NC Supreme Court upholds ban on video sweepstakes

N.C. Supreme Court overturns an earlier ruling by the state Appeals Court

lbonner@newsobserver.comDecember 17, 2012 

SWEEPSTAKES_05

Rodney Robinson, 48, of Concord plays a nickel at a time with a limit of $5 whenever he goes to The Internet Pit Stop near Concord Mills. His favorite games are Wheel Deal, Pot 'O Gold and Snake Eyes. He plays about twice a week. __ Sweepstakes cafes are thriving in North Carolina, particularly In the wake of a Court of Appeals ruling striking down the law banning them. Deana Petty, 26, co-owner of The Internet Pit Stop talked about how the sweepstakes business has been, and how she and her brother and business partner, Christopher Keziah, 21 have interacted with the law on Thursday, April 12, 2012. John D. Simmons - jsimmons@charlotteobserver.com

JOHN D. SIMMONS — jsimmons@charlotteobserver.com

The state Supreme Court on Friday upheld the state’s ban on video sweepstakes machines, overturning the state Appeals Court rulings that said regulating the games violated the constitutional right to free speech.

But it’s unclear whether the decision, which was lauded by state officials who have tried repeatedly since 2006 to outlaw video poker and other forms of gaming, will be the end of the industry.

Sweepstakes operators have in the past found ways around the laws, and an industry spokesman said Friday that owners will seek to keep their establishments open by making adjustments to their business model to meet the letter of the law.

Lawyers for gaming companies had argued that the machines were entertainment and protected by the First Amendment. They maintain that the sweepstakes are simply a means of attracting customers for long-distance phone minutes or Internet services. Customers who buy Internet or phone minutes get the chance to use in-house computers to search for cash or other prizes.

In its opinion, the court said the sweepstakes companies “have attempted to ‘skillfully disguise’ conduct with a facade of speech to gain First Amendment protection for their conduct.” The Supreme Court justices said the ban did not infringe on free speech rights.

“We conclude that this legislation regulates conduct and not protected speech,” Justice Robin E. Hudson wrote for the court.

Chase Brooks, a sweepstakes operator in Alamance County and president of the Internet Based Sweepstakes Operators, said in a statement that the companies would modify their operations to stay open.

“The operators and software companies will now look at the law and our operating systems to see how we can adjust our computer programs and business models to continue operations,” he said. “We will look at morphing into whatever we need to be under the rule of law to continue our business.”

But Senate leader Phil Berger said he expects law enforcement to start shutting down sweepstakes parlors.

“I’m pleased every member of the Supreme Court chose to uphold the law the General Assembly passed overwhelmingly with bipartisan support,” Berger said in a statement. “Now that the question is settled, I expect our law enforcement officials will begin enforcing the law.”

The sweepstakes industry became a subject of debate between Gov. Bev Perdue and the Republican-controlled legislature this year when Perdue proposed, as long as the sweepstakes were still operating, taxing the games to raise money for schools. Legislative leaders declined to consider it.

The establishments proliferated in the past few years as new businesses opened while owners and sweepstakes software companies fought the 2010 law. Raleigh and other cities imposed fees on the machines they could find.

Raleigh charges $3,500 for the first machine, and $1,000 for additional machines, up to $20,000. The city collects about $500,000 a year in fees from 20 to 30 sweepstakes operators, said Robin Rose, Raleigh’s deputy financial officer. Most pay the maximum fee, she said.

State and local law enforcement officials are waiting for guidance from state Attorney General Roy Cooper’s office on their response to the court opinion. Cooper’s office said in a statement that state attorneys are reviewing the ruling to determine what advice to give.

“I stood with law enforcement to push for a ban on this kind of gambling and our lawyers have argued for years for the right to enforce it,” Cooper said in a statement. “The Supreme Court got this one right.”

‘We’re not going away’

Rudolph Morton owns two of the businesses in Raleigh. Like other proponents, he compares the arrangement to a fast-food chain like McDonald’s running a Monopoly-themed sweepstakes – people buy another product for a chance to win a prize, which is legal in North Carolina. In this case the product is access to the Internet, sold in time increments, and cash prizes can be won by playing games.

Morton said his customers typically spend $10 or $15 and expect an enjoyable distraction more than they expect to win thousands of dollars.

The decision couldn’t have come at a worse time for Morton. He opened a second location just over a week ago because he saw a demand in the market and believed lower court rulings would stand. He employs 22 people who average 35 hours of work per week.

Morton plans to remain open until someone makes him close. Even if it comes to that, he said, something similar will come along.

“The thing they have to realize is that we’re not going away,” he said. “We’ll find a way to come back in some form until we work together and make this a win-win for everyone.”

Bonner: 919-829-4821

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