Legislators say sweepstakes illegal, but continue operations under uncertainty
By Chris Berendt Staff Writer
A prominent Roseboro town leader, echoing the thoughts of many a municipal official, has called for more clarification when it comes to Internet sweepstakes operations, the hazy cloud around which has put those establishments in limbo and jeopardized — and in many cases, eliminated — potential tax revenue that can benefit towns.
A year after the state Supreme Court upheld a North Carolina law banning sweepstakes cafes, some of them are still open for business. Some have closed only to reopen. Former Roseboro mayor Roland Hall said it is confusing.
“Folks who are trying to enforce the law don’t know what to do,” the mayor said. “A lot of the Internet sweepstakes businesses — some of them have closed down so quickly and then re-opened later because they reprogrammed software to make it legal. It seems like we’re getting mixed messages from Raleigh whether or not that industry is going to survive or not.”
“It seems to me there is a source here for more tax revenue that could be realized if there was a consistent decision we all could work with,” said Hall.
Over the last year, sweepstakes cafes have been shut down by police, their owners and employees charged with violating the law. But some of those arrested have been acquitted of criminal charges and some operators have turned to the courts, asking judges to issue orders preventing law enforcement from closing their stores, saying they have new software that puts them in compliance with the statute.
The strategy has created an air of uncertainty in some communities that have been trying to close sweepstakes parlors. While some cities and counties are aggressively trying to shutter the businesses, other communities are allowing them to stay open until key issues are resolved.
There are a handful of the operations currently in Clinton.
At first, Rep. Larry Bell (D-Sampson) said he did not know such establishments were around. After finding out about several in Clinton, he went to every one of them, talking to operators and patrons alike.
“They were not all poor people,” Bell said, noting that was contrary to the thought that such places prey on poor people. “There were some people in there that I knew very well — people who were church folk, choir members and all kinds of folks were participating in there. If you think it’s gone, all you have to do is ride around here and it’s alive and well in Clinton, North Carolina. I don’t know about other places, but I see more cars there than I do our local churches.”
Sen. Brent Jackson (R-Sampson) said the operations are illegal, but it is a point of how some law enforcement deals with it. Attorney General Roy Cooper said as much in a recent statement. Cooper said his office is working closely with local law enforcement and prosecutors, providing assistance to close the operations — but said sweepstakes owners have been pushing back.
“I think overall you’ve seen a reduction in the number of these businesses in North Carolina either who voluntarily go out of business or who have been shut down by law enforcement,” Cooper said in a prepared statement. “I think it’s just going to take a period of time before its eradicated.”
However, the sweepstakes industry might not completely go away, he said.
State lawmakers first passed a ban on video poker and all other electronic gambling in 2006. 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 a game terminal that simulates 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. When the N.C. Legislature declared such operations illegal, that meant towns could not tax them, Rep. William Brisson (D-Bladen) said.
“The court said they were legal, but on the books we said they were illegal,” Brisson noted. “We need to go back and change it and go with what the court system’s decision was. If it comes back in North Carolina, it will be taxed. Right now, any kind is illegal.”
However, it is not that simple.
With most sweepstakes operations, patrons buy Internet time that gives them the opportunity to 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 state law makes it illegal to conduct a sweepstakes through the use of an “entertaining display” to reveal a prize. But in one court case, a Duplin County operator who had been brought up on criminal charges argued that the new pre-reveal software did not use an entertaining display to conduct the sweepstakes. Prosecutors said buying Internet time was just a pretext.
In late December, Judge Henry Stevens IV agreed with the operator and dismissed the charges. However, the judge’s ruling only applied to that case, leaving such situations to play out on the county level on a case-by-case basis.
Attorneys for sweepstakes operators said there’s still confusion over the statute. Several cases have resulted in preliminary injunctions based on the function of software and the structure of the statute, bringing uncertainty on the part of law enforcement as to how to enforce the law.
“I get the question all the time,” said Hall. “The one in Roseboro shut down, it reopened, it shut down, it reopened. We asked law enforcement and they said ‘well, we were told to hold off until we get some final words.’ There are people who want to open up cafes who are not opening them up, because there is no level playing field. The rules are not clear. I’m just advocating to make it clear for everybody.”
Hall said some towns are approached and clarification would be useful. And the fact that there is a great deal of money involved is not lost on any of the parties involved.
Legislators alluded to another crux in the situation — North Carolina is very much in the gambling business already.
“We are in the gambling business, when you’re talking about the lottery on one hand and this, that and the other. It’s all the same,” said Bell. “However you want to do it, regardless if it’s the lottery, betting on a football or basketball game or going down to the sweepstakes (cafe), it’s all the same. I don’t know if you’ll ever cut it out completely or not.”
“The state of North Carolina is in the gambling business,” Jackson concurred. “When we got the lottery, we were in the gambling business.”
The senator said he knew of one particular town that lost $60,000 a year in revenue when sweepstakes revenue went by the wayside. Many in Sampson are in the same boat.
The City of Clinton lost $70,000 in revenue for the current 2013-14 budget year, money it previously netted in privilege license fees. About three years ago, Clinton set a fee of $1,000 per machine. In 2012, the town of Garland upped its fee of $200 per gaming terminal to $500, and received a revenue boost as a result. The town of Roseboro assessed a $750 fee per terminal.
However, those revenues went by the wayside, because the operations were considered illegal and, thus, were not subject to be taxed. While some cafes have closed, others remain open, making money without paying taxes. Cooper said such parlors will always find a way to skirt the law, but Hall like others said more clarification in the statute was needed.
If they were to be in operation, towns should benefit.
“It’s a good source of revenue, no question about it,” Hall said.
“And $60,000 goes a long way for some of these towns,” Jackson added.
The Associated Press contributed to this story. Chris Berendt can be reached at 910-592-8137 ext. 121 or via email at firstname.lastname@example.org.
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