Comprehensive gaming regulations and licensing requirements that protect consumers have helped make casino gaming throughout the United States a popular, mainstream form of entertainment for millions of Americans. Yet over the past decade, there’s been an explosion of illegal, unregulated gambling outfits—known as internet sweepstakes cafés—which make a mockery of these laws and threaten to undermine legitimate gaming operators.
Internet sweepstakes cafés typically spring up in storefronts, gas stations and convenience stores, offering games that closely mimic traditional slot and video poker machines. By some estimates, more than 5,000 of these cafés are currently operating in more than a dozen states and bringing in more than $10 billion a year in revenue.
Here’s how the scheme usually works. The cafés prominently advertise “internet sweepstakes” to lure customers into their stores. “Entries” into the sweepstakes are obtained by purchasing internet access time or long-distance telephone time, but the purchase of these “products” is just a ruse to connect customers with the casino-like games that are offered on rows of computers installed for that purpose.
Café customers have little interest in the underlying “product” they are ostensibly buying. For example, at an internet sweepstakes café in Palm Harbor, Florida, one customer purchased more than 231,000 minutes of telephone time, or almost 4,000 hours—enough to talk 24/7 for 160 days. One New Mexico café sold 140,000 hours of internet time, but less than 0.25 percent was ever used by customers.
Unlike legitimate gaming operators, café owners and managers are neither licensed nor subject to criminal background checks. No one regulates the fairness and integrity of the games to protect consumers from fraudulent activity. Minors are seldom excluded from playing these games, putting children at risk.
These cafés pay no gaming taxes whatsoever. However, they siphon off gaming revenue from legitimate state lotteries and state-licensed gaming businesses, which ultimately reduces state tax revenues that support critical public education, health and social programs.
Just as troubling, these illegal gaming outposts often serve as a magnet for crime and other destructive behavior, which is an issue in which legitimate gaming operators invest significant resources to combat through strong and innovative security protections.
San Francisco Supervisor John Avalos told the San Francisco Examiner that “crime in the area has spiked” since the cafés began operating in the city’s Excelsior district. According to the paper, teenage girls—and some even younger—who use the nearby community center have been “subjected to sexual harassment” by café customers. A block captain of the local neighborhood watch complained that “these types of businesses can destroy a neighborhood.”
At one Florida café, a 71-year-old retiree whipped out a handgun and shot two 19-year-old criminals as they tried to rob the facility. The wounded youths fled the scene, but were subsequently caught and arrested for attempted armed robbery.
Many states have tried to close the cafés, but owners have used aggressive litigation and high-powered lobbying to keep their unregulated gambling houses running. One of the most brazen legal strategies used by café owners to evade the law is to argue they are not involved in gambling at all.
While some lower courts have fallen for this fraudulent rationale, every appellate judge has laughed it out of court. In one case, the U.S. Court of Appeals for the Fifth Circuit concluded that the sale of internet time by one café was merely “an attempt to legitimize an illegal lottery.” The New Mexico Court of Appeals found that one café’s operation was “structured as a guise for commercial gambling,” while a Texas court held that the sale of telephone cards was “mere subterfuge” to offering gaming to customers.
The dangers of these illegal, unlicensed gambling businesses are real and growing. States and localities need to adopt laws that specifically address internet sweepstakes cafés so they can be effectively investigated and held to the same regulatory standards as legitimate forms of gaming—or shut down. Strict and effective gaming regulation must be enforced across the board to protect both consumers and legitimate gaming businesses, and the tax revenues they generate.
In the days ahead, you’ll see increased engagement from AGA toward the effort squashing these bugs and holding bad actors to the same standards to which legitimate gaming operators abide. The benefits of regulated gaming are myriad. Our effort to take down unregulated operations such as internet sweepstakes cafés will bolster awareness of the value of regulated gaming.