Gaming industry steps up donations to NC politicians

Sweepstakes operators emerge as major contributors, giving more than $700,000 to N.C. candidates

rrothacker@charlotteobserver.com jneff@newsobserver.comJune 15, 2013 

  • Mistaken identity

    Neil Hoover owns a string of online sweepstakes parlors in North Carolina. But according to campaign reports from House Speaker Thom Tillis and Gov. Pat McCrory, Hoover is a vice president of McGuireWoods, an international law firm.

    The mistake is similar to errors made concerning Chase Burns, an Oklahoma businessman who provides the software for online sweepstakes. Several campaign reports list Burns as an employee of Moore & Van Allen, a Charlotte law firm.

    What gives?

    In the Burns example, it appears that campaigns got mixed up because Moore & Van Allen lobbyists would sometimes deliver a check from Burns to a candidate in a Moore & Van Allen envelope, along with a lobbyist’s business card. Moore & Van Allen dropped Burns as a client in March after he and more than 50 others were charged in Florida with racketeering, gambling and money-laundering offenses.

    The McGuireWoods miscue is less clear.

    The firm hosted events for Tillis and McCrory in 2011 and 2012 that were followed by an influx of contributions from sweepstakes operators. But McGuireWoods lobbyist Harry Kaplan, who organized the events, says he doesn’t know why the campaigns incorrectly listed Hoover’s employer.

    Representatives for Tillis and McCrory did not respond for a request for comment.

    In an interview, Hoover called the error a “clerical mistake.” He said he gave his contributions to a friend and never visited McGuireWoods offices, declining to comment further on the matter.

    Despite a law passed in 2010 to ban the sweepstakes industry in North Carolina, Hoover said his business is still in operation and in compliance with N.C. law. His locations offer business services comparable to a FedEx Office location, and the sweepstakes promotions serve as a way to draw customers, he said.

    Hoover said he favors legislation that would regulate and tax the industry. “It would be nice to see the legislation pass to at least do away with all the confusion,” he said. Rick Rothacker and Joseph Neff

  • What are sweepstakes?

    North Carolina’s sweepstakes industry arose after the demise of video poker, an industry that was tainted by scandal.

    Sheriffs in the state have long fought such cash-based games, saying they spawn crime. A federal investigation that started in 2000 landed several video poker operators in federal prison on charges of running illegal gambling operations and money laundering.

    Former House Speaker Jim Black, a Democrat from Matthews who was convicted and imprisoned in 2007, was the industry’s main protector while taking thousands in contributions from it. The charges against him rose from the federal investigation of video poker and a subsequent complaint with elections regulators about video poker contributions to Black.

    Amid the probe and scandals, N.C. lawmakers passed a ban on video poker and all other electronic gambling in 2006. The industry quickly adapted, introducing new sweepstakes games it said complied with the law. The latest version is online sweepstakes, in which players play games at computer terminals hooked to remote servers.

    Lawmakers passed new laws in 2008 and 2010 to ban devices that mimic slot machines. The companies that provided the sweepstakes software sued the state, saying the ban violated their free speech rights. In December 2012 the N.C. Supreme Court upheld the ban. Some operators have closed, while others say their software is compliant. Joseph Neff

Sweepstakes operators, seeking legislation that would legalize their outlawed industry, have flexed their political muscle over the past three years, contributing as much money to N.C. candidates as large utilities.

More than $700,000 in campaign contributions flooded the coffers of N.C. candidates since the beginning of 2010, according to data compiled by the watchdog group Democracy North Carolina. The most powerful players topped the list, with House Speaker Thom Tillis receiving the most money – about $127,000 – followed by Gov. Pat McCrory and Senate President Pro Tem Phil Berger, according to an analysis of the data by the Charlotte Observer and the News & Observer.

The sweepstakes industry has faced renewed scrutiny since Chase Burns, an Oklahoma provider of gaming software, was accused in March of running gambling centers in Florida under the guise of “Internet cafes.” He has since emerged as the biggest contributor to North Carolina candidates in the past election cycle.

The data represent the most complete look yet at the money that flowed into N.C. campaigns from individuals tied to the sweepstakes and video poker industries.

The analysis also highlights the role of a former industry lobbyist, Gardner Payne of Charlotte, who became a significant donor after joining the industry himself. His former lobbying firm, McGuireWoods Consulting, organized fundraisers at its Raleigh office where donors got one-on-one face time with Republicans Tillis, McCrory or Berger.

The influx of contributions shows how the sweepstakes industry, which emerged after video poker was outlawed, is looking to influence lawmakers in Raleigh, said Bob Hall, Democracy North Carolina’s executive director.

“They are back at it and growing,” Hall said. “They are looking for favorable treatment. They want to have their industry protected and are willing to pay money to achieve that goal.”

North Carolina passed a law in 2010 that banned the games, and it was upheld by a 2012 N.C. Supreme Court decision. But the industry continues to push on two fronts: tinkering with software to purportedly make the games comply with the law, and advocating legislation that would legalize the business by taxing and regulating it.

Since the Supreme Court decision, some sweepstakes operators have pulled out of the state, while others remain open, saying they have made necessary adjustments to their software. Authorities in some communities are enforcing the ban, while others have held off. In Mecklenburg County, officials have investigations pending and have sent cease-and-desist letters to two operators, Assistant District Attorney Josh Mahan said.

The total contributions – more than previously identified – are more than double the most generous contributions made previously by the gaming industry: $310,500 in the two-year 2000 election cycle. They are comparable to the donations given by much larger industries, according to Democracy North Carolina. For example, the Duke Energy and Progress Energy political action committees gave $627,800 in the 2010 election cycle.

Democracy North Carolina’s latest numbers cover three years, rather than a two-year election cycle, because the sweepstakes issue came before the legislature in 2010.

The biggest batch of contributions – about $60,000 – were recorded by the Tillis campaign on May 16, 2012, less than a week after McGuireWoods Consulting hosted a fundraiser for the speaker in Raleigh. McCrory and Berger also reported clusters of contributions after other McGuireWoods events.

McGuireWoods Consulting is the lobbying arm of McGuireWoods, a more than 175-year-old law firm with 900 lawyers in 19 offices around the globe.

The biggest donors

Burns and Payne stand out as the industry’s biggest contributors.

Burns and his wife, Kristin, gave $242,500 to more than 70 candidates in both parties as well as House and Senate Republican committees, the most of any individual contributor during the legislative session.

Payne, a former McGuireWoods lobbyist who had represented a sweepstakes company, gave the second-most: $40,500. His wife, Nicole, contributed another $9,500.

One of Payne’s former clients was VS2, a sweepstakes software vendor that was indicted in April in Ohio. One of the owners, Richard Upchurch of Randolph County, faces gambling charges in the case and also has a 1993 federal conviction for gambling. He and his wife have given $16,000 since 2010 to Tillis, McCrory and other candidates.

McGuireWoods remains a registered lobbyist for VS2, according to N.C. Secretary of State records.

McCrory campaign spokesman Jack Hawke said the campaign followed all election laws and dismissed Democracy North Carolina as a “partisan liberal group.” Hall noted his group has filed complaints against Democrats, including former House Speaker Jim Black, and focuses on political corruption regardless of the party or group.

Tillis spokesman Jordan Shaw said the speaker’s campaign followed the law in this matter and noted that no sweepstakes bills have moved in the House this session. Tillis, of Cornelius, is a 2014 U.S. Senate candidate. Berger declined to be interviewed, but a spokesman pointed out that he has been a vocal opponent of the sweepstakes industry.

Democracy North Carolina gathered the data from reports filed electronically with the state Board of Elections, but many reports are filed on paper. Occupations of contributors are also often incomplete. Hall compiled the data by researching state business records and checking other background information on donors, but he said there likely are more contributions that have not yet been identified.

Democratic Rep. Michael Wray and Republican Rep. Jeff Collins, both of whom received contributions from the industry, in April introduced a bill that would legalize and tax the industry, but an industry lobbyist said the bill likely wouldn’t move forward.

An indictment and a state probe

The sweepstakes issue flared in March when authorities in Florida filed racketeering and money laundering charges against Burns and more than 50 others. Authorities said Burns and three co-conspirators claimed to be running a charitable veterans organization but instead received $90 million in proceeds from the scheme.

Burns made many of his contributions through lobbyists from Moore & Van Allen, the Charlotte law firm where McCrory worked until shortly before his inauguration. Burns and the firm were part of an effort to make sweepstakes machines legal. His company had led legal challenges to the 2010 law.

After the indictment, the state Board of Elections opened an informal inquiry concerning Burns’ contributions. Campaigns – including McCrory’s, Berger’s and Tillis’ – said they were donating contributions from Burns and Upchurch to charity. McCrory has said he did no work for Burns’ company and was not a registered as a lobbyist.

Payne is a lawyer with strong Democratic connections. He began his legal career in the firm of former Secretary of State Rufus Edmisten. He served as a press aide for Gov. Jim Hunt in the late 1990s and later raised money for Bev Perdue during her 2008 gubernatorial campaign, according to an affidavit he filed in a 2011 lawsuit in Arkansas.

He served two stints at McGuireWoods Consulting before entering the sweepstakes business himself in 2011. His business interests have included an Internet café called Cancun Cyber Café and Business Center in Arkansas, as well as several business centers in North Carolina, Florida and Massachusetts, according to the affidavit.

In the affidavit he likens the Arkansas center to a FedEx Office location, offering computer time, copying and faxing. The computer terminals also come equipped with proprietary software offering video game simulations that include an “entertaining method for revealing sweepstakes results.”

Asked about his contributions, Payne said in an email that he backs candidates “who support a strong education system, the growth of small business, limited government and free enterprise.”

He also said he supports a “legislative solution” that “protects the jobs of the thousands of people who work in the sweepstakes industry and helps the state realize all the other economic benefits that the industry offers.”

Meeting with the speaker

The giving by the sweepstakes industry also puts a spotlight on fundraising efforts organized by McGuireWoods.

Multiple contributions from sweepstakes operators were often recorded on the same days, with the largest group coming on May 16, 2012, when the Tillis campaign tallied a total of $60,002 from 19 individuals.

Days earlier, on May 10, McGuireWoods held a fundraiser at its Raleigh office attended by Payne and lobbyists from other organizations.

Harry Kaplan, a McGuireWoods lobbyist, said he invited clients who were interested in meeting with Tillis to talk about the issues they represented. They could also make campaign contributions, which some did, he said.

Payne was the only sweepstakes representative to attend, Kaplan said. He said he believed Payne made a contribution but didn’t recall any details. Payne said he attended a fundraiser for Tillis at McGuireWoods but declined through a spokeswoman to answer further questions about the event.

Kaplan said Payne came armed with a study that showed the economic impact of the sweepstakes industry in the state. “He would constantly talk about that,” Kaplan said. The 2011 study, authored by retired N.C. State economics professor J.C. Poindexter, estimated that 600 cafes operating in North Carolina produced direct spending of $152 million per year and supported up to 6,000 jobs. Workers can make $13 per hour, according to the study.

Payne himself didn’t have any contributions recorded on May 16. He made a $2,000 contribution to the Tillis campaign in January 2012 and a $4,000 contribution to Tillis in June 2012, according to State Board of Elections records. His wife also gave Tillis $2,000 in January 2012.

Tracy Colvard is not connected to the sweepstakes industry but was one of six McGuireWoods clients to attend the event. The lobbyist said it was an opportunity to educate the speaker on issues affecting his group, the Association for Home and Hospice Care of North Carolina.

Colvard said he and his organization’s CEO, Tim Rogers, spent about 30 minutes with Tillis in a McGuireWoods conference room. They explained how their industry could benefit taxpayers by reducing Medicaid and Medicare expenses, and afterward he handed a $1,000 political action committee contribution to a Tillis campaign aide, Colvard said.

Other big days for sweepstakes contributions were Sept. 2, 2011, when Tillis brought in $27,200; March 3, 2012, when the McCrory campaign recorded $34,000; and Oct. 10, 2012, when Berger tallied $18,000. Those dates all followed McGuireWoods events.

Altogether, the sweepstakes industry gave $702,127 over the three years, according to the analysis. In total, Tillis brought in $127,002, while McCrory took in $82,475 and Berger received $57,500.

McCrory requested that no contributions be made at a McGuireWoods event held Feb. 23, 2012, but some clients sent checks afterward, Kaplan said. Payne said he attended the event but did not talk to McCrory about fundraising or legislation. “I did discuss with him the significant positive economic impact the sweepstakes industry has had in North Carolina,” he said.

During a recent stop in Charlotte, McCrory told the Observer that he was not aware of current legislation related to the sweepstakes industry.

“I’ve never supported it, and I’d like the laws to be enforced,” he said. “The problem is the industry keeps finding loopholes.”

‘We are very scrupulous’

When it comes to campaign contributions, lobbyists in North Carolina face a number of restrictions. For example, they can’t “bundle” checks from multiple sources and deliver them to a candidate.

Hall in April asked the state elections board to investigate whether McGuireWoods lobbyists were involved in the “collection, possession, transfer or delivery” of multiple contributions to a gubernatorial candidate, citing the March 3 contributions to McCrory.

McGuireWoods followed all campaign finance and lobbying rules in organizing the events, Kaplan said. “We are very scrupulous about campaign finance laws,” he said.

Kaplan said he mailed a contribution from the McGuireWoods political action committee to McCrory and delivered similar PAC contributions to Tillis and Berger. He said he did not deliver any other checks.

The spirit of the lobbying restrictions is that lobbyists are not supposed to be soliciting contributions, but they can advise their clients on how much to give and whom to give to, said Michael Weisel, a campaign finance attorney who represents prominent Democratic-leaning groups.

“This is the way business is conducted,” Weisel said. “At the end of the day, the people who give (to campaigns) are the regulated, folks who want access and those who want legislation passed.”

Observer staff writers Gavin Off and Jim Morrill and news researchers Maria David and Marion Paynter contributed.

Rothacker: 704-358-5170; Twitter: @rickrothacker

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