Court Approves Racino's Non-Slot Machines

An Alabama court has ruled that Birmingham Race Course can legally operate more than 1,300 machines that look, sound, and play just like slot machines - but aren't.

Jefferson County Sheriff Mike Hale had raided the Race Course on December 15, 2005. In an amazingly quick decision, J. Scott Vowell, Presiding Judge of the Jefferson County Circuit Court, issued a final judgment on January 31, 2006, declaring the machines to be part of a legal sweepstakes. Judge Vowell permanently enjoined the Sheriff from taking any further action against the sweepstakes operation and ordered him to return all money, papers and equipment seized in the raid.

The Race Course testified the sweepstakes had been set up to promote the track and a CyberCenter with 116 state-of-the-art computers where patrons could connect with the Internet. Customers received a plastic access card with an encoded magnetic strip, called a "Qcard". They took the Qcard to a Point of Sale Terminal to purchase the cybertime, 4 minutes for $1. Some of these patrons actually did use the Internet time at the CyberCenter. But most were much more interested in the 100 MegaSweeps entries that came with each $1 purchase.

Whether a particular sweepstakes entry was a winner or loser was predetermined at the time it was encoded onto the card. Patrons could not tell by looking at the card. They had to access a website, or call an 800 number or - here it comes - go to an electronic Reader.

As the court determined, the 1,300 electronic Readers "are designed and arranged so that they look and sound like slot machines at a gambling casino."

How successful was the promotion? "The evidence shows that during the brief period the plaintiffs were operating the promotion, few customers were using the CyberCenter; however they were lined up at all hours to use the Readers."

Judge Vowell agreed with the Sheriff that the Readers were made to appeal to patrons' urge to gamble. But does that make them illegal?

All gambling consists of three elements: prize, chance and consideration. This sweepstakes certainly had prize - winners were paid in credits or cash. The outcome was determined 100% by luck. But was there consideration?

Law students waste much of their first year in law school contracts classes learning about consideration. For run-of-the-mill contracts, consideration is any detriment to one side or benefit to the other. The reason this is a waste of time is that there is almost always consideration: all you have to show is that someone expended some money or effort or received anything of value and this element has been fulfilled.

In a very few states, this type of consideration is still enough for a gambling contract. In 1969, the Washington Supreme Court held a Safeway grocery store "bonus bingo" game was illegal where participants had to visit the store to obtain a booklet of game cards, pick up prize slip numbers, and present the winning card. Although no purchase was required, the Court found consideration in the benefit Safeway obtained by having people visit its stores and in the time and effort participants had to spend in filling out forms.

But as far back as 1890, other courts realized that gambling contracts were different. As a coincidence, the breakthrough case, Yellow-Stone Kit v. State, was also from Alabama. The operator in that case gave away sweepstakes tickets to anyone who attended his first few free "magic lantern" shows. His aim was to increase attendance at these primitive slide shows because he sold patent medicines in between acts. He also charged admission for the final show, where the winning tickets were drawn.

There was clearly sufficient consideration for a non-gambling contract: Patrons had to sit through a show and the operator obtained more potential customers. But, the Supreme Court of Alabama held that there was no direct proof that anyone paid anything for the right to participate in the drawings. Since the evil of lotteries is in encouraging people to risk a small amount for the remote chance of winning a large prize, there could be no evil if patrons risked nothing. The Court thought it was not important that most people did pay to see if they had won.

Creative operators have taken this rule - it is not gambling if no one is required to pay money, even if most do, to participate - and created everything from the no-purchase-necessary sweepstakes to no-purchase-necessary poker games and Birmingham Race Course's no-purchase-necessary slot machines.

Sometimes these work, and sometimes they don't.

In this case, the operators did everything right:

• Experts designed the game. Multimedia Games, Inc., a large and experienced supplier of Class II and III gaming devices developed the sweepstakes with outside consultants.
• Free alternative means of entry were easily available, so that everyone knew they did not have to spend any money to enter this sweepstakes.
• They offered a legitimate product at a legitimate price: $1 for four minutes was the going rate for Internet time.
• Many patrons did buy the service. The North Dakota Supreme Court held a sweepstakes selling one-minute phone card for $1 was a sham when patrons threw all the cards in the trash.
• They checked first with law enforcement. In May 2005 the operators demonstrated the sweepstakes to the Alabama Attorney General's office, supplied additional requested documents and were told that the A.G. considered it to be legal.
• They avoided the technicalities of the anti-gambling laws. For example, under Alabama law, a slot machine must be used in the play of the game. Here, the electronic readers did not contain a random number generator; they merely displayed a predetermined result imprinted on the Qcard.

Judge Vowell admitted that the race course was using a loophole in the law. But it is up to the legislature to declare an activity illegal, and he stated that it was not up to the courts to tell the legislature what they should have done.

Will this work in other states? That depends on many factors. The most important is the law of jurisdiction.

In California, for example, the Attorney General declared that electronic Readers are slot machines. It does not matter that the device has no internal computer, since the card is the software.

In a recent case in Michigan, the court held a sweepstakes with $1 pull-tabs was a sham because it was difficult to use the alternative free means of entry and no one actually used the product that was supposedly being promoted.

Of course, if the law simply allowed racetracks to have true slot machines, they would not be forced to have to come up with ideas like Qcards and electronic Readers.

© Copyright 2006. Professor I Nelson Rose will be teaching International Gaming Law as part of Whittier Law School's Summer Abroad Program in France in July 2006. For more information, contact Prof. Rose through his website, www.GAMBLINGANDTHELAW.com.

#119 © Copyright 2006, all rights reserved worldwide. GAMBLING AND THE LAW® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA