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 It repealed G.S. 14-306.1 and enacted G.S. 14-306.1A, banning all video gaming machines.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?

14 thoughts on “The Electronic Sweepstakes Ban”

  1. I will do EVERYTHING IN MY EARNED POWER, unlike current “career” poloticians, to make sure the people of this state may provide jobs and values with the openings of businesses any way they choose, so long as it creates values and jobs and does not go against the PRIME LAW.
    The Prime Law will be in every Americans head soon. And America will support the TVP,Twelve Visions Party because of what it stands for….THE PEOPLE.
    Period. End of discussion.

  2. UNTAXED, UNREGULATED GAMBLING!!!! this whole issue is wrong. to continue this sort of predatory gambling is not what this state wants.sure it doesn’t affect the people that read articles like this one , please no offence to anyone, but the fact still is the same “come to nc where you can open up a untaxed, unregulated, doesn’t matter if you have been convicted of any felonies, you can hop on the two companies injunction, and make a few hundred thousands dollars.. nobody knows anything about the fairness of the machines or which family is behind the operation. btw organized crime doesn’t fool around with gambling, where has all the monies from the 1,000 or so operations went to, not the state!! if we want gambling so much do it the right way. first take bids from the major gaming corporations,build a few mega hotel, resorts casinos, where it would bring JOBS, and beautiful places for people to go other then just gambling. other then some hole in the wall clip joints run by criminals. otherwise GET OUT OF TOWN YOUR NOT WELCOMED

  3. In reply to “Whys” statement (actual first sentence)

    “Untaxed, unregulated gambling”

    North Carolina defines gambling as having 3 elements.

    1. PRIZE – Defined as “something” you win.
    2. CHANCE – Means there is some sort of “randomness” involved in the game.
    3. CONSIDERATION – Means that a player PAYS to ENTER A GAME




    If the state defines gambling as having 3 components yet these games only have 2 then WHY ARE YOU CALLING IT GAMBLING ?

    • Where have you been playing? THE PLAYER DOES PAY TO ENTER THE GAME! Trying entering one without paying & see if you get in. You don’t pay to enter the facility but playing the game does require payment!!!!!!!!!

    • Thank you. Thank you so much for that. People really amaze me, I love reading comments that are actually fact-based and makes sense like yours did. Bravo. Please keep speaking up we need people like you.

  4. I gues my biggest beef with the games is watching people throw away their money on these games but yet they have money to buy beer and paraphanalia products….and then use thier food stamp card to check out for a bunch of junk food to keep their kids quiet while they play the games. If they get food stamps in the first place they have no business gambling away what money they do have! I feel that random drug tests should be given to anyone receiving any kind of govt. assistance!

  5. Belinda F. B. says:
    Your comment is awaiting moderation.

    October 26, 2011 at 3:46 pm
    What is the different between the state put a lottery game out where people ca n spend and lose money,nothing said.I don’t think the school systems see all that money and what about the older people that enjoy it with nothing to do seem to be getting better in health wise i’m not talking about spending money from the goverment i’m talking about spending the money that they earn,why not let people spend their money the way that they want to if they don’t pay their light bills let them sit in the dark their lost,if they don’t pay there rent let them get out,why not have something for people to do in North Carolina except be stressed out. I say keep the sweepstakes open.People do have common sense.

    • Very well said. If people would worry about their own lives as much as they tried to run other people’s lives there’s no telling what they could accomplish LOL

  6. This is a business and of course again the government has to but in and say NO, a person should have right to gamble they are adults, if they r bringing their kids to these place feeding them junk food call dss. I think these rep from western Nc are wrong like the small businessman provide a community entertainment, I bet if he was a political donor to your campaigin you would not be passing a bill to squash sweepstakes. It is just like scratch off lottery tickets but the little man don’t benefit it is big government!!!

  7. It should be up to the people in the cities and towns whether or not sweepstakes should be allowed. We should not be told how we can spend our money. It is our money not the governments. I work for a living and i know lots of people who love sweepstakes parlors for various reasons. They are buying internet time and enjoying themselves, some of them are retired and have nothing to do so they come in there to have fun and socialize, also people who don’t have internet at home can come in and get on the internet, plus sweepstakes creates alot of jobs that NC needs. People of the state need to speak up and stop letting them take our jobs and our only fun and freedom, we should as i said before be allowed to spend our hard earned money the way we choose to

  8. My question to who ever knows what the laws in sc concerning video poker machines is it a misdemeanor or is it a felony


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