Sweepstakes parlor

A sweepstakes parlor (or sweepstakes café) is an establishment that gives away chances to win prizes with the purchase of a service or product, typically internet access or telephone cards. They began to appear in the Southern United States some time around 2005, and quickly proliferated.[1]

There is controversy associated with the operation of such businesses and whether or not they violate gambling laws. Operators and the companies that provide the systems used maintain that they operate in accordance with laws governing promotions and sweepstakes. Critics say that the parlors exploit technicalities to get around anti-gambling laws.

Business model

A sweepstakes parlor sells a service or product, usually internet access or telephone cards. When a purchase is made, a number of chances to win prizes are given to the consumer. Proponents compare this practice to similar promotional giveaways by other businesses, such as McDonald's Monopoly game, which are legal in most areas.[2] In one example of a sweepstakes parlor that sells phone cards, the operator gives away 100 chances for every dollar spent on a phone card.[3] Chances may also be given without a purchase just for coming into the establishment.[1]

Sweepstakes parlors are most often located in or adjacent to strip malls.[4][lower-alpha 1] Computer terminals are set up inside the parlors, where patrons can see if they have won a prize by playing a casino-style game, similar to a video slot machine. The decor of the cafes may also include casino-style elements and motifs.[1]

The software necessary to operate a sweepstakes parlor may be obtained from one of a number of companies; in return for providing the software, a percentage of the profits is typically paid. There are also installation companies that provide assistance in setting up cafes.[1]

Legal challenges

Sweepstakes parlors have attracted scrutiny from law enforcement, and local and state legislators. In at least 20 states, the legality of the cafes has faced challenges in the form of criminal complaints, lawsuits, and bans.[2]

The industry has maintained, at times successfully, that the business model and the systems used do not meet the legal definition of gambling in the US. The federal definition characterizes gambling as meeting three criteria: consideration, prize, and chance.[6] Sweepstakes parlor operators have contended that the prizes are predetermined, and therefore the system does not meet the criterion of chance. They have also held that chances are given even without purchase, and therefore the criterion of consideration is not met.

Cases pertaining to the parlors have reached the state supreme courts of both Alabama and North Carolina. In Alabama, one operator's sweepstakes model was found to be in violation of state gambling laws.[7][lower-alpha 2] In North Carolina, the industry argued that a statute prohibiting sweepstakes from using an "entertaining display" violated their First Amendment rights, but the North Carolina Supreme Court disagreed.[8] The sweepstakes industry is often prepared to respond to such obstacles. In Alabama, sweepstakes were restyled as bingo games.[1] In North Carolina, "pre-reveal" software has been introduced that may allow parlors to comply with the statute by revealing the player's prize in plain text before the game is played.[9]

The industry has formed lobbies to protect and promote their legal interests.[1][10]

In 2013, sweepstakes parlors were banned in Florida, Ohio and several California municipalities.[11]

Other opposition

Advocates for legal gaming also object to the parlors on the grounds that they are unregulated. They argue, among other things, that the sweepstakes parlors encroach on the business of state-run lotteries and licensed gambling, thus reducing the alleged benefits to public programs that get a portion of funds from legal gambling.[12] In addition, in states where a compact exists under the Indian Gaming Regulatory Act, if sweepstakes parlors are not made illegal they may continue to conflict with the compact.

See also

Notes

  1. ↑ The website for the promoter SweepsCoach spells it out: "Look for a place near your customers. Lower to middle income spots are great. Strip malls are great. The kinds of businesses you may want to be near include Wal-Mart, check cashing businesses, pawn shops, maybe slightly seedy but still safe."[5]
  2. ↑ The court agreed with District Attorney Barber that the system used fit the description of a slot machine, that chance occurred at the point of sale, and that consideration was not negated even though it was possible to obtain free chances.

References

  1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 Gillette, Felix (April 21, 2011). "The Casino Next Door". Bloomberg Businessweek. Retrieved 10 January 2013.
  2. ↑ 2.0 2.1 Eder, Steve (August 22, 2012). "Gambling Raids Hit Cafes". Wall Street Journal. Retrieved 10 January 2013.
  3. ↑ Saulny, Susan (May 6, 2010). "'Sweepstakes' Cafes Thrive, Despite Police Misgivings". The New York Times. Retrieved 10 January 2013.
  4. ↑ Kelley, Dan (May 13, 2012). "Gambling on a Loophole". The Daily. Retrieved 10 January 2013.
  5. ↑ "Getting Started: A-Z". SweepsCoach. Retrieved 9 March 2013.
  6. ↑ Thompson, William N. (2001). Gambling in America: an Encyclopedia of History, Issues, and Society. Santa Barbara, Calif. [u.a.]: ABC-CLIO. pp. 416; 421. ISBN 1576071596.
  7. ↑ Alabama Supreme Court (December 1, 2006). "Barber v. Jefferson County Racing Association". FindLaw. Retrieved 11 January 2013.
  8. ↑ North Carolina Supreme Court (December 14, 2012). "No. 170A11-2: Sandhill Amusements Inc., etc. v. State of North Carolina, etc.". Justia.com. Retrieved 9 January 2013.
  9. ↑ Freskos, Brian (January 1, 2013). "Software tweak could keep sweepstakes parlors operating". StarNews. Retrieved 5 February 2013.
  10. ↑ Poirier, Ray (January 7, 2013). "Casino Insider". GamingToday. Retrieved 11 January 2013.
  11. ↑ "Ohio bans those dangerous dens of iniquity, Internet cafes". Ars Technica. Retrieved 24 May 2013.
  12. ↑ Stewart, David O. (2012). "Internet Sweepstakes Cafes: Unregulated Storefront Gambling in the Neighborhood". American Gaming Association. p. 1. Retrieved 11 January 2013.