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Loophole in video poker ban makes way for cyber sweepstakes

Sweepstakes have never before been so controversial — or so complicated.

Far removed from the days of dropping an entry form in the mail or peering under the cap of a soda bottle, sweepstakes have now taken the form of electronic gaming machines.

Though these sweepstake terminals seem closely related to video poker to most observers, the gaming industry maintains that nothing could be farther from the truth.

A Superior Court judge in Guilford County supported that claim last December, ruling that a state ban on video poker did not apply to sweepstakes terminals.

The judge issued a preliminary injunction, prohibiting law enforcement officers from taking any action against the machines or even stating publicly that these machines were illegal.

Differentiating sweepstakes machines from video poker has been critical for the gaming industry.

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The state ban targeted video poker after public figures, like former House Speaker Jim Black and Buncombe County Sheriff Bobby Medford, were accused of accepting bribes for allowing illegal video poker operations.

The gaming industry’s new formula has so far been successful in bypassing every restriction that has originated in the state legislature.

While state legislators weigh the pros and cons of passing yet another ban, one that includes sweepstakes machines, local governments, like those in Canton and Maggie Valley, have taken up the task of reigning in these virtually untaxed, unregulated machines.

Canton and Maggie Valley have both instituted 90-day moratoriums on the installation of the machines to research and draft some guidelines.

After enacting its own moratorium, the city of Hendersonville decided to charge $2,600 per machine.

For now, Maggie Valley charges a mere $5 per machine, while Canton’s ordinance allows for no more than three electronic games to be installed at each business. Those who violate that rule in Canton face a $50 per day fee.


Containing explosive growth

Maggie Planning Director Nathan Clark decided to investigate after receiving a phone call alerting him that several sweepstakes machines were being moved into a new store in town.

Steve Sullivan, a co-owner of This and That Home Décor and Gift Shop, said he felt targeted by the scrutiny.

“Everybody is trying to say it is video poker, but it is totally different,” said Sullivan.

Sullivan’s store, which sells seasonal merchandise, also offers phone card sweepstakes. A lit sign declaring, “Cyber Sweepstakes are here,” decorates the storefront.

According to Sullivan, Clark and Alcohol Law Enforcement officer Doyce Stevens grilled him about the terminals, told him to move them into the back room, and demanded an inventory list to ensure that he would sell other merchandise at the store.

Sullivan said he felt like he had to jump through hoops just to get a business license.

Meanwhile, Clark said that there was never any question that Sullivan would receive his business license since no policies on sweepstakes machines had been in place when Sullivan applied.

Clark maintains that he was simply trying to figure out the difference between cyber sweepstakes and video poker, which is illegal.

“We were trying to figure out exactly what this entails,” said Clark. “I understand the frustration in getting started, but the town has an obligation to see uses that are proper and allowed.”

While Sullivan said he was never notified of a special meeting called to address the sweepstakes issue, Clark said the meeting was advertised and did not deal specifically with Sullivan’s business license.

The town board called that meeting to discuss the broader question of regulating sweepstakes machines. The board decided to institute a 90-day moratorium on the machines, which started Nov. 6.

The moratorium had no impact on Sullivan’s store.

Clark said the moratorium would give the planning board time to research the issue and come back to the board with ideas, hopefully by January or February 2010.

What Sullivan wants is consistency in the town’s policy, citing that cyber sweepstakes terminals were installed in two gas stations in town without any scrutiny.

“I had to fight for my business license,” said Sullivan. “They didn’t want me to have them, but they have them in the convenience stores. It’s no different.”

Sullivan keeps a highlighted copy of a Superior Court judge’s decision by his side to immediately dispel any doubts about his sweepstakes terminals being legal.

Without commenting on the machines’ legality or morality, Clark said they should be regulated. The machines could be troublesome for a town like Maggie due to the abundance of vacant storefronts combined with an “extremely low lease rate,” Clark said.

“You could have a situation where your town is overrun by an industry,” said Clark.

The town board and staff had heard murmurs about cyber sweepstakes at statewide meetings in the past, but they were not aware that cyber sweepstakes had crept into their own town’s borders until recently.

Clark said he wants to make sure the zoning ordinance keeps up with the machines, noting that they have become a wide-ranging problem and taken over entire city blocks in the eastern part of the state.


No magic ordinance

Al Matthews, city manager for Canton, said the town had received applications for an “office and Internet business,” not realizing that the bulk of the business was actually tied to sweepstakes machines.

Matthews said such terminals could be found in convenience stores, gas stations, and even a clothing store in town.

Since the moratorium was put into place in October, the town has considered taxing either the game or the business, or restricting it to specific zones.

While many local governments are addressing the same sweepstakes issue, each town is searching out its own path.

“I don’t know that anyone has a magic ordinance yet,” said Matthews.

Matthews is not sure what the new town board will decide on the issue after it is sworn in, but it was clear to him that no one in the current town board was a strong advocate for the machines.

If Canton institutes high fees for installing the machines, Matthew said the motivation would stem from a desire to discourage the games rather than to generate revenue.

“The average citizen would say this is a form of gambling,” said Matthews. “But this, according to law, is not gambling. We have to address it as a non-gambling issue no matter what people want to call it.”

Matthews said while the town cannot control their citizen’s choices, the board is nonetheless concerned about a proliferation of the machines.

Meanwhile, Waynesville is waiting on a decision by the state, hoping that legislators will fix whatever was wrong with the statute to begin with.

“We’re not thinking about it right now,” said Waynesville Town Manager Lee Galloway.


Playing whack-a-mole

Earlier this year, a Wake County Superior Court judge ruled that the state’s ban on video poker was unconstitutional since it allowed the Eastern Band of Cherokee Indians to operate the same games it outlawed elsewhere in the state.

The N.C. Court of Appeals is still mulling whether the ban is constitutional, creating a major grey area for enforcement agents trying to uphold it.

N.C. Rep. Ray Rapp, D-Mars Hill, said he supports every effort to discourage sweepstakes machines across the state. He hopes to usher them into an improved electronic gaming ban that would not apply to the Eastern Band.

“It is a sovereign tribe,” said Rapp. “What I’m proposing on this ban does not affect in any way gaming on the reservation.”

When it comes to the video gaming machines, Rapp’s patience is wearing thin.

“It is a blight on this state,” said Rapp. “And the problem is that it’s like an infection that is rapidly spreading from one end of the state to the other...While courts are taking it under consideration, they’re just shipping in the machines.”

Rapp is frustrated that the laws passed in the state legislature have not stopped the spread of cyber sweepstakes, but he said that anyone who attempts to fight the games is picking on an industry with deep pockets that will stop at nothing to legalize their games.

Rapp likened the quest for banning video gambling to playing whack-a-mole.

“When you get one game taken care of, another one pops up. You get that one, they come up with another one,” said Rapp. “Any way they can circumvent the law, they will do it.”

While Rep. Earl Jones, D-Greensboro, has suggested legalizing sweepstakes machines and having the state take a cut of the profits, Rapp remains unconvinced.

“I think it’s truly exploitative and inappropriate,” said Rapp, who also opposed the state lottery being put into place.

“It is a shame what’s happening,” said Rapp. “You got a lot of people leaving their Friday afternoon paychecks at their stores and not being able to fed their families. The people who are most vulnerable economically are the ones that are playing these games.”


How they work

Customers buy a phone or Internet card, or enter a contest for the chance to play at the sweepstakes terminal for free. They have the option of swiping that card on the sweepstakes machine to play games of chance. Playing those games will allow them to see how much phone or Internet time they’ve won by buying the card. Customers have the option of cashing in the phone or Internet time they’ve won for money.

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