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Sweep Out the Sweepstakes

The threat of internet sweepstakes on casino gaming

Sweep Out the Sweepstakes

Over the past several months, I’ve frequently heard that the biggest danger to the gaming industry is the explosion of internet “sweepstakes” parlors that have spread like wildfire through many states. Everyone from the leader of the American Gaming Association to an official with a small rural California tribe has explained that these businesses threaten the very foundation of our industry.

While there are a few wrinkles in different states, the routine is basically the same. A shell company leases a storefront, usually a small space in a strip mall, and installs a dozen or so computers hooked up to a server, where a gaming software system they purchased resides. The “sweepstakes” systems closely resemble their cousins, slot systems. One provider of such software advertises such benefits as “many different bonuses and progressives including: multi-level bonuses, wide-area progressives, multi-denomination progressives, and free spins.” Sound familiar?

Now, the legal defense of these establishments is that they are simply operating sweepstakes like fast food chains, convenience stores and other businesses routinely run, and that the product they are offering is no different.

But the truth, of course, is far from their claims. When one buys a meal at a fast-food restaurant, they don’t throw away the meal to get a chance at a sweepstakes, and then upon losing, go back and buy another wasted meal to get another chance at the sweepstakes prize.

The related images offered at one of these parlors are almost exactly what you would find at a casino. Dice, bonus wheels, triple 7s, and the like. So, a patron easily understands that what these businesses are offering is not a sweepstakes, but real, hard-core gambling.

But shutting them down is more than just difficult; in some cases, it’s impossible. In most cases, the shell companies get a business license from a small town—we haven’t seen them in larger cities yet because their business regulations are quite complicated. Then, they simply open the door and start operating. In a few weeks, someone tips off law enforcement that illegal gambling is under way at the location, and they get a visit from the local sheriff or police. Because most states don’t have very complicated laws defining sweepstakes, the business’ claim that it is a sweepstakes operation means the police can’t charge them with illegal gambling.

Often, the company taking the business license mischaracterizes the activity in the store as a “business center” or a “phone bank.” So the police turn to the town, which may pull the business license, and the owners may even get charged with a crime—usually a small misdemeanor. If they’re found guilty, sometimes they pack up and move down the road to another town or unincorporated area.

But often, they file a million-dollar lawsuit against the town and/or the police. (There are also online attorneys who will provide the parlors with one-size-fits-all lawsuit documents to tie up town attorneys for months while the parlors continue to operate.) Most towns don’t have the time or financial wherewithal to battle these legal suits, so they’ll back down.

Some anecdotal evidence suggests that not only are these businesses operating illegal gambling, but they are also running drugs and prostitution out of the same address.

So these operators represent dual threats to the gaming industry. First, they sap hard-earned business, particularly in rural areas, where small, usually tribal, casinos are hurt. Secondly, they give the gaming business a bad name. We have spent decades shedding the “organized crime” reputation that was clearly a part of our industry in its infancy. With strict regulations assuring the integrity of the games and the owners, we’ve come a long way. These “sweepstakes” parlors threaten all that progress by opening with no licensing, oversight or assurance that the players are being treated fairly.

The answer is to talk to your legislators in every state and jurisdiction and get them to enact laws that specifically ban these kinds of betting parlors, and aggressively prosecute those who violate the spirit and the letter of the law. Sweepstakes parlors in some states have joined together in associations to hire lobbyists to convince legislators that they are indeed a legitimate business with real concerns for the community where they are located, and for their employees (few as they may be).

But we can’t let them get away with this charade. They have to be stopped. It must be done to ensure that the legal and respected gaming industry continues to grow, thrive and create benefits for its employees, communities and investors.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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