WASHINGTON − Late in 2012, the American Gaming Association (AGA) board of directors adopted a formal policy on Internet sweepstakes cafes. The businesses, which are designed to take advantage of state sweepstakes laws and avoid state antigambling laws and gambling licensing restrictions, are estimated to earn more than $10 billion a year with games that closely mimic the experience of traditional slot and video poker machines but without the consumer protections required of commercial gaming operators.

The formal policy is as follows:

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. 

“Sweepstakes cafe proprietors claim that these under-the-radar businesses don’t constitute gambling and would like to continue to operate without the accountability of normal gaming establishments, but if they aren’t controlled, states, existing gaming businesses and consumers all stand to lose,” said Frank J. Fahrenkopf, Jr., president and CEO of the AGA. “That is why the AGA is educating governors, state legislators and regulators about this threat and working with them to deal with these establishments.”

Last summer, the AGA released a white paper about Internet sweepstakes cafes, but new court decisions and legislative developments have changed the legal landscape in many states where the cafes operate. For example, the North Carolina Supreme Court recently reinstated its law banning the facilities. The AGA has revised the white paper accordingly, and it is available for download [2] from the AGA website. Other AGA resources on the subject include a page of the AGA website [3] featuring up-to-date summaries of state actions regarding Internet sweepstakes cafes.

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The AGA represents the commercial casino-entertainment industry by addressing federal legislative and regulatory issues. The association also serves as a clearinghouse for information, develops educational and advocacy programs, and provides leadership on industry-related issues of public concern.