Sweepstakes Industry Challenges New NC Law
CHARLOTTE, N.C. — It's an industry that has defied the odds.
For years, North Carolina has tried to outlaw sweepstakes cafes — places where people play fast-moving computer games that mimic Las Vegas-style slots.
After the state Supreme Court last year upheld a North Carolina law banning the games, law enforcement agencies started cracking down, closing dozens of sweepstakes parlors.
Instead of folding, some sweepstakes operators are using new tactics to stay open: They're filing lawsuits against the very communities trying to close their doors. The owners say new software puts their businesses in compliance with the law.
They're also fighting criminal charges and, in several cases, judges have sided with the sweepstakes owners. The battle has caused uncertainty in some communities trying to close sweepstakes parlors they say prey on the poor.
Now some communities say they'll allow sweepstakes parlors to stay open until key issues are resolved — including whether software known as the pre-reveal system conforms to the law.
"This is a tough issue," said Gilbert Chichester, city attorney for Roanoke Rapids. "There's a gray area."
Sweepstakes operator William George said he is optimistic and that he and his cohorts are fighting for their livelihoods.
"With pre-reveal, I can't see how you can say it's not legal," he said.
North Carolina lawmakers first passed a ban on video poker and all other electronic gambling in 2006, following a political scandal involving political donations from the games' operators. The industry quickly adapted, introducing new sweepstakes games they said complied with the law.
Lawmakers responded with new legislation in 2008 and 2010 that made it unlawful to possess game terminals that simulate slot machines or are used for the display of electronic sweepstakes. The makers of sweepstakes software then sued the state, saying the ban violated their Constitutional free speech rights. The resulting court fight dragged on two years, culminating in the December 2012 Supreme Court decision upholding the ban.
After the ruling, law enforcement agencies began raiding cafes, seizing computer and making arrests.
But sweepstakes owners protested, asking them to look at the pre-reveal system: Sweepstakes parlor patrons buy Internet time that lets them uncover potential cash and prizes with mouse clicks on a computer screen. To play at the cafes, customers get prepaid cards and then go to a computer to play "sweepstakes." Winners go back to a cashier with their cards and cash out. The pre-reveal system software allows participants to find out if they've won before they play the game.
That issue was at the center of a recent sweepstakes arrest in Hickory, where a woman pleaded innocent in April to operating an illegal sweepstakes parlor. Her lawyer said the pre-reveal software made the operation legal. After a one day trial, District Court Judge Amy Sigmon agreed.
But the judge's ruling only applied to that one case. So a month later, Clark Consulting Group, a company that operates a different Hickory sweepstakes parlor, filed a lawsuit, accusing the city and Catawba County sheriff of threatening to close his business and arrest his employees.
Clark Consulting wants an injunction to prevent police from shutting his business, and also asked the judge to issue a "declaratory judgment" that they did not violate the new law. Such a judgment could carry over to other cases.
The company said it was using the sweepstakes as a promotion to help attract business, much in the same way McDonald's uses its Monopoly game to draw in customers.
"North Carolina law permits businesses to market and promote the sale of their products through promotion sweepstakes," the lawsuit claims.
Hickory spokeswoman Darlene Kaminske said the lawsuit won't stop police from doing their job.
"Just like any crime we are made aware of or observe, we will take the appropriate action to enforce state law. A pending lawsuit would not stop police from doing their job," she said.
Still, the lawsuits are making some communities hesitate.
Chichester, the Roanoke Rapids attorney, said he was asked to examine the sweepstakes issue. The law made it illegal to conduct a sweepstakes through the use of an "entertaining display" to reveal a prize. But Chichester said new software did not use an "entertaining display" to conduct the sweepstakes.
"On the converted system the customer simply presses the 'Reveal' button on the screen and the prize, if any, will be revealed to the customer in plain text format," he wrote in a letter to Halifax County Sheriff Jeff Frazier.
As a result, Chichester said he believes sweepstakes parlors with the new software are legal.
"In Halifax County, the ones (sweepstakes parlors) that are currently open are the ones that have the pre-reveal type feature to it," he told the Associated Press.
Chichester said the sweepstakes industry is constantly modifying the software to stay in compliance.
"No matter what particular program they are using, if the court, or a law enforcement agency, says: 'This does not comply with the state law,' almost overnight they switch it. And they come out with a different version. It's like a moving target. And that's one thing that's making it pretty difficult."
Donald Pocock is an attorney for Nil Entertainment, which has filed a lawsuit in Wake County against the city of Garner for trying to shut down a sweepstakes cafe.
"I think there is a lot of confusion across the state as to what the meaning of any of these decisions has and whether it applies to other jurisdictions," he said.
While the state Supreme Court said the law is constitutional, it didn't decide how it should be applied, Pocock said.
Still, he said it's having a chilling effect on the industry, which had hundreds of sweepstakes parlors and thousands of employees.
"Nobody wants to play (a game of) chicken with criminal prosecution. The fact of the matter is, the people I represent have worked very hard to be in compliance with the law, and they believe they are in compliance with the law," he said.