By Jon Greenberg
May 27, 2012 – 2:00 AM
When you enter a room and see people sitting in front of computer screens with spinning rows of jewels, cherries, bells or 10-gallon hats, eagerly hoping the images line up, you might be forgiven for thinking you are watching video-slot-machine gambling.
You would not be alone.
“What I want to know is,” asks Portsmouth City Attorney Robert Sullivan, “why is this not gambling?”
The operators of what are called Internet sweepstakes cafes say they have an answer that would hold up in court and keep their businesses running. State lawmakers would like to pass a law that shuts them down.
Lawmakers say they know gambling when they see it, but in the world of gaming, something that looks like a duck and quacks like a duck might not, in the funhouse of law, be a duck. Other states have tried to declare open season on these operations and failed. In Florida,
sweepstakes cafes represent a billion-dollar industry. In Ohio, estimates are in the tens of millions. North Carolina is now on its third attempt to legislate them out of existence and, so far, the state is losing. Massachusetts began to tackle them a year ago with emergency regulations from the attorney general.
The essential stance of the Internet sweepstakes parlors is that they are selling phone cards or Internet time just like McDonald’s sells hamburgers and Publishers Clearinghouse sells magazines. And like the big guys, they offer a sweepstakes to boost sales. The video-slot-machine games are simply window dressing; a more entertaining way for customers to find out, bit by bit, if they’ve won.
“The results of the sweepstakes don’t change,” said Mark Puffer, a Concord lobbyist and attorney representing the operators. “The prizes are predetermined.”
The games have no bearing on the outcome, even if the customers get the impression that playing them does.
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This similarity to conventional sweepstakes has states tied up in knots. Anthony Cabot is the head of the gaming law section with the firm of Lewis and Roca in Las Vegas.
“What legislators are trying to do, and sometimes inarticulately,” Cabot said, “is to affect the Internet cafes without the rest of the sweepstakes industry.”
Pinpointing a fundamental difference between one and the other can be hard.
The Massachusetts regulations and the bill in New Hampshire say the difference lies in the mindset of the customer. Massachusetts cries foul when gambling “predominates over the bona fide sale of bona fide goods and services.”
The New Hampshire attorney general’s office crafted language for the Senate that, among other things, calls it gambling when people buy things because they want to play in the sweepstakes, not because they want whatever they bought.
To see what customers are buying, Seacoast Sunday sent someone to play at the 3D Business Center store in Portsmouth. What the reporter found undermines the claim that phone cards are what get people inside. The person bought a card for $20. If she wanted to use it to make a call, she needed a PIN, but no one at the store mentioned that or told her where to find that code. A store poster listed phone rates of 3 cents per minute, but some simple math showed nothing that linked that rate, the money paid and the time on the card.
On the other hand, the staff spent at least 15 minutes helping the customer play the video-slot-machine games. They suggested various games and said, “If you’re playing a game and it’s not doing well for you, switch and you can find one where the odds are better.” One staffer said, “Some people figure this out and they just know which games to play.”
Experience might not guarantee success. One customer pocketed $30 in winnings and, when asked how the store stays in business, he said, “Because sometimes you don’t win.” Asked if he ever used the card to make a call, he snorted and said, “Why would I do that?”
In fact, the sweepstakes operators seem to encourage customers to forget that the card represents phone time. Instead, like a magician distracting your attention during a card trick, they focus on what is called the sweepstakes value of the card. The sweepstakes value is what allows you to continue to play on the machine. The game display shows the value of the card constantly shrinking, regardless of winnings. When the sweepstakes value reaches near zero, you have to put more points on the card. At the start of your session, the store will give you a free dollar’s worth of points, but if you want more, you would hand over more of your own money, which would add phone minutes as well as sweepstakes points.
The mental disconnect between the card and its stated purpose can be extreme.
In North Carolina, where the card was good for Internet time, one player had more than 80,000 hours. That equals more than nine years of Web time, accumulated by spending several hundred dollars on the sweepstakes each weekend.
Several legal experts say by targeting this disconnect, the bill in New Hampshire could be effective in separating the sweepstakes cafes from the McDonald’s type promotions — with one big drawback.
“The difficulty will be in demonstrating that people are not buying anything of value,” said Jeff Welty, a lawyer in the University of North Carolina School of Government.
In Ohio, the government has a different concern. Police in one community near Toledo seized the game machines and sent them to a computer lab for testing. What they found were ordinary video slot machines. The software had nothing to do with any sweepstakes.
The thrust in Ohio, which recently legalized casino gambling, is to regulate the industry. “The goal is to protect the consumer and make sure the machines are operating fairly,” said Mike Dittoe, spokesman for the House Speaker’s Office.
Under one proposal, operators would pay a hefty licensing fee to cover the cost of testing and certification.
The outright fraud in Ohio underscores the challenge facing any state where these machines pop up. Without clear government authority, the sweepstakes parlors avoid all oversight. Establishing that authority can be tricky and results short-lived. The poster child of this dilemma is North Carolina.
The state first allowed video poker in 2000. Six years later, lawmakers banned it and the industry shifted to Internet sweepstakes. The legislature moved again and, focusing on the underlying technology, banned “server-based” games. Welty, the UNC professor, said the game owners barely missed a beat.
“What operators did,” he said, “was reprogram the machines so they were no longer server-based and no longer fell under the law.”
North Carolina’s latest effort faces an uphill battle in court on the grounds that it violates the First Amendment.
“The operators are very adaptable,” Welty said.
That might serve as a word of caution to New Hampshire lawmakers who hope to ban the sweepstakes-style Machines here.
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