Politics & Government

Video sweepstakes kiosks ruled to be in violation of North Carolina gambling laws

A 2010 file photo shows a woman playing a sweepstakes game at a parlor in Raleigh. A more recent version of video sweepstakes games was struck down in the North Carolina Court of Appeals on Tuesday, Oct. 15, 2019.
A 2010 file photo shows a woman playing a sweepstakes game at a parlor in Raleigh. A more recent version of video sweepstakes games was struck down in the North Carolina Court of Appeals on Tuesday, Oct. 15, 2019. News & Observer

The N.C. Court of Appeals has slapped down some of the latest efforts by the video game sweepstakes industry — in which customers play video sweepstakes games to win money or other items of value — to continue operating in this state.

Such games have been available to the public over the years in convenience stores, bars and in standalone locations known as sweepstakes cafes. And over the years, the North Carolina legislature has passed laws to try to ban them on the premise they are a form of gambling.

Every time the legislature changed the law to prohibit the machines, the vendors adjusted how the games work and asserted that the games’ new rules and operations met the letter of the law. Litigation typically followed to have the courts decide whether the games violated the law.

The courts often ruled against the gaming companies.

So the companies again changed how the games work. They again said the new versions complied with the law. And the courts again evaluated how the newly revised games are played and again decided whether they are illegal.

In this case, gaming company Sandhills Amusements of Southern Pines works with Arizona- based Gift Surplus LLC to operate game kiosks in North Carolina. In 2013, the Onslow County Sheriff’s Office seized their game machines in that county, saying the machines violated North Carolina’s gambling laws.

Similar law enforcement actions have happened across the state and store employees have been arrested, the court record says.

Games of skill or chance?

Sandhills Amusements and Gift Surplus in 2013 sued the sheriff and the state on the premise that their games were legal. The companies initially won at trial. But the case eventually reached the N.C. Supreme Court, which in 2015 said the machines violated the law that prohibits video sweepstakes machines.

Sandhills and Gift Surplus changed how their games work and put their revised machines into operation around the state, Tuesday’s ruling says. They contended the new games are legal because they involve an element of skill and dexterity. To win, players have to physically manipulate images on the screen that resemble slot machine reels, the ruling says.

The case went back to court.

In 2017, Superior Court Judge Ebern T. Watson III ruled in Onslow County in favor of the gaming companies. North Carolina allows people to operate promotional sweepstakes games, Watson said, and the ones that Sandhills and Gift Surplus operated met “federal and state regulations governing the operation of legitimate promotional sweepstakes.”

Further, Watson said, the gameplay includes elements of skill and dexterity, and these elements outweigh the random chance elements of the games. Therefore, the games don’t violate the state’s gambling laws, he said.

On Tuesday, a three-judge panel of the Court of Appeals overturned Watson’s decision.

Each of the three judges issued a separate ruling, as they disagreed on some points.

Judge Hunter Murphy said the slot-machine like game displayed on the screen is an “entertaining display.” State law specifically prohibits electronic machines that conduct or promote sweepstakes games through the use of an entertaining display. “As such, regardless of whether skill or chance predominates over the games at issue,” the game kiosks violate the law, Murphy said. Murphy did not address whether the games were legal games of skill or illegal games of chance.

Judge Wanda Bryant disagreed with Murphy on whether a game of skill would be banned under the law. That reading of the statute “is too broad,” she said. However, Bryant said, she examined how the games work and concluded that chance dominates the outcome, not skill. So the games that Sandhills and Gift Surplus operate violate the sweepstakes law, she said.

Judge Allegra Collins agreed with Murphy on the point about an entertaining display. And she agreed with Bryant that random chance outweighed the skill element of the games, so in the end the machines violate gambling laws.

Collins said the gameplay has two stages.

In the first stage, she said, random chance decides whether the player will get a token prize or a significant prize. She said 75% of players are tracked for the token prize, and 25% for the significant prize.

This is followed by the skills stage, where the player has to twice manipulate the reels on the screen with nudges to win, Collins said. But “the de minimus amount of skill and dexterity involved in executing two nudges fails to transform a game of chance into one wherein skill and dexterity predominate,” she said.

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