gambling cafes, as they tend to respond by slipping on a new name, invoking a new style of play, and (if necessary) finding new venues, pulling in betting revenues as discreetly as possible.