US States Clampdown On Illegal Internet Cafe Gambling

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Wednesday, March 26th, 2014 | Written by Lucy Brown

Across the USA thousands of Internet cafes have sprung up providing not only access to the Web but also offering customers online gambling games such as black jack, roulette and slot machines. Advertised as ‘sweepstakes’ cafes, these illegal gambling operations have been pulling in more than $10 billion in revenue each year, and despite individual state’s best efforts to shut down these unregulated, untaxed operations, they continue to pop up all over the country.

Location important for cybercafe gambling

The choice of location is important for these cybercafes, with many situated near to local malls or service station, thus making them easily accessible for gamblers. At these facilities, customers then buy time on a computer terminal and are given free entries into a “sweepstakes.” After going online they are subsequently directed to games that looks like slots or video poker machines to see if they have won, after which players can also earn credits based on their bets and wins, with the option to cash out afterwards. In addition, players can apparently access these games away from the premises, but have to return to the premises to claim any winnings.

Some gaming industry analysts have claimed that these free “sweepstakes” entries are no different than the marketing promotions offered by big companies such as McDonald’s and its Monopoly game sweepstakes, which gives customers buying a Big Mac free entry into an online game and the chance to win coupons, tokens, and even $1 million instantly. Nevertheless, these ‘sweepstakes’ cafes have won no supporters from individual US states which view them as illegal gambling fronts, and thus subject to racketeering charges by law enforcement agencies.

Laws passed banning Internet sweepstakes cafes

In addition to regulatory concerns, individual states are also committed to preventing these operations draining off hundreds of millions of dollars from their local economies. In 2012, for instance, the country’s 22 states with legal land-based casinos funneled $8.6 billion of tax revenues into state coffers. Consequently, in 2013, the threes states of Ohio, Florida and Mississippi introduced laws prohibiting sweepstakes cafes, with several other states expected to follow suit this year, including Connecticut and California.

The Golden State is home to 70 Native American operated casinos, and although authorities have been trying to shut down sweepstakes cafes ever since they were declared illegal in 2012, a state law is seen as essential in closing any loopholes exploited by these venues.

Sweepstakes cafes keep popping up

In spite of the crackdown, Internet sweepstakes continue to spring up across the US and as Ohio Attorney General Mike DeWine, explained recently: “It’s foolish for anybody to think they are not going to come back in a different form.”

In other words, as soon as illegal sweepstakes cafes are raided and shut down new operations are opened up calling themselves different names, such as basic office service venues or skill game venues, in order to evade the bans. In North Carolina sweepstakes businesses have circumvented loopholes by introducing “pre-reveal software,” in which customers buy either a telephone card or internet time and the prize is disclosed ahead of the game being played. These companies then contested the measures taken against their operations, and highlighting Mike DeWine’s earlier point, North Carolina Attorney General Roy Cooper said these cafes “lawyered up pretty well” and”are very good at adapting to whatever law that you write.”

Other states eye legalized igaming options

While several states move to clamp down on illegal online gambling operations, others are looking to follow in the steps of Delaware, Nevada and New Jersey by making online gambling legitimate. Every year US players spend around $3 billion on unregulated, unlicensed offshore gambling sites, and rather than trying to fight the industry, regulation is seen as a way of protecting players, while contributing much needed tax revenues to cash-starved states coffers.

“If people are going to do it anyway, maybe Iowa ought to take a piece of the pie and regulate it,” commented Iowa Senator Brian Schoenjahn.

Nevertheless, competing interests see online betting as either a cure for ailing state economies or alternatively as a toxin which needs to be stamped out. As many as 9 million Americans, for example, are believed to be problem gamblers, according to the National Council on Problem Gambling. Consequently, while several US states consider introducing some type of online gambling legislation this year, politicians in Congress are lining up to decide whether or not to pass a bill outlawing all forms of internet gambling.