Despite a statewide ban on video sweepstakes machines, the video gambling industry is taking advantage of yet another apparent loophole to introduce the machines back into Western North Carolina, apparently emboldened after local district court judges have dismissed a series of criminal charges against defiant sweepstakes operators.

Following a nine-month undercover investigation, six people were charged with conducting illegal activities, including selling moonshine and gambling, at the Veterans of Foreign Wars Post in Waynesville.

A convenience store owner in Macon County was let off the hook by a judge for four misdemeanor charges of operating illegal sweepstakes machines — but it will have little or no bearing on the state’s ban on the machines.

All bets are on in Cherokee.

The first major poker tournament held at Harrah’s Cherokee Casino and Resort has lured crowds of card sharks from the southeast and beyond, surpassing attendance expectations, and even breaking records.

The 12-day event, organized by the World Series of Poker, drew hundreds of participants from big poker names to hometown mavericks. The series is a professional poker circuit that hosts tournaments around the country in top gambling spots like Atlantic City, Chicago and Las Vegas. Now, you can add Cherokee to that list.

A Waynesville sweepstakes operator was charged with a criminal misdemeanor last weekend when she refused to shut down her machines, considered a form of illegal gambling under state law.

The North Carolina Supreme Court ruled last week that state lawmakers indeed have the power to ban video gambling in its various forms, including the latest reincarnation known as video sweepstakes.

The quest to bring live table games to Harrah’s Cherokee Casino faces a final political hurdle.

Both the Governor and N.C. Senate have given live table games their blessing, with the N.C. House of Representatives now the lone hold-out.

Harrah’s Casino is limited to video-based gambling only. Adding live table games like roulette and poker would attract a new clientele of player, and in turn more money and jobs flowing through the entire region, according to the Eastern Band of Cherokee Indians.

“We aren’t going to see a big influx of industry coming in to Western North Carolina, so we have to do what we can to ensure we have economic development,” said Rep. Roger West, R-Marble. West sees the casino, which could employ more than 2,000 if it gets live dealers, as a key economic pillar that spins off in the region.

Whether the Eastern Band has the requisite votes to get the measure passed is unclear at the moment, however. But West is hopeful.

“I think the votes are there. If they aren’t, it is just a matter of getting them,” said West, who represents Macon, Clay, Graham and Cherokee counties.

However, many of the House legislators who are opposing live dealers cite moral and religious grounds, and convincing them to relinquish their convictions in the name of economic development might not be easy.

“My opposition stems from my longstanding belief that state sanctioned gambling has a corrosive effect on our society,” said Rep. Ray Rapp, D-Mars Hill.

Rep. Phil Haire, D-Sylva, said the good the casino has done in the region outweighs any negatives.

“I remember the days before they had Harrah’s — it has brought a whole lot of prosperity to the Eastern Band,” Haire said.

Haire said the jobs provided by Harrah’s are significant, not only the salaries but the health insurance. And Haire personally enjoys going to the concerts at Harrah’s major performance venue. He saw Diana Ross recently, and is headed to see Natalie Cole this weekend.

Haire hopes Cherokee’s casino operation won’t be held hostage to personal ideology.

“I think some people want to put a moral tag on it, but nobody makes you go to Cherokee to gamble. It is all voluntary,” Haire said.

Rapp was willing to go along with live table games for the existing casino campus, since gambling was already going on there. But Rapp is not comfortable with the prospect of Cherokee opening more casinos in the region on their land holdings.

The deal initially inked with the governor would have permitted Cherokee to open more casinos anywhere on land holdings it owned currently.

However, in an attempt to assuage legislators uncomfortable with expansion of gambling onto some of Cherokee’s more recently acquired holdings, new language was added. The new language limits the Eastern Band to a max of four more casinos, and they can only be built on land under the tribe’s domain as of 1988 — making newer land acquisitions off the table.

Live table games passed the senate last week by 33 to 14. All four state senators from the mountains voted for it: Sen. Jim Davis, R-Franklin; Sen. Ralph Hise, R-Spruce Pine; Sen. Tom Apadoca, R-Hendersonville; and Martin Nesbitt, D-Buncombe.

The tribe has hired lobbyist Steve Metcalf, a former legislator from Asheville, to shepherd live table games through the General Assembly. Metcalf declined to comment for this article.

A vote could come as early as next week. If it doesn’t come, it could be a bad sign.

“You never go to a vote unless you have the votes,” West said.

The General Assembly will only be in session for about six weeks.

Education fight resolved

It took years of lobbying and negotiations for the tribe to reach where it is now. In an historic agreement signed with Gov. Bev Perdue last November, the tribe agreed to give up a cut of its revenue from the new table games — on a sliding scale starting at 4 percent and maxing out at 8 percent over the next 30 years. In exchange, the state would grant live dealers and a guarantee that no other casinos would be allowed to encroach on its core territory, namely anywhere west of Interstate 26.

While Perdue and Republican leaders in the General Assembly had agreed in theory to live dealers last fall, they had locked horns on a seemingly obscure sticking point. Perdue wanted the state’s cut of casino revenue to go directly to schools, bypassing the General Assembly. That way, lawmakers couldn’t be tempted to tap the money for other uses.

The Republican leaders, however, said casino revenue couldn’t legally be put in a lockbox and earmarked for future years. One set of lawmakers today can’t impose mandates on how future lawmakers can spend money.

A compromise was reached that places the money in a special “Indian Gaming Education Revenue Fund.” The General Assembly can tap the fund at will — so it does put legislators hand in the till — but they have to hold a special vote to get money out. Otherwise, the money will be disbursed quarterly to school systems across the state based on their student body population, and can only be spent on “classroom teachers, teacher assistants, classroom materials or supplies, or textbooks.”

It’s early on a workday, and there’s a single player seated at one of the 18 machines in the two-room M&J’s sweepstakes café, located in a small strip mall on Highlands Road in Franklin.

Louise Dills, who works at the nearby manufacturing plant Whitley Products, has casually dressed for the time she’ll spend here. The Macon County native was wearing a sweat suit, T-shirt and tennis shoes, her typical sweepstakes attire. She was playing her favorite sweepstakes game: “Candy Money.”

M&J’s is one of more than 1,000 sweepstakes cafes that have sprung up statewide, despite a ban by the General Assembly on video gambling. Dozens are here in Western North Carolina.

Sweepstakes cafes such as this one sell “time” to customers to gamble online or by cell phone. Customers, in return for whatever amount of money they care to risk, log on to their machine of choice and play for the allotted time they purchased.

Sweepstakes café owners and managers argue that letting customers “find” cash and prizes via computers is simply buying and selling Internet or phone time — not real gambling, in other words.

Dills has defied the odds, in her accounting at least. She said she’s won more money at the games than waved goodbye to. Dills won $5,800 playing Candy Money a few weeks ago. It isn’t a hard game to master, she said, putting down a cigarette into an ashtray to free her hands and visually explain the game. You simply match identical items on the screen. They match; you win, she said, pointing at the screen.

“I’ll probably never win that much again,” Dills said of that blue ribbon day. “But I really play just to take a break.”

That break could end for gamblers such as Dills if the state of North Carolina has its way. Sweepstakes cafes such as this one are in the crosshairs.

The General Assembly first banned video gambling in 2007. It didn’t take long before so-called “sweepstakes” cropped up as an alternative. Lawmakers viewed the sweepstakes as a reincarnation of video gambling under a different name, designed to circumvent the previous ban. So the General Assembly went back to the drawing board and passed another ban in 2010 aimed at putting sweepstakes cafes out of business as well — the third attempt in an ongoing game of cat and mouse between the state and video gambling industry.

But the situation didn’t turn out as black and white as lawmakers had anticipated. Lawsuits challenging the ban have allowed the games to continue, leaving local law enforcement officers confused about whether sweepstakes machines operating in their counties are illegal or not.

And, meanwhile, owners of sweepstakes cafes are arguing that any attempt to close them down is a violation of free speech rights under the First Amendment — the basis of the pending lawsuit.

“There are some people who have gambling problems,” said Melissa Hurst, the owner of M&J’s in Franklin. “But what is the difference between us doing it here, and the casino being right over the mountain?”

Or, for that matter, sweepstake proponents argue, what’s the difference from sweepstakes machines in parlors and the state-endorsed, state-managed education lottery?

The sweepstakes cafes are a helpful, if not always fully embraced, revenue source in towns such as Franklin. The municipality charges a $50 business licensing fee and a $2,600 sweepstakes fee. The towns of Canton and Maggie Valley levy comparable fees on businesses operating sweepstakes machines.

In Franklin, it adds up to about $10,000 a year in revenue for the town, according to Franklin Finance Officer Janet Anderson.

And that’s just for four sweepstakes cafes located in the town limits; there’s many more operating outside those boundaries in greater Macon County. The county, however, doesn’t levy specific fees for these types of businesses.

‘Confusing law’

Law enforcement officers in Macon County, and in most of the state, have taken a hands-off approach to the sweepstakes cafes.

“We’ve been advised by the state Attorney General’s office not to enforce the law,” Macon County Sheriff Robbie Holland said. “It’s a very confusing law. We know there are people potentially abusing it, but the AG did not want us to prosecute any cases until they have a ruling.”

The state Court of Appeals held oral arguments last month on two lawsuits challenging the state’s sweepstakes ban but has not issued a ruling. The cases were first heard by lower-level courts, with those judges issuing mixed reviews on the 2010 law.

One judge upheld the entire law to ban the machines. Another judge struck down part of the law and allowed that certain machines could operate legally but also agreeing to the Free Speech argument in certain other cases.

“We have to keep watching the law, because it keeps changing,” M&J’s Hurst said.

Christy Wilson, who works in a nearby sweepstakes café owned by the same family, agreed with Hurst.

“You’ve got to make sure you’re up to date,” Wilson said.

The Buncombe County sheriff was one of the few in the state who was enforcing the state law banning sweepstakes machines. Buncombe, perhaps, has a lower tolerance for the offshoot of video gambling. Its former sheriff went to jail for his involvement in an organized crime ring centered around video poker.

After charges against those operating the sweepstakes machines were dismissed in Buncombe County court because of the pending lawsuit, the sheriff announced this month that he would suspend action against sweepstake operators.

Running sweepstakes cafes come at potential costs in the community to these business owners and workers included.

“There’s a lot of people who look down on it,” Hurst said.

Leaving possible moral implications aside, Sheriff Holland’s deputies in actuality respond to very few calls at or from the local sweepstakes cafes.

“There are few to zero problems at the establishments where these machines are set up,” Holland said.

The Eastern Band of Cherokee Indians plans to build a Class II gaming facility in Cherokee County, but the project will not move forward without a fight.

Earlier this year, the Tribal Council approved the concept of a satellite gaming facility to be built in Cherokee County, where tribal members owns more than 5,000 acres and there are hundreds of enrolled members.

The facility would give the tribe a gaming presence close to East Tennessee’s population centers in Chattanooga and Knoxville.

Last Thursday, Principal Chief Michell Hicks indicated at a tribal council meeting that he had signed papers on a land deal that would give the Tribe road access to two pieces of land it has purchased for the purpose of developing the gaming facility, which would likely be home to a high-stakes bingo parlor and some similar games played on video platforms.

But at least two members of the Tribal Council –– Painttown Rep. Terri Henry and Big Cove Rep. Theresa McCoy –– have said they’ll do what it takes to stop the deal from going through.

Henry and McCoy were the only two members of the council to vote last month against authorizing a committee within the tribe “to continue the planning and negotiating, and the seeking of necessary bank approvals and to secure all necessary bank loans” for a gaming facility.

McCoy said she objected to the construction of a new gaming facility because the tribe is already over-extended with debt from the $600 million expansion of Harrah’s Cherokee Casino.

Henry has said the closed-session negotiations over the land deals involved in the process should be handled in open session.

Henry and McCoy filed a protest to the resolution last month, but the council voted it down. With the majority of the council and Principal Chief Michell Hicks behind the project, the issue appeared to be a fait accompli. But during a council meeting last Thursday, McCoy and Henry played a wildcard.

Having traveled to Cherokee County to meet with landowners near the recently purchased trust lands, McCoy alleged that the deal Hicks brokered through negotiator Lew Harding would unnecessarily cost the tribe $6.5 million.

According to McCoy, landowners in Cherokee County have already agreed to sell another piece of property in the vicinity for $2 million in addition to giving the tribe a right-of-way worth $2 million.

“If you’re going to do this to our people, then do what’s best for them and bring it in at the least amount, consider all the options, make your minds up yourselves,” McCoy said. “Let’s stop listening to what Mr. Harding has to say. He has lied to this family, he has lied to other people in this community, and he has lied to this tribal council.”

Donald Palmer, an enrolled member and Cherokee County landowner, owns the tract of land just south of the site where the tribe plans to build the gaming facility.

Palmer said he was approached by Harding three months ago and told he would be able to negotiate the sale of his land, but never heard from him again.

“Evidently he forgot about us down in Cherokee County. We’ve got a good property for gaming,” Palmer said.

Henry introduced Mr. Palmer to the council during its meeting on May 6 and cited the information he shared as proof that the committee in charge of negotiating with landowners hasn’t been doing its job.

“The reason I’m bringing this up today, Mr. Chairman, is because this is the information the council should have been presented back in March,” Henry said. “This is how we could have made an informed decision on this.”

McCoy told the rest of the council that they needed to visit Cherokee County to talk with landowners and see the land for themselves.

“Our point has been this. Go and see before you make a commitment. This is an opportunity at a $2 million deal versus a $6.5 million deal,” McCoy said. “The whole point behind this is you have been misled, I have been misled, our people have been misled since this whole project began.”

McCoy said she would reintroduce motions that would bring the land deal to referendum and formally protest the committee authorization during June sessions.

When asked if the pending land deals had gone through, Hicks said the resolution and a bank document were signed on May 5, but he did not know if any money had changed hands.

Hicks defended the land negotiations and said they came through a committee process that Henry was part of.

“As each one of these requests came to me, and I told you this before, I pushed it to the committee,” Hicks said. “I kept pushing them to the committee, and I had confidence that they would make the right decision and bring the right recommendation back to us as a tribal body.”

Acting Tribal Council Chair Alan Ensley said the council would schedule a work session on the issue, during which Cherokee landowners in the vicinity of the proposed gaming facility could present information.

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.

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.