Misinformation has reigned over the debate about Internet sweepstakes cafes in Ohio. As legal counsel to one of the companies, which provides phone time and licensed sweepstakes software to retailers in Ohio, I thought it would be a good idea to clarify and correct the facts for legislators debating the issue.
First, let me start with two basic ideas that have served as the backdrop for everything we’ve done in the industry:
1. Business owners fostering gambling, money laundering, prostitution or any of the wild claims made by opponents should be closed down. Period. No questions asked.
2. We support reasonable regulation that will protect consumers and ensure that the state can implement and maintain its laws as this industry evolves, instead of playing catch up.
Part of the issue is that sweepstakes are often confused with other kinds of operations, from the big casinos to skill games. What we do isn’t gambling anymore than the McDonald’s Monopoly promotion is gambling.
In October 2007, the Ohio legislature passed skill game legislation. The goal of that legislation was to have skill games pay out in low dollar merchandize prizes rather than cash. Furthermore, it was intended that skill-game machines would be tested and certified so law enforcement did not have to guess which machine was skill and which was a game of chance. Unfortunately, that never happened. As a result, if people said they operated a skill game, it was overtly permitted, and thus “777” stores sprung up across the state.
Sweepstakes stores didn’t begin to operate in Ohio until about 2008. True Sweepstakes were legal, and continue to be so, under Ohio law. True Sweepstakes are permitted by law to pay out cash prizes.
What has happened over the years is that local law enforcement offices have received bad advice because they were unsure what type of establishment they were dealing with. Cases were lost, and eventually the state attorney general’s office stopped providing advice to locals.
In one lawsuit, City of Freemont v. Marvin Dabish, the local law enforcement officer, even in testimony during the lame duck session of the legislature last year, still did not perceive the differences between skill games and sweepstakes operations. His affidavit suggested that because the operation paid cash, it was a skill game. The case was dismissed, and the city of Freemont passed local regulation for sweepstakes.
That brings us closer to our current legislative debate. In June of last year, the legislature passed a moratorium on the opening of any new retail sweepstakes establishments and provided a definition of sweepstakes.
The moratorium was meant to provide a period for the legislature to study the issue and also to allow a registration process for sweepstakes establishments. Now, it appears that numerous skill-game operators filed affidavits with the attorney general’s office, either intentionally or erroneously, alleging they are operating sweepstakes.
In fact, despite reports of over 800 sweepstakes cafes in Ohio, one newspaper reported last month that they could find records for only 235 of the “registered” cafes. This indicates that many people are rogue operators who have not compiled with existing laws.
Rogue operators, as stated consistently, should be shut down. It’s an easy fix — regulation of sweepstakes can include licensure. If a store is licensed for sweepstakes, it can pay cash. If a store isn’t licensed, it should be shut down as permitted under the law.
We understand there’s confusion. One recent example will highlight the trouble. Recently, in Liberty Township, a company ostensibly looked like a sweepstakes operation, but it was doing both, sweepstakes and “allegedly” skill games. Obviously, the skill games were not skill games but slot machines.
The answer isn’t to shut down law-abiding Ohio business owners. The answer is to create regulation to allow law enforcement to do its job while ensuring that important tax revenue is protected along with vital jobs.
Our goal is to help clean up the confusion and ensure it is avoided in the future. We must start by making sure the Ohio Senate knows all the facts before taking action to ban a legal industry.
Ferruccio is legal Counsel for Pong Marketing of Vaughan, Ontario, Canada.