ADVERTISING, MARKETING & PROMOTIONS

>> ALERT

JUNE 2012

GOVERNMENT CHALLENGES INTERNET SWEEPSTAKES CAFÉS Recent legislation and state Attorney General actions relating to Internet sweepstakes cafés may be a sign of greater

legal scrutiny of games and promotional tactics that skirt or come close to the line of lotteries and gambling.

For instance, Michigan Attorney

General Bill Schuette has asserted

that Internet sweepstakes cafés –

in which Internet sweepstakes players

buy something of value, usually

Internet time or phone cards, in

exchange for points that are wagered,

accumulated, and cashed in for

money – violated the state’s Gaming

Control and Revenue Act. Attorney

General Schuette characterized

Internet sweepstakes cafés as

“nothing more than unregistered,

illegal casinos” and directed his

Alcohol & Gambling Enforcement

Division to issue “cease and desist”

letters to nine Internet sweepstakes

cafés that he alleged were operating

illegal gaming operations. The Michigan

Attorney General’s action followed its

pursuit of eight similar operations,

which closed down after the Attorney

General’s office reached an agreement

with a gaming software supplier.

The cease and desist letters warned

of possible legal action if the owners

and operators refused to halt ongoing

gambling operations that Attorney

General Schuette asserted violated

Michigan’s gaming laws, which prohibit

unregulated gambling and authorize

only pari-mutuel horse racing, bingo,

the state-sponsored lottery, certain

charity events, and casino gambling

licensed under the Michigan Gaming

Control and Revenue Act.

Attorney General Schuette said that

should any of the nine locations refuse

to halt operations, he would take

“immediate action” to shut them down

through the criminal or civil court system.

Moreover, he declared that investigations

still were pending against the owners

and operators of these businesses

that, he warned, “may result in

additional criminal or civil charges.”

NEW LEGISLATIONAuthorities also have raided Internet

sweepstakes café businesses in other

states, including Alabama, Texas,

Massachusetts, Utah, Florida, Ohio,

Georgia, and Virginia, but some

found that they were unable to easily

prosecute these businesses under

existing anti-gambling or other laws.

As a result, a number of cities and

states have introduced legislation to

increase regulation of, and in some

cases to ban, Internet cafés. The

legislation was meant only to target

“Internet sweepstakes cafés” that allow

patrons access to the Internet and

those that purport to sell goods and

services but that use sales as a pretext

to allow people to play illegal online

slots, sweepstakes, and other games.

However, in many instances it is

THE BOTTOM LINE

It is important to recognize that

much of the new legislation targeting

Internet cafés is extremely broad and

therefore could encompass activities

beyond what they were meant to

address. Anyone conducting “games

for game’s sake,” including penny

auctions, reverse auctions, and the

like, and possibly other promotions

involving a purchase and a chance

to win a prize, may be inadvertently

running afoul of these laws.

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Attorney Advertising

ADVERTISING, MARKETING & PROMOTIONS>> ALERT

JUNE 2012

drafted so broadly as to encompass

almost any promotional lottery. For

example, Georgia recently amended

the statutory definition of “lottery” to

include the “payment for merchandise

or services and the option to participate

in . . ., even if others can participate

or play for free, a no skill game . . .

whereby the player is able to win

a cash or noncash prize, other

consideration, other evidence of

winnings.” Although the fate of these

laws may be uncertain – North Carolina’s

ban on Internet sweepstakes cafés

was held to be unconstitutional, but

the North Carolina Attorney General’s

Office is appealing the decision to the

state’s highest court – there are frequent

legislative developments in this area

(the Georgia law only took effect in May).

FOR MORE INFORMATION

Joseph J. Lewczak Partner 212.468.4909 jlewczak@dglaw.com

or the D&G attorney with whom you have regular contact.

Davis & Gilbert LLPT: 212.468.48001740 Broadway, New York, NY 10019www.dglaw.com

© 2012 Davis & Gilbert LLP