A customer who plunks down $5 at I-Biz Internet café in Bellflower gets more than just an hour of computer time or the use of a copying machine. He also qualifies to enter a promotional sweepstakes, and can learn whether he’s won a cash prize by playing a simulated game at a computer at the café.
Business centers like I-Biz offering such promotional sweepstakes have exploded across Los Angeles. But they have also come under attack from local law enforcement agencies that believe the cafés violate local gambling laws.
The L.A. County Sheriff’s Department has raided at least nine cafés in Carson, Compton and Lancaster this year, saying the computers are acting as slot machines. Last month, South Gate city officials instituted a moratorium on new Internet cafés offering sweepstakes prizes, and revealed its police department had begun investigations into three existing cafés.
“It’s a new phenomenon,” said Raul Salinas, South Gate’s city attorney. “We have not had to deal with it before.”
Business owners, insisting they are compliant with the law, are fighting back. I-Biz, which is still open, and LB Net, a Compton Internet café that closed this month after a Sheriff’s Department raid, have started legal proceedings against the department.
“It’s similar to other company sweepstakes at supermarkets, fast food places and so forth,” said John H. Weston, an attorney representing I-Biz and LB Net. “They manifestly do not violate slot machine statutes.”
I-Biz opened in a strip mall on Bellflower Boulevard two to three months ago, offering computer use and copying and fax services. Customers who make a purchase there earn points they can use to enter a sweepstakes offering cash prizes ranging from a few cents to thousands of dollars. In order to comply with California law, customers who don’t buy anything can earn a smaller number of sweepstakes points. State regulations allow businesses to run promotional sweepstakes as long as they do not require customers to make a purchase and do not directly charge for a chance to win. Businesses are not allowed to run lotteries, which charge customers for entry, or to operate slot machines.
According to Weston, I-Biz and LB customers can trade their points in to discover whether they’ve won a prize at the counter or on a computer. If they use the computer, the customer enters a passcode and can either instantly see the results or can opt to play a game that resembles a slot machine, poker hands or non-casino games such as one that features a pirate theme. Weston said that whether or not a player has won is predetermined, and that the playing of the simulated “game” – purchased from a third-party software developer – is just an entertaining way to reveal the result with no effect on winning or losing. He claimed that because the result is predetermined, and because the games are not “house-banked” – that is, contestants are not playing directly against the Internet café – the operation does not meet the legal definition of a slot machine.
“To the extent there is a sense that the client has found a loophole, then I would suggest that is a legislative matter,” he said.
Gambling operations?
Law enforcement officials aren’t buying that logic. In December, the California Attorney General’s Office issued an advisory stating that it believed Internet cafés and business centers running sweepstakes contests were illegal gambling operations. The AG’s Office cited a 2000 case that found vending machines dispending prepaid telephone cards with a sweepstakes feature to be unlawful gambling devices. The advisory, combined with the growing popularity of such establishments, triggered a wave of enforcement actions.
In March, the Los Angeles Sheriff’s Department raided five Internet cafés in Lancaster, seizing 150 computers and $5,000 in cash. In July, Sheriff’s deputies acting separately in Carson raided three Internet cafés in the city after undercover investigations, said Sgt. Charles Cabarrubias. Sheriff’s investigators in Compton raided LB Net last month, seizing all 30 computers. LB Net, which opened last year, restocked and reopened after the raid, but then closed this month to avoid another seizure. LB Net’s attorney would not give any information on what kind of revenue or profits it generated and declined to say who its owner was.
The Sheriff’s actions were initiated at the station level, a spokesman said, and were not part of a broader department-wide crackdown.
In South Gate, a city of 94,000 that straddles the 710 Freeway east of South Los Angeles, officials adopted the 45-day moratorium last month, saying the South Gate Police Department initiated an investigation into three businesses, leading to one search warrant and one criminal prosecution. The moratorium can be renewed for another year and a half. City Attorney Salinas conceded that Internet cafés were not a pervasive problem. He said the sweepstakes cafés had all opened in the last year.
A spokesman for the Los Angeles Police Department, in an email, confirmed that it was investigating “illegal gaming operations popping up under the guise of Internet cafés.” He said an investigation was ongoing, but that the department would not comment further.
A spokesman for Los Angeles City Attorney Mike Feuer said the office was aware of “similar fact patterns” in the city, but had not yet filed any cases.
Similar Internet café sweepstakes have popped up across the country with one study estimating the niche industry generates $10 billion a year.
Pushing back
LB Net and I-Biz filed a lawsuit in Los Angeles Superior Court this month against Sheriff Leroy Baca seeking a judge’s declaration that they are not in violation of state gambling laws. A Sheriff’s spokesman said the department would fight the lawsuit. Internet cafés in Bakersfield and Oceanside have also filed challenges, although they have lost at the state court level and are now fighting in appellate court. One victory has been in Hayward, where last month Internet cafés represented by Weston succeeded in overturning a moratorium.
Dennis M.P. Ehling, an attorney specializing in gaming laws at the Century City office of Blank Rome, said businesses are allowed to run sweepstakes contests, but the repeated volume of purchases and the similarity to slot machines at these storefront business centers is problematic. The argument that results are pre-determined may not be persuasive, he said, because they are still unpredictable from the user’s perspective. And, he added, customers may buy much more Internet time than they can possibly use, making it seem like they are mainly paying to play the sweepstakes.
That Internet cafés have become the primary vehicle for sweepstakes operations is due largely to the nature of the “game”: Gambling simulation software runs on computers, and since an operator needs multiple computers running the software to draw customers, an Internet café is the logical primary business to enter to maximize the utility of all the machines.
“They’re operating around a fringe of gambling law and trying to carve a niche, but I don’t think they do it successfully,” Ehling said.
