Several States Go After Internet Cafes

Many states are looking at banning or severely curtailing internet or sweepstakes cafes. Among the states taking the most extreme action are California and Ohio, which have both recently raided cafes as illegal gambling establishments.

California and Ohio are among the states that are increasingly cracking down on so-called internet cafes only to see sweepstakes games spring up in different forms.

Last week agents of the Ohio Attorney General’s Office and the Bureau of Investigation descended on a business in the town of Logan, Hocking County with a search warrant and seized gaming machines, TVs and cash. The machines, which the authorities say look and sound like slot machines, are typically not the source of vast sums of money, with amounts bet usually $5 or $10.

The owner of the Red Door Casino, Dancing Elk, says he is being singled out because he is operating the games as a member of the Notweega nation.

“They have no right to enter our property.  This is sovereign property,” he said. “We are non-reservation Indians. We are operating a sovereign business,” he declared, according to NBC4.  It is not subject to state law, he added, claiming that he is the chief of the Notweega. He added, “We were afraid of things like this happening, them coming in, raiding our business and steal our merchandise, stealing our property. Right now they are stealing our property.”

Dancing Elk has been operating the games for about five years. He says that the authorities have been harassing him for just about the same amount of time and is pursuing a $20 million lawsuit pending against the city of Logan in a federal court.

Internet cafes—aka internet sweepstakes cafes—are businesses, often located in malls and storefronts that typically sell long distance phone time on computers equipped with software that mimics the sound and looks of Las Vegas style slot machines and sometimes involve cash payouts or prizes.

In Bakersfield, Kern County, California, all of the internet café owners who were issued cease and desist orders by the District Attorney’s office complied with those orders. According to one of the café owners targeted, quoted by ABC 23, “His offer is, if we shut down, walk away, he won’t pursue criminal charges, civil charges or anything else, he will let it be.” The owners are also being asked to testify against the software companies that sold or leased them the sweepstakes machines.

Some café owners complained that they weren’t given enough time to close because they have employees and lease agreements. 

Some estimates say that internet cafés, several thousand of them, take in $10 billion in revenues in the United States. Ohio estimated that it had 800 such cafes before the legislature cracked down on them in a big way last year. But Attorney General Mike DeWine predicts they will just pop up in a different form. “It’s foolish for anybody to think they are not going to come back in a different form,” he told fellow attorneys general in a meeting in Washington D.C. “They are starting to reinvent themselves. They are going to start coming back.”

Part of the reason that it is hard to get a handle on the sweepstakes games is that the state governments tolerate similar games that McDonald’s promotes to bring people in to buy more hamburgers.

But the businesses themselves usually rebrand themselves as something other than “sweepstakes” or “internet” cafes. Often they dub themselves arcade game parlors, or “skill games,” and sometimes they say that they sell office services.

Last year Ohio, Florida and Mississippi legislatures adopted bills to ban or greatly limit the cafes while California and Connecticut are contemplating similar actions.

Ohio Governor John Kasich in his biannual budget review has called for skill game operators to be licensed and regulated by the Casino Control Commission. The lottery commission regulates that state’s racinos. A decade ago Ohio had virtually no gambling, now it has among the highest concentration of casinos in the eastern United States.

There is simply too much untaxed and unregulated money changing hands for the states to ignore. Nearly half of the states allow commercial or tribal casinos, which collect nearly $8.6 billion annually in tax revenue, according to the American Gaming Association.

Ohio’s four casino resorts and three racinos collected $138 million in state and local taxes in 2012. Florida collected $162 million and Mississippi took in $273 million during the same period.

North Carolina, which has a lottery and two Indian casinos, adopted a ban against internet cafes in 2010. The law was challenged and didn’t become effective until 2012. However, the ever-slippery internet cafes came up with a different form called “pre-reveal software.” Customers purchase an internet card and see what the prize is before they play. This variation, say manufacturers, is legal, although the North Carolina authorities are dubious. The courts are expected to rule on this eventually.

Meanwhile in Illinois, the Chicago Crime Commission, an anti-crime group comprised of civic leaders who want to improve public safety and the justice system, announced it is backing legislation that would ban “sweepstakes” machines. The group said the games are illegal video gambling devices that are unregulated and inviting to organized crime.

SB3479, sponsored by state Senator Antonio “Tony” Munoz of Chicago, would remove a provision in existing law that allows unlicensed gambling devices if they are used in non-gambling activities.

Art Bilek, Chicago Crime Commission executive vice president, said unlike state-regulated video gambling operations, no one associated with the machines must undergo a criminal background check. “The last thing we want is for the Outfit, who’s down pretty low thanks to the FBI, to start getting all this money back in their veins. Here’s a machine, now, that has no rules,” Bilek said.

Munoz noted, “None of the proceeds from these machines will ever find their way into the state coffers, unlike regulated gambling machines.” The state takes 30 percent of receipts from authorized video gambling machines, with 5 percent going to the local government.

Owners of the machines say they are legal, falling under an exemption in anti-gambling laws for sweepstakes promotions, such as the recurring Monopoly Game at McDonald’s. The machines offer coupons that can be redeemed for prizes. The Illinois Gaming Board considers the games illegal.

The Senate Executive Committee will hold a hearing on the bill.

Also in Illinois, Randy and Virginia Thorpe are accused of rigging video keno gambling machines at Harrah’s Casino in Joliet so they paid five times the actual winnings. Thorpe is the former superintendent of schools in LaPorte, Indiana.

It’s not clear how the machines were manipulated by the Thorpes, who are charged with burglary, computer tampering and cheating at a gambling game.

Thorpe was arrested for the same crime at another Harrah’s Casino in Mississippi in January. At the time he abruptly resigned as superintendent, saying he wanted to spend more time with family and hinting at health issues.

The Thorpes, who now live in Corpus Christi, Texas, are free on bond. Three alleged accomplices, Svetoslav Dorobanov, Randy Binnings and Paul Jovenich, are being sought.