Originally Published:Saturday, June 26, 2010
From 2,800 miles away, James Mecham was decidedly unruffled this week that North Carolina might ban the sweepstakes gaming machines that make him money.
Mecham, a California-based gaming provider and consultant, doesn't know the specifics of the N.C. legislation that might affect his clients here. He is unsure, too, of the bill's prospects of reaching the House floor in Raleigh next week.
But he does know this: "Are people going to skirt the law with technology? Absolutely."
After banning video poker in 2006, then trying again with video sweepstakes games in 2008, N.C. legislators have crafted new legislation they hope has the precision and breadth to snuff the burgeoning N.C. sweepstakes gaming industry. That bill, which passed the N.C. Senate this week, may come up for a vote in the House as early as Wednesday.
If it passes, sweepstakes operations - which sell players blocks of time to play games of chance on computers or phones - will be forced to close by December 1.
But gaming advocates say such a law will face the same dual forces that left previous legislation impotent - an industry that sees big money in people's fondness for gambling, and technology that reinvents games as quickly as they are banned.
"We'll just come down this track again because the industry is smart enough and diligent enough that they will find loopholes," said Brad Crone, an N.C. gaming industry consultant. "The technology is clearly moving faster than legislators' understanding of the machines."
Proponents and opponents of the machines estimate that 600 to 1,000 businesses are operating them in North Carolina, with revenue of about $2billion annually. The N.C. Department of Revenue doesn't license or track sweepstakes operators statewide, said spokesperson Beth Stevenson. But the number, everyone agrees, is rising. "I'm tired of playing whack-a-mole with this industry," said N.C. Rep Ray Rapp, D-Madison, a co-author of the sweepstakes bill. "You get one down, and they come up with another version."
A new strategy
Rapp also helped write the 2006 bill that banned the sweepstakes machine's older cousin, video poker. Those games were initially made legal by the General Assembly in 1993, but they were unpopular with many who saw them as gambling devices that exacted financial pain on the poor. "These games are a blight on this state," said Rapp. "They prey upon people with the least disposable income."
Video poker also led federal investigators initially to former N.C. House Speaker Jim Black, a Mecklenburg legislator who eventually was convicted and jailed on corruption charges - although none were directly related to the donations he received from the video poker industry.
By the time the video poker ban took effect in summer 2007, the industry was pivoting in North Carolina to online sweepstakes games. Because the outcome of sweepstakes machines play is predetermined in the same way as fast-food restaurant game pieces or entries under bottle caps, the industry argued that the machines were legal.
The N.C. Attorney General's office disagreed in August 2007, calling the machines "a transparent effort" to dodge the ban on video poker, but Guilford County Superior Court Judge John O. Craig ruled that the machines proffered legal sweepstakes-type games. In 2008, the General Assembly tried again with legislation that banned "server-based electronic games," but Craig ruled that the sweepstakes games fell outside the new law's criteria and issued an injunction against law enforcement taking action against electronic sweepstakes operators.
Rapp and Rep. Melanie Wade Goodwin, D-Hamlet, have since huddled with attorneys and representatives from the attorney general's office. They initially considered what Rapp calls the "nuclear option" - a ban of all sweepstakes games, including promotions by fast-food giants and soda bottlers such as McDonald's and Coke. Instead, legislators opted for a more surgical strike, banning "the use of electronic machines and devices for sweepstakes purposes."
That distinction, say gaming advocates, is not only unfair, but it could push the games underground while costing the state a potential $500 million in taxes if legislators decide instead to regulate and tax the games. Plus, say electronic sweepstakes proponents, the ban won't work.
"If there is action on December 1st, by December 2nd there will already be an alternative route," said Chase Brooks, who operates several N.C. sweepstakes operations. "Manufacturers have already read the law. I've had one tell me not to sweat it."
Rapp said he is confident his latest legislation will shut down the sweepstakes games. But, he said: "Am I confident that they won't come back with a different variation? That I am less confident about."
The gaming machine battle is one of several across the country, with mixed results. Most are in states that offer few other sanctioned outlets for gambling. "Whether it's right or wrong, people do like to gamble," said industry analyst Joseph Weinert, a senior vice president with New Jersey-based Spectrum Gaming Group. "The purveyors of gambling, be it giant casino companies or very creative entrepreneurs, will always find ways to make money."
Mecham, in California, agrees.
"The more of these machines that are out there, the more people see them, and the more they like to do it," he said, although, he acknowledged: "I don't get it. I sat down and played these games one time. I was bored out of my mind.
"But you know what?" he said. "It's business."