The California Supreme Court has ruled that online sweepstakes games are the equivalent of slot machines and that the sweepstakes cafes that deploy them are violating the law.
The cafes have been flourishing in the Golden State for several years, appealing to customers who prefer them to actual casinos or card rooms. They have been a burr in the sides of Indian casinos, which consider them unfair competition because they are not regulated, and violate their monopoly on Las Vegas style gaming.
Sweepstakes owners say the games are promotional in nature and attract customers who are given points when they buy products—and use the points on computers in the store to play the sweepstakes. The software selects winners from a predetermined pool. When they play customers find out what they have won.
Those who provide the Sweepstakes games have argued that they are not actual games of chance because winners are predetermined. In 2003 a state court of appeals ruled that Scratchers vending machines were not slot machines for that reason.
Under intense lobbying by gaming tribes, the legislature last year passed AB 1439 that outlawed sweepstakes cafes. Some of the cafes in Kern County stayed open while a lawsuit by the county District Attorney based on that new law moved up through the appeal process as café owners fought for existence.
Kern County has been something of a hot bed for sweepstakes cafes and the efforts to keep them closed. Assemblyman Rudy Salas, who authored AB 1439, represents Bakersfield, which is part of Kern County.
In March of 2014 in People v. Grewal the 5th District Court of Appeal held that software used on the sweepstakes café computers are the equivalent of a slot machine because it is intended to replicate the slots experience—even if it arrives by a different route.
That led to the Los Angeles city attorney filing suit against Figure 8 Technologies, which lost. The case was appealed to the California Supreme Court by the Internet Café Association of California, which argued that if the courts disallow sweepstakes games then it must ban the kinds of sweepstakes that McDonalds and some soft drinks manufacturers offer. It also argued that the games are similar to lotto games.
The Supreme Court did not rule on those issues, but instead declared that the sweepstakes games are illegal because the café sweepstakes replicate the look and feel of a slot machine.
This ruling could have ramifications since the Supreme Court has held that a game of chance is a game with results over which the player has no control. It doesn’t matter if the results are predetermined.
Writing for the unanimous seven-judge court, Associate Justice Ming Chin declared, “When the user, by some means (here swiping a card or entering a number), causes the machine to operate, and then plays a game to learn the outcome, which is governed by chance, the user is playing a slot machine.” He also rejected the argument that the games are not slots because players don’t insert money.
General speaking, city and county law enforcement officials frown on the internet cafes because they attract a bad element.
Last week San Francisco Deputy City Attorney Victoria Weatherford told CBS “There’s a dramatic increase in criminal activity including stabbings, robberies, stolen cars.” Her office is targeting a private internet café that wasn’t covered by the ruling. She called the ruling, “a win for people in California that these places have been deemed illegal.”
Salas praised the ruling, saying that it “reinforced what we were trying to do with the ban, which was to say that these are illegal gambling facilities.”
The American Gaming Association, which also supports the ruling, estimates that internet sweepstakes games are a $10 billion business in the U.S.
Most sweepstakes cafes stopped operating in 2012. Attorneys for the owners challenging the law say they are not trying to reopen them, but rather to avoid fines that were levied. Some businesses are being criminally prosecuted, which is an issue the court did not address.
According to Steven Levine, an attorney for one of the café owners, quoted by the State: “What they really didn’t say is what’s going to happen with some of these cases that are pending across the state.”
The ruling is likely to also affect online casinos that offer online sweepstakes games and sports betting.
