By L.A. Williams, Correspondent
Christian Action League
Just because gambling promoters didn’t get their way in a recent Court of Appeals ruling that upheld North Carolina’s ban on video poker doesn’t mean they’re cashing in their chips — in fact, a growing number of businesses have been adding so-called “sweepstakes” games that emulate the poker machines in virtually every way but have skirted the ban via legal technicalities.
Now, unless the Legislature can close the loopholes, it may be up to municipal officials to try to regulate the industry that has bred corruption across the state and led untold numbers of players into gambling addiction.
“Needless to say, these games — whether they are called video poker, video lottery or sweepstakes, whether they are played via a computer terminal in a cyber cafe or a stand alone machine in a convenience store or amid a line of one-armed bandits in a video game parlor — are all gambling and are harmful to North Carolina families and to our economy,” said the Rev. Mark Creech, executive director of the Christian Action League of North Carolina. “We hope lawmakers at the state level, when they head back to Raleigh, will be prepared and determined to pass legislation to shore up the ban so that these ‘sweepstakes’ operations will also be outlawed. Meanwhile we’re glad to see some cities and towns taking zoning action to try to slow the industry’s growth.”
That’s the case in Maggie Valley where, according to a recent Asheville Citizen-Times article, officials are considering zoning laws that would not only force any electronic gaming operation to have 1,000 square feet of indoor retail space for every machine, but would also ensure that they are at least 500 feet from homes, 1,000 feet from each other and 1,000 feet from religious institutions, schools, day cares, parks and libraries. Also in Western North Carolina, Canton is eyeing a plan to tax sweepstakes businesses with at least four machines $2,500 a year and $700 a year for each additional terminal.
Richard Ducker and Christopher B. McLaughlin, professors of public law and government at the UNC School of Government, say municipal zoning and privilege taxes can influence where these games are played and how many machines are installed. Ducker said some ordinances “treat cyber-sweepstakes operations as legal, but less than desirable, uses” since the secondary impacts associated with them have been linked to those associated with night clubs, adult establishments and casinos.
“Operators typically want to stay open as late as they can. Premises are generally open only to adults. So, it is alleged, the lure of money to be made and spent and the possibility of skirting the law can attract unsavory characters and even encourage petty crime,” he said.
Communities that don’t want to put out the welcome mat for sweepstakes operators can adopt zoning that limits where the machines can be located, what hours they may operate and whether or not the games can be the sole source of revenue for a business. Although Ducker said mid-to large-size jurisdictions like a High Point or an Asheville could not likely legally make zoning so restrictive that gaming operations are prohibited throughout, that doesn’t mean that every little town in North Carolina has to open its doors to the industry.
“I think local governments could use the privilege license taxation scheme to raise revenue and indirectly discourage the proliferation of Internet sweepstakes operations,” said McLaughlin, adding that he knows of two or three municipalities that have adopted privilege license taxes of $2,600 per establishment.
McLaughlin said municipalities should keep in mind that although courts are generally willing to defer to elected leaders when it comes to deciding what level of taxation is appropriate, at some point a tax could become so burdensome as to be illegal.
“I can’t tell you exactly what that point would be in this situation. Would a tax of $1,000 per machine be legal? Probably,” he said. “Would a tax of $1 million per machine be legal? Probably not. But nobody can pinpoint exactly when a tax becomes unreasonable and therefore illegal.”
The problem with taxing video sweepstakes, though a high tax could deter some businesses from adding the machines, is that it could add legitimacy to the industry as a way to generate revenue — the claim that promoters and Rep. Earl Jones (D-Guilford) are making in their bid to have the state legalize video gaming and tax proceeds to the tune of 20 percent.
“As in so many instances, the end simply doesn’t justify the means. It doesn’t matter how much money could be generated for the state, it would not benefit the economy because that money is coming out of the pockets of the people,” said the Rev. Creech. “That’s money that would have gone for groceries or other needed items that could support a legitimate industry rather than help to create an addiction that will continue to cost the taxpayers who will be called on to pay for treatment and pay more in welfare costs.”
According to the Citizen-Times, the state’s gambling addiction hot line is receiving an increasing number of calls for help with video poker. Those calls increased from 8.6 percent in 2007 to 23.8 percent in July. Gary Gray, director of the North Carolina Council on Problem Gambling, told the newspaper that 90 percent of new attendees to Gamblers Anonymous say they are addicted to playing at “internet cafes.”
Addiction isn’t the only problem created by the video poker industry. Illegal payouts and other corruption associated with the games are what led the state to ban the games in 2006. But before the ink had dried on the law, new games involving the purchase of prepaid phone cards were being used to circumvent it. When lawmakers banned the phone card promotions, game promoters responded with an Internet scheme whereby players purchase a set amount of time on the Web which they use to play the games.
Lawmakers have had difficulty finding a way to ban the casino-style sweepstakes without making the law so broad as to also outlaw promotions under bottle caps or on fast food cups. But they are not turning a blind eye to the growing problem.
“”It’s been like a cancer in our communities,” Rep. Melanie Goodwin (D-Richmond) told the News and Observer, adding that the Legislature had made it’s intent clear regarding video poker and would not have a problem passing more laws as needed.