Request By:
James D. Chaney
Deputy Executive Director
Kentucky League of Cities
Opinion
Opinion By: JACK CONWAY,ATTORNEY GENERAL;Matt James,Assistant Attorney General
Opinion of the Attorney General
James D. Chaney, Deputy Executive Director of the Kentucky League of Cities, has requested an opinion of this office regarding whether internet sweepstakes cafes constitute illegal lotteries. We advise that internet sweepstakes cafes constitute illegal lotteries, and that the devices used in them constitute gambling devices.
In
People v. Grewal , 168 Cal.Rptr.3d 749 (Cal. Ct. App. 2014), the court provided a general description of internet sweepstakes cafes:
Broadly speaking, the term "Internet cafe" depicts a cafe or similar establishment that sells computer use and/or Internet access on its premises. . . . Many such businesses now promote the sale of their products (e.g., computer time, Internet access or telephone cards) by offering a sweepstakes giveaway that allows customers to ascertain their winnings, if any, by playing specialized game programs on the businesses' own computer terminals. Typically, these programs simulate casino slot machines or other gambling games.
Id. at 752 n. 2. An internet sweepstakes cafe is any business that purports to sell internet access or other computer services in combination with a sweepstakes giveaway which simulates slot machines or other casino games. Recently, internet sweepstakes cafes have begun operating in Kentucky. 1 At issue is whether these internet sweepstakes cafes are illegal lotteries.
KY. CONST. § 226(3) provides that "except as provided in this section, lotteries and gift enterprises are forbidden. " 2 "The elements of 'lottery' are a prize, an award thereof by chance, and a consideration. . . . The word 'lottery' is a generic term and embraces all schemes for distribution of prizes by chance for consideration . . . ."
A. B. Long Music Co. v. Commonwealth, 429 S.W.2d 391, 394 (Ky. 1968); see also KRS 528.010(5)(a). In addition, KRS 528.010(4)(b) provides that "gambling device" means "any other machine or any mechanical or other device . . . designed and manufactured primarily for use in connection with gambling and . . . by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property." 3 A lottery is any game that awards prizes by chance for consideration, and a gambling device is any device designed primarily for use in gambling that awards money or property as the result of the application of chance. KRS Chapter 528 prescribes various penalties for operating a lottery or pocessing a gambling device.
In OAG 10-007, we addressed the legality of a phone card sweepstakes machine, which sold phone cards that also entitled the purchaser to play a game of chance for prizes. We advised that the phone cards were merely incidental to the underlying game of chance, and the phone card sweepstakes machines were illegal gambling devices. We relied on
Commonwealth v. Gritten, 202 S.W. 884 (Ky. 1918),
Welch v. Commonwealth, 200 S.W. 371 (Ky. 1918), and
Allen v. Commonwealth, 198 S.W. 896 (Ky. 1917), which all held that various games that cost a nickel and provided five cents' worth of gum in addition to the chance to win prizes were illegal gambling machines, even though they offered fair consideration. Even if a person receives fair value for a purchase, if the value received is merely incidental to the underlying game of chance, it is a forbidden lottery.
Internet sweepstakes machines meet the definition of an illegal lottery. They award a prize by chance in return for consideration. While they may appear to offer fair consideration for value received in the form of internet access, the consideration is merely incidental to the game of chance. "No trick, device, or subterfuge should or will be permitted to defeat the operation of the law against gambling, and courts will look through the shadow and veil of dissimulation to the substance."
Commonwealth v. Bowman, 102 S.W.2d 382, 384 (Ky. 1936). Other courts have similarly found that internet sweepstakes cafes constitute illegal gambling. See, e.g.,
United States v. Davis, 690 F.3d 330, 339-340 (5th Cir. 2012) ("the main purpose and function of . . . Internet cafes was to induce people to play the sweepstakes, and that the Internet time sold by the cafes --albeit at fair market value--was not the primary subject of the transaction, but instead mere subterfuge" );
Cleveland v. Thorne, 987 N.E.2d 731, 744 (Ohio Ct. App. 2013) ("customers went to these establishments in hopes of winning money. . . . not for internet time, but for gambling" ); see also
Barber v. Jefferson Cnty. Racing Ass'n, Inc., 960 So.2d 599, 611 (Ala. 2006) ("looking through the form of the operation to its substance, consumers are paying for the entries, in whole or in part , regardless of the cybertime acquired in conjunction with those entries"). Regardless of the purchase of internet access and other computing services, the primary purpose of internet sweepstakes cafes is to get people to play slot machines or other casino games. 4 Internet sweepstakes cafes are therefore impermissible lotteries in violation of Ky. Const. § 226 and KRS Chapter 528.
Similarly, the computers used in internet sweepstakes cafes constitute gambling devices. They are machines used primarily in connection with gambling that award prizes by the operation of chance. Again, other courts have found that the computers used in internet sweepstakes cafes constitute slot machines. See, e.g., Barber, 960 So.2d at 615 ("the readers are slot machines as to those who pay to play them");
Moore v. Mississippi Gaming Comm'n, 64 So.3d 537, 542 (Miss. Ct. App. 2011) ("the computers and other equipment . . . constitute illegal slot machines" ). Accordingly, the computers used in internet sweepstakes cafes constitute gambling machines as defined in KRS 528.010(4).
In summary, internet sweepstakes cafes are illegal lotteries in violation of Ky. Const. § 226 and KRS Chapter 528, and the computers used in them are gambling devices in violation of KRS Chapter 528.
Footnotes
Footnotes
1 See, e.g ., Michael Monks, Faced With Tougher Regulations in Ohio, Sweepstakes Cafes Spring Up in Covington , The River City News, July 22, 2014, http://rcnky.com/articles/2014/07/22/faced-tougher-regulations-ohioswee…; Robyn L. Minor, Games Open, But Legality Not Clear , Bowling Green Daily News, Aug. 11, 2013, http://www.bgdailynews.com/ news/local/games-open-but-legality-not-clear/article_74f1c617-e38a-5612-852b-0e6b3456a761.html.
2 KY. CONST. § 226(1) allows a Kentucky state lottery, and KY. CONST. § 226(2) allows for charitable lotteries. Accordingly, this analysis does not apply to games being operated by the Kentucky Lottery Corporation or charitable lotteries in conformity with the relevant statutes.
3 KRS 528.010(4)(a) similarly defines a gambling device as "any so-called slot machine or any other machine or mechanical device an essential part of which is a drum or reel with insignia thereon . . . by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property."
4 See, e.g ., Davis, 690 F.3d at 339 ("Customers' receipts indicating over 300,000 minutes of Internet time remaining were evidence that the customers did not value the Internet time they had purchased. . . . All of the people there were only engaged in playing the sweepstakes--not accessing the Internet or using any of the other services provided"); Barber, 960 So.2d at 611 ("consumers purchased additional cybertime--with the accompanying entries--even though they already had large quantities of unused cybertime on their accounts"); Thorne, 987 N.E.2d at 744 ("The officers uniformly testified that they witnessed no one using the other business services offered").