North Carolina Lawyers Weekly
RALEIGH (AP) — Sweepstakes halls across North Carolina will be out of business at least temporarily, after the state’s highest court on Friday upheld a law banning the video games run by businesses that often mimic small, electronic casinos located everywhere from big-city strip malls to country crossroads.
“The operators and the developers will have to go back to the drawing board to see how they can run a legal business under the law,” said Brad Crone, a spokesman for the Internet Based Sweepstakes Operators.
“We will look at morphing into whatever we need to be under the rule of law to continue our business,” said Chase Brooks, the organization’s president and the operator of an Alamance County sweepstakes hall.
State Senate leader Phil Berger, R-Rockingham, said he looked forward to law officers enforcing the law outlawing video sweepstakes operations.
The state Supreme Court ruled in two cases in which amusement machine and other companies sought to overturn a 2010 law banning sweepstakes machines as a form of gambling. Sweepstakes halls have cropped up because of what justices called a loophole since the state outlawed video poker machines in 2007.
The General Assembly determined that businesses that converted from offering video poker gaming to video sweepstakes were using “a mere pretext for the conduct of a de facto gambling scheme,” Justice Robin Hudson wrote for the court.
Courts throughout the country have consistently ruled that states have the power to protect public “health, safety, and welfare concerns presented by gambling operations,” Hudson wrote, “even if they cleverly avoid the traditional definition of gambling.”
Amusement machine companies, a software developer, and firms that market long-distance phone and Internet services argued in court there’s no gambling because prizewinners are predetermined. They also argued that the video gaming enjoyed free-speech protections under a U.S. Supreme Court ruling last year just like books and films.
State attorneys countered that no one has a right to run a gambling operation and that’s what state lawmakers labeled places that offer a sweepstakes where winners or losers are notified by an attention-enticing electronic display that is owned by the business.
The court ruled the state law regulates the conduct of playing the sweepstakes games, which opponents say feed the same gambling addictions as traditional video poker machines.
“While one can question whether these systems meet the traditional definition of gambling,” Hudson wrote, “it is clear that the General Assembly considered these sweepstakes systems to be the functional equivalent of gambling, thus presenting the same social evils as those it identified in traditional forms of gambling.”
Sweepstakes parlor patrons buy Internet or phone time that gives them the opportunity to uncover potential cash and prizes with mouse clicks on a computer screen.
The state laws outlawing video poker and video sweepstakes games do not affect North Carolina’s only casino, where the state’s only federally recognized Indian tribe has offered video poker machines since the mid-1990s. The Cherokee casino recently expanded to hire card dealers for live gaming.
Lawmakers have been trying for more than a decade to eliminate video gambling machines and sweepstakes, saying the games can’t be regulated, are addictive to players who lose hard-earned money, and lead to crime and family strife. That view is shared by a coalition of liberals and social conservatives that has opposed gambling on moral and economic grounds.
State lawmakers this summer tried but failed to agree on legislation that would have regulated and taxed video sweepstakes operations. The bipartisan proposal would have allowed the state to assess privilege taxes on sweepstakes establishments and terminals.
Cities already have the taxing authority, and some including Fayetteville and Lumberton have hit sweepstakes parlors with whopping tax bills to stay in business. Lawsuits challenging city officials said Fayetteville raised its tax on sweepstakes cafes from $50 a year to a minimum of $4,500 and Lumberton raised it from $12.50 to a minimum of $7,500.
