Friday, June 26, 2015

Internet Cafes Lose Sweepstakes


The state’s Supreme Court has guaranteed that big games of chance in California remain a duopoly between the state Lottery and Indian gambling tribes.
In a precedent, a unanimous court ruled that computerized “sweepstakes” games in Internet cafés are illegal because they are “slot machines” of chance prohibited by state gambling law.
Cafés offered sweepstakes jackpots up to $10,000.
“Slot machines, sometimes called ‘one-armed bandits’ (although younger users might wonder why), have long been outlawed in California,” said the court in the June 25th opinion. “Under review are devices that resemble traditional casino-style slot machines in some ways and offer users the chance to win sweepstakes prizes. . . . We must decide whether the devices come within the statutory definition of a ‘slot machine or device’ in (the) Penal Code. We conclude they do.”
The case began in 2012 when the Kern County District Attorney’s Office in Bakersfield filed civil actions against the Internet cafés under anti-gambling laws, and lower courts ruled in favor of shutting down the sweepstakes part of the businesses.
Little noticed in the ruling is a brief discussion of other “sweepstakes” games in California, and these remarks by justices might send shivers down the backs of corporate America, and might energize law enforcement in the state.
While these both are big “mights,” here’s what the justices wrote: “Defendants (the cafés) assert that the devices here have features in common with sweepstakes operated by national companies like Coca-Cola and McDonald’s, and that a holding that the devices here are illegal slot machines would mean those and similar sweepstakes are also illegal slot machines. How similar the devices here are to other sweepstakes, and whether other sweepstakes would meet all of the elements set forth in (the Penal Code) is beyond the scope of this case. Such questions would have to be decided in a case in which someone claims some other sweepstakes system is an illegal slot machine.”
Uh-oh. Does that open a door, or what?
The Coca-Cola Company operates a “rewards” program accessed by home computers and McDonald’s USA is well known for giving freebie shakes and fries in its Monopoly game.
Not to worry. In fact, I’ll bet a Big Mac right now that the odds of prosecutors ever filing similar cases against either Coke or McDonald’s is a big fat Coke Zero.
***
Slot machines are illegal in California and the only slot machines allowed in the state are on Indian lands, which fall under the purview of the federal government. The other game of chance is the state-run California Lottery.
As a cynical Web poster said of the ruling against the Internet cafés: “If the payout were Lotto tickets, it would be OK.”
In essence, the café owners argued the sweepstakes games were legal because the results were predetermined by computer software and not by the machines customers used.
American Gaming Association, representing casinos which oppose sweepstakes operators, claims such games are offered in a dozen states and account for $10 billion in sales a year.
***
From the court records here is how the sweepstakes worked.
“The sweepstakes operations at issue here were similar to each other. In each instance, the business sold a product (either Internet time or telephone cards) and, along with the product, provided the opportunity to play sweepstakes games, with the possibility of winning substantial cash prizes. Customers could also receive a limited number of free sweepstakes entries per day or could receive more by mailing in a request form. The customer had the option of either obtaining an instant sweepstakes result or playing games at a computer terminal to reveal the result. To begin playing the sweepstakes games, the customer would swipe a magnetic card or enter a number at a computer terminal. Those choosing to play the games had a choice of games resembling slot machines or casino-style games. The sweepstakes operation was an integrated whole, with an outside company (in Canada) supplying the software to operate the game. The outside company’s software, which was connected to the computer terminals at the business, predetermined the result of each game. Neither employees at the business nor the customers themselves had any control over the outcome. The games themselves merely revealed the predetermined result; they had no influence on that result.”
***
The Supreme Court included a history of similar rulings in California in its opinion.
“We must decide whether the defendants’ sweepstakes operations come within this definition (of the Penal Code). We are not the first court to grapple with this definition in recent years. Numerous courts have found devices similar to the ones here to be slot machines under this definition.
“California courts have found (Penal Code) section 330b to prohibit a variety of devices where prizes may be won based on chance. In People ex rel. Lockyer v. Pacific Gaming Technologies, a vending machine that dispensed telephone cards for $1 included a sweepstakes feature with audio-visual displays resembling a slot machine. When customers purchased a phone card for $1, they were given a chance to win a cash prize of up to $100. A preset computer program determined the results. The Court of Appeal held the vending machine was a prohibited slot machine under the plain language of section 330b, because ‘by the insertion of money and purely by chance (without any skill whatsoever), the user may receive or become entitled to receive money.’ Similarly, in Trinkle v. Stroh, a jukebox that dispensed four songs for $1 was found to be a prohibited slot machine or device under section 330b because the operators also received a chance to win a cash jackpot. (In) Score Family Fun Center, Inc. v. County of San Diego (the court held that) an arcade video game that simulated card games violated 330b because operators could, as a matter of chance, win free games or extended play.”
The justices also said that a recent federal case applying California law to an Internet sweepstakes game provided another example of the illegality of the sweepstakes games. (In) Lucky Bob’s Internet Café , LLC v. California Department of Justice, “Customers were given 100 entries to the Sweepstakes for every $1 of purchased internet time. In addition, each customer was entitled to 100 free entries for every 24-hour period. Customers were also able to mail a request for $1 worth of sweepstakes entries to World Touch Gaming, but this option was never used. Purchased internet time was loaded onto a player card, which the customer swiped into an electronic card reader located at an assigned computer terminal. The user would then select a method for revealing his winnings from the monitor located at the terminal. First, a customer could immediately reveal whether he won a prize. Second, a customer could play one of the seventeen casino-style games, then reveal whether he had won a prize at the end of the game. Many of these casino-style games are commonly associated with slot machines. Plaintiffs’ equipment operated a sweepstakes gaming system that was manufactured and licensed by World Touch Gaming, Inc. The World Touch Gaming system predetermined prize outcomes based upon chance as set forth in predefined odds tables for the gaming system, prior to when customers revealed their game entries on player terminals. Based upon the odds tables, a game’s overall financial outcome would be set at the time the pool of outcomes was generated. The system would then sequentially assign entries to patrons from the pool. Playing the casino-type games could not change the game entries’ prize values.” The cash prizes in Lucky Bob’s ranged from 10 cents to $3,000. The players did not use most of the Internet time they purchased. At Lucky Bob’s, a total of $1,225,055 was spent for 204,176 hours of internet time and 97 percent of the total purchased internet time was unused.”
Relying heavily on Pacific Gaming Technologies, the Lucky Bob’s court found the device at issue to be an illegal slot machine under section 330b.
***
Here is how an Internet café worked, according to records.
“Defendant John C. Stidman owned the I Zone Internet Café in Bakersfield. Among other products, I Zone sold Internet time to the public for $20 per hour, which customers could use on computer terminals located on the I Zone premises. To promote the sale of Internet time and its other products, I Zone offered a sweepstakes to customers when they made a purchase. Non-customers might also enter the sweepstakes; that is, no purchase was necessary to enter. To enter a sweepstakes without purchasing Internet time or other products, a person could receive up to four free entries from the cashier each day on request. Four additional entries were available by mailing a form with a self-addressed, stamped envelope. A company known as Capital Bingo provided a computer software system that effectuated the sweepstakes.
“Under the software system, a purchaser of Internet time or other products at I Zone received sweepstakes points for each dollar spent. A customer also received sweepstakes points for the first purchase of the day and for being a new customer. The customer received a white plastic card with a magnetic strip, which an I Zone employee activated at the register. A customer swiping the card at an open computer terminal was given the option of using the Internet function or playing sweepstakes computer games. If the customer chose the games, the time playing them did not reduce the Internet time available. Both options were touch-screen operated and did not require a keyboard or mouse.
“In playing the sweepstakes computer games, I Zone customers used their sweepstakes points in selected increments (simulating bets) on games with names such as Buck Lucky, Tropical Treasures, or Baby Bucks. According to the I Zone sweepstakes rules, each increment level available for play ‘represents a separate sweepstakes.’ Gambling-themed games resembling slot machines were prominently displayed on the I Zone terminals. According to a detective investigating the business, ‘It appeared the subjects were playing casino-style slot machine games on the computers . . . The audible sounds were that of casino-style slot machines.’  The detective noted that on one occasion, no one was on the Internet, but instead ‘all the people using the computer terminals were playing the sweepstakes games.’ Participants in the sweepstakes had a chance to win cash prizes ranging from small amounts to a top prize of $3,000.
“In contending the sweepstakes games were not slot machines, Stidman presented evidence and argument regarding how they functioned. His position was that the computer sweepstakes games were merely an entertaining way for customers to reveal a sweepstakes result. A customer could also reveal a sweepstakes result by other means, such as by using a special function on the computer terminal or by asking an I Zone employee at the register to print out a result on paper. As Stidman described it, ‘Each time a customer reveals the results of a sweepstakes entry, (regardless of the means used), the next available sweepstakes entry in the ‘stack’ is revealed,’ in sequence, from a prearranged stack of entries. The ‘next available sweepstakes entry’ contains a predetermined result that would be the same regardless of which method was used to reveal it. Thus, when the customer engaged the sweepstakes computer games, the outcome was determined by the particular sweepstakes entry that was being revealed at that time, not by the workings of the game itself. That is, the game simply revealed the predetermined result of the next sequential sweepstakes entry.

“Stidman provided further documentary evidence of how I Zone’s software system conducted the sweepstakes. This evidence indicated there were three distinct servers: (1) the Management Terminal, (2) the Point of Sale Terminal, and (3) the Internet Terminal. As Stidman’s counsel summarized in the trial court, ‘It is at the Management Terminal where all sweepstakes entries are produced and arranged. Each batch of sweepstakes entries has a finite number of entries and a finite number of winners and losers. Once a batch of sweepstakes entries is produced at the Management Terminal, it is ‘stacked’ . . . and then transferred to the Point of Sale Terminal in exactly the same order as when it left the Management Terminal. Each time a customer reveals the results of a sweepstakes entry, either at the Internet Terminal or at the Point of Sale, the next available sweepstakes entry in the ‘stack’ is revealed. In other words, the Internet Terminal simply acts as a reader and displays the results of the next sequential sweepstakes entry in the stack as it was originally arranged and transferred from the Management Terminal – it is never the object of play. In fact, exactly the same results (are displayed) for a specified sweepstakes entry whether the customer chooses to have the results displayed in paper format at the Point of Sale Terminal or in electronic format at an Internet Terminal.’ Stidman’s evidence indicated that neither the Point of Sale Terminal nor the Internet Terminal had a random number generator and could not be ‘the object of play,’ since those servers could not influence or alter the result of a particular sweepstakes entry, but merely displayed that result.”

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