The Electronic Sweepstakes Ban

According to the News and Observer, Governor Perdue has signed House Bill 80, entitled “An Act to Ban the Use of Electronic Machines and Devices for Sweepstakes Purposes.” It becomes effective December 1. I thought I’d take a few minutes to provide some background about the bill, summarize it, and identify some issues that I expect to arise once it takes effect.

Background. North Carolina banned slot machines in 1937. G.S. 14-306. That was sufficient until the electronic age, when video poker machines began to appear. Things came to a head in 1999, when South Carolina banned such machines. The General Assembly worried that all the machines in South Carolina would simply move across the state line into North Carolina, so in 2000, it enacted former G.S. 14-306.1, prohibiting new “video gaming machines” but permitting those already in operation to remain. In 2006, the General Assembly decided that it had been too lenient. It repealed G.S. 14-306.1 and enacted G.S. 14-306.1A, banning all video gaming machines. Litigation ensued, with several manufacturers arguing successfully that they were neither “slot machines” nor “video gaming machines” as those terms were defined in the General Statutes. I can explain the particulars of those rulings in a later post if there’s interest, but in a nutshell, the manufacturers argued (1) they were in the business of selling telephone time, internet time, or similar services; (2) customers who purchased the telephone or internet time received entries into a promotion or a sweepstakes as a result of their purchases, just like a person who buys a meal at McDonald’s might receive an entry into a scratch-off promotion or sweepstakes; and (3) when a customer sat down at a computer terminal to “play,” the customer was not actually playing a game — because the machine was not generating a chance event — but instead was simply watching the machine reveal whether the customer’s promotion or sweepstakes entry was a winner, with the machine displaying a simulated game in the process.

In 2008, the General Assembly enacted G.S. 14-306.3, which bans certain “server-based electronic game promotions,” which was more or less how the manufacturers had described their operations in court. But the manufacturers were able to modify their machines, or the software run on the machines, to fall outside the scope of G.S. 14-306.3, so they again, in some cases, obtained injunctive relief. (Not all manufacturers were successful in court, with the results depending both on the details of each manufacturer’s gaming system and on the statutory interpretation adopted by each presiding judge.) Against this backdrop, which some have described as a legislative game of Whack-a-Mole, the General Assembly passed House Bill 80.

Summary. The bill creates a new statute, G.S. 14-306.4, that makes it a misdemeanor “for any person to operate . . . an electronic machine or device to . . . [c]onduct a sweepstakes through the use of an entertaining display.” It defines an “entertaining display” as “visual information, capable of being seen by a sweepstakes entrant, that takes the form of actual game play, or simulated game play.” The crime is a felony for recidivists. The bill also amends the slot machine and video gaming statutes slightly.

Expected Issues. This bill is clearly the General Assembly’s most plausible effort yet at targeting this industry. (Nothing in this post is meant to suggest any opinion about whether targeting the industry is a good thing or a bad thing. Reasonable minds can differ about that.) The bill is written in broadly applicable language, unlike the easily-circumvented G.S. 14-306.3, and it avoids some of the pitfalls that exist in the video gaming statute, G.S. 14-306.1A, such as the provision that payment be required to play, which allowed manufacturers to argue that because they offer a limited number of “free plays,” they do not fall within the statute.

Nonetheless, I anticipate several issues arising. First, what constitutes “actual game play, or simulated game play”? I assume that if the video terminal simply displays the plain text “you win $5,” there is no “game play.” What if the terminal displays a massive fireball with an exciting noise, and then the text “you win $5” appears? What if the terminal shows an arrow speeding towards a target, either hitting the target (“you win $5”) or missing it (“sorry, not a winner”)? At what point do we have a “game”? The statute doesn’t define the term, and the whole subject reminds me of the many discussions I’ve had about whether a certain activity is a “sport.” Golf? Figure skating? Lifting weights? Competitive eating? Pool? Poker? Is the test whether you can watch it on ESPN?

Second, is there an equal protection concern when the legislature prohibits sweepstakes conducted via “entertaining display,” but not via scratch-off cards? Or is there a rational basis for addressing the former separately? I suspect that this argument will be an uphill battle for manufacturers in light of the lengthy “whereas” clauses in the bill, describing the state’s long history of attempting to regulate video gaming, but it may not be frivolous.

Finally, assuming that the bill can be enforced, does it apply only to those who own or operate the sweepstakes machines, or does it also apply to customers? One of the bill’s proponents argued in the General Assembly that it was the former, but the bill prohibits operating a machine to¬† conduct a sweepstakes, a concept that may be broad enough to encompass customers as well.

Anyone care to offer other prognostications about the new statute?