April 29, 2011

Sweepstakes Cafes Likely Constitute Illegal Gambling

Sweepstakes cafes are proliferating across the United States. These small neighborhood businesses contain any number of computers on which patrons can play games mimicking the look and feel of traditional slot machines. Just like slot machines, users must ante up, and they can also win real payouts. The sweepstakes café industry claims the business model is not subject to gambling prohibitions because patrons do not buy game entries, they buy Internet time.

The industry has argued that sweepstakes cafes operate similar to McDonald's long-running Monopoly promotion – every time a customer buys a cheeseburger or other product, he receives a "free" entry in the sweepstakes and a chance to win a prize. Indeed, so long as McDonald's does not charge extra and also offers a truly free alternative method of entry (e.g., postcard entries), the law considers the Monopoly sweepstakes entries to be a free perk of buying the cheeseburger. The sweepstakes café industry argues that, just like McDonald's, game entries are merely a free perk of purchasing Internet time on café computers and patrons are similarly provided a truly free alternative method of entry.

Unlike McDonald's, however, it appears sweepstakes café patrons never receive their figurative cheeseburger. Despite the argument that they purchase Internet time, not game entries, news reports indicate that the vast majority of sweepstakes café patrons are not checking their email or surfing the Internet. If such were the case, after all, public libraries would be overwhelmed with people taking advantage of their free Internet. Sweepstakes café patrons arguably are only buying the opportunity to play slot machine computer games and win money – that is, to gamble. Consequently, the Internet time they purchase appears not to have any independent value and is likely incidental to the pay-to-play structure of the business model. As for McDonald's, on the other hand, chances are those cheeseburgers do not go to waste.

In short, if patrons of sweepstakes cafes are paying to gamble, they are gambling, and operators of the cafes are gambling with law enforcement as well. Legal authorities are beginning to get a better handle on these matters, and regulations are targeting this new form of entertainment directly.

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