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California cracks down on 'sweepstakes cafes'

By Associated Press

POSTED:
LAST UPDATED: 12:34 p.m. HST, Jun 28, 2014


SACRAMENTO, Calif.  >>  Next to a massage parlor, a doughnut shop and a liquor store, more than two dozen people sat inside a darkened business in a strip mall dropping $2 bets on electronic games with names such as "Robin Hood," ''Mr. Millionaire" and "Luck of the Irish" when Sacramento County sheriff's deputies paid a visit.

The operators of the business, Silk and Stars, promote it as one offering computers and Internet access to those who otherwise wouldn't have them. But along with silk-screened T-shirts, they provide customers with computerized versions of what are called "sweepstakes" games.

Operations like Silk and Stars are known as Internet sweepstakes cafes, a reference to their roots as storefronts where customers could access the Internet or make low-cost long-distance telephone calls. The businesses now feature dozens of computers where customers play video games that often simulate casino slot machines. The American Gaming Association estimates that they take in $10 billion a year nationwide.

But California law enforcement authorities have a different definition of this kind of business: gambling den. The raid earlier this month at Silk and Stars was the second time this year that deputies and code inspectors tried to shut down what they suspect is an illegal gambling operation in a blighted neighborhood of south Sacramento.

The attempt to crack down on what local authorities, state lawmakers and law enforcement agencies said is a growing problem throughout California has prompted legislation, a lawsuit by the Los Angeles city attorney and potentially conflicting state appeals court rulings that are headed to the California Supreme Court. Similar operations have opened in at least 19 states, according to a report released last fall by the American Gaming Association. Legislatures in some of those, including New York and Georgia, already have moved to ban them.

People who run Internet sweepstakes cafes and their lawyers say law enforcement is overreaching in a bid to kill off the sweepstakes games, which they say are similar to those offered legally as a marketing tool by corporations.

But one California lawmaker who is trying to ban them said the sweepstakes cafes are a source of many social ills.

"This is a prolific problem that we're seeing in our neighborhoods up and down the state, where we're seeing these illegal gaming sweepstakes cafes opening up with a myriad of problems and issues ... of drugs, of prostitution, impacts to local legitimate businesses in these strip malls where these things are occurring," said Assemblyman Rudy Salas, D-Bakersfield.

Salas is the author of AB1439, a bill that would prohibit businesses whose customers use video monitors that simulate those found in casinos or play gambling-themed games in exchange for cash or prizes. The state attorney general, district attorneys and city attorneys could sue the businesses' operators under his bill, seeking civil penalties for violations.

The measure, which is awaiting consideration in the Senate, has the backing of 38 groups representing law enforcement and local government and 15 representing card rooms and Indian tribes with legal gambling operations that are losing money to the upstarts.

After a recent raid at the Silk and Stars Internet sweepstakes cafe, where a sign above the 60 computer monitors read "Daily Maximum Payout $500 A Day," a customer, neighborhood resident Khue Vang, said she had been trying to win gas money but abandoned the $10 she'd wagered and the $5 she had won when the sheriff's deputies entered the establishment.

"I'm not coming back. I'd rather go to Thunder Valley," she said, mentioning a Sacramento-area tribal casino.

Attempts to reach Silk and Stars' owner by phone were unsuccessful.

Investigations of the businesses involving California Bureau of Gambling Control agents have nearly doubled over the past two years, from 42 in 2012 to 80 last year. Authorities also have been turning to civil lawsuits.

Los Angeles City Attorney Mike Feuer sued North Carolina-based corporation Figure 8 Technologies in January on the grounds that it supplied five defunct sweepstakes cafes "with illegal gaming systems and lotteries that masquerade as lawful promotional sweepstakes."

John Weston, a Los Angeles attorney representing the firm, said Figure 8 voluntarily stopped selling the software in California in December in response to what he called "expressions of hostility" from authorities.

Phillip Walker, who formed the Internet Cafe Association of California, said opponents are reacting to perceptions rather than reality.

"On the surface it looks like it's illegal," said Walker, owner of Oz Internet Cafe & Hub in Bakersfield. "But once you get down to the meat inside, it really isn't."

The computers simulate slot machines and other casino games of chance. But instead of picking random winners, the computer games offer predetermined results in a way designed to catch and hold players' attention, said both Walker and attorney Weston, who also represents Oz.

That legal distinction is at the heart of decisions by appeals courts in Fresno and Sacramento that are headed to the California Supreme Court, which earlier this week agreed to hear the case.

The Sacramento-based 3rd District Court of Appeal ruled in 2003 that lottery vending machines dispensing Scratchers tickets do not fall under the definition of slot machines because the sequence of winning tickets is predetermined. The winner is the player who happens to be in line to buy that particular ticket.

By contrast, the Fresno-based 5th District Court of Appeal ruled in March that the computers used by the sweepstakes cafes are illegal because they exhibit "(a)ll the trappings and experiences involved in playing traditional slot machines..." even though they also offer predetermined results.

Salas said his bill would write the 5th District's ruling into law.

Walker argued that Internet cafes serve customers who can't afford to travel or play at legal card rooms and casinos.

"There's an 80-year-old couple who come in quite often. They say if it wasn't for the Internet cafe, they wouldn't have anything to do," he said. "If it was all rich people that were using Internet cafes, you wouldn't have an issue."






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