In recent years, thousands of “Internet sweepstakes cafes” have sprung up in storefronts, gas stations and convenience stores in more than a dozen states. Carefully designed to take advantage of state sweepstakes laws and to avoid state antigambling laws and gambling licensing restrictions, Internet sweepstakes cafes are estimated to earn more than $10 billion a year with games that closely mimic the experience of traditional slot and video poker machines. The cafes advertise and sell a product — usually Internet time or long-distance telephone minutes — that the gambler does not actually want. Along with that unwanted product, the customer receives a supposed bonus of “entries” in the Internet sweepstakes. With those entries, the customer can participate in Internet-based games at the cafe’s specially-programmed personal computers. Based on a random allocation of winning and losing entries, the customer may or may not win cash prizes through those games. According to the cafes that are reaping unregulated profits, this elaborate masquerade is not gambling, but a sweepstakes. According to every appellate court that has decided a case involving similar games, it is incontestably gambling.
Nevertheless, through aggressive litigation tactics and high-powered lobbying at state legislatures, the cafes have managed to forestall effective law enforcement against them in many jurisdictions. The result is that many neighborhoods now house gambling venues that are free of the legal restraints that Americans have traditionally demanded for gambling businesses.
For more information on Internet Sweepstakes Cafes, download the AGA white paper on the subject.
States have longstanding policies that gambling businesses must be specifically authorized, strictly regulated to protect consumers, kept free of crime and fairly taxed to contribute resources for the public good. In recent years, thousands of “Internet Sweepstakes Cafes” with estimated annual revenues exceeding $10 billion have sprung up in more than a dozen states in total circumvention of state antigambling laws and gambling license requirements. After making very little investment, these rogue businesses spread quickly and become entrenched, posing a threat to existing state-licensed businesses and the thousands of jobs they create.
Although they often claim otherwise, Internet sweepstakes cafes sell games that involve prize, consideration and chance and, thus, are engaged in the business of gambling. In the vast majority of communities where they operate, cafes lack regulation of (1) the integrity of the owners and operators, (2) the fairness of the games, (3) the exclusion of customers too young to gamble, and (4) their location, including the proximity to schools or churches. They do not educate customers about responsible gaming or contribute funds to combat problem gambling. In addition, neither the cafes nor the software companies that support them pay state or local gaming taxes. To the contrary, their largely unreported profits may siphon revenues from state-authorized businesses.
The American Gaming Association believes that strict regulation to protect consumers is the cornerstone of gambling policy and should apply to all forms of gambling. Responsible public policy should prohibit Internet sweepstakes cafes, as numerous states have done.