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The battle over video poker
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Published: October 18, 2009
RALEIGH
Three years ago, state legislators thought they banned video poker and similar forms of electronic gambling.
Last year, they thought they did it again.
Both times they were wrong, and video gambling continues to thrive in North Carolina.
The casino-like games have hair-trigger graphics, huge profit margins, and in the eyes of their critics, a cockroach-like ability to avoid extermination.
They also have an image problem: they've been sullied by ties to political scandals, and they're denounced as socially and morally noxious.
But the proponents of video gambling -- whose ranks are growing -- say the games have been unfairly stigmatized. There's not much difference, they argue, between a recreational gambler spending $20 on a video sweepstakes game or spending the same amount of money to play the state lottery.
They want the state to bring video gambling out into the light, where it can be regulated and taxed.
"Gambling is always going to be here in some form or fashion," said Steve Henderson, who owns a storefront computer lab in Thomasville where people can buy Internet time and get the chance to gamble electronically.
Despite recent efforts by state legislators and county sheriffs to wipe out businesses such as Henderson's, video-gambling operators have made technical changes and other tweaks to get around state laws. And they've been aided by several recent court cases that have muddled the status of video gambling in North Carolina.
"It's just very, very difficult to close the loopholes and get this thing so that we can enforce it," said Sen. Tony Rand, the majority leader in the N.C. Senate. "I hope we'll be able to put them out of business."
Henderson doubts that will happen.
"Technology, and people who are proactive with the technologies available, will always circumvent the law," he said. "If this goes away, there will be something else right behind it. And until they regulate it, every year the General Assembly will be facing something that has to do with gambling, because it's a growing industry."
Evading the bans
The legislature made its first attempt at banning electronic gambling in 2006. The ban was motivated in part by the belief that some video-poker operators were running afoul of the existing state law, which was supposed to limit the number of video-poker terminals and the size of payouts.
Before the 2006 ban, the video-poker industry also had come under fire because of political donations it made to Jim Black, the former speaker of the N.C. House, who is now serving prison time on unrelated corruption charges.
The 2006 law was an attempt to ban video gambling everywhere in the state except on the reservation of the Eastern Band of the Cherokee Indians, which operates a casino. The 2006 law also came a year after legislators created the N.C. Lottery.
The law successfully shut down many video-poker terminals, but operators soon got around the ban by offering what they referred to as "sweepstakes" games. Players would buy prepaid phone cards and get the opportunity to win a cash prize in the sweepstakes. The players would use the cards to play computerized games of chance to find out if they won.
State legislators then struggled to write a new law that would eliminate the sweepstakes games without banning more innocuous sweepstakes, such as Publishers Clearing House. Last year, a new law banned promotions that give players the chance to play casino games if they buy a prepaid card.
Once again, operators got around it. They simply kept the sweepstakes idea but stopped using prepaid cards. Players now buy a set amount of time on the Internet, which they use to play the casino-style games to find out if they won the jackpot.
In December, a judge in Guilford County ruled that the games had been altered sufficiently so as to not violate the new state law. His ruling said that law-enforcement officers could not shut down the games.
Two months later, a different judge in Wake County ruled that the state's original video-poker ban should be struck down. The state cannot legally ban the machines while simultaneously allowing them at the Cherokee casino, the ruling said.
That ruling was argued before the N.C. Court of Appeals last week. A decision is not expected for several months.
In the meantime, law-enforcement officials say that video gambling causes an increase in crime and can hurt families when people become addicted. But they say their hands are tied.
"There is some difficulty, because of this court holding, in going after the operators of the current version of the machines," said Eddie Caldwell, the executive vice president and general counsel for the N.C. Sheriffs' Association. "The sheriffs would like to be able to enforce the laws against the unlawful operators of the machines."
As the cases work their way through the courts and state legislators consider what to do next, the games continue to be popular.
They can be found in many bars or at dedicated storefront locations that contain rows of computer terminals and are used primarily for electronic gambling. These locations sometimes call themselves "business centers," but critics see them as mini-casinos without the frills of Vegas.
Wheel of Fortune
The games are colorful and fast-moving, and aside from the fact that they're played on desktop computers, they're graphically similar to what one would find in Vegas -- or at the Cherokee casino.
Many types of games are offered, including variations of poker-style games and slot-machine-style games such as "Lucky Seven" or "Wheel of Fortune."
The state is not keeping a watchful regulatory eye, nor is it reaping any revenue from the games, which can be quite profitable for their owners because they don't cost much to operate and maintain.
People who play the games, on the other hand, are almost guaranteed to lose money in the long run. The odds are tilted heavily toward the "house."
Given the current situation, some legislators say the state should legalize and regulate video gambling and use it as a new revenue stream to help out the strapped state budget.
State Rep. Earl Jones, D-Guilford, sponsored a bill this year trying to do that. It got a hearing before one committee but never moved any further. Many legislators, including Democratic leaders, oppose the idea. But two influential interest groups support it: the legislative black caucus and the association representing state employees. The groups say that the state could use revenue from video gambling for other pressing needs.
Jones's bill calls for the state to take 20 percent of the revenue from every video-gambling machine. The industry, which strongly supports the bill, says the state could collect $500 million a year by doing that. It also says that legalization and regulation would create new jobs.
Other states -- which like North Carolina are having severe budget problems -- have found the chance at new gambling revenue too appealing to pass up.
In Illinois, for instance, a new law created a video-poker market under the jurisdiction of the Illinois lottery. In Ohio, a new law allows video slot machines at the state's racetracks and is expected to generate nearly $1 billion in new revenue for the state over the next two years.
Drugs vs. alcohol
Rand, like many legislators in North Carolina, opposes regulation. He said he believes that video gambling is particularly addictive, and he rejected the argument that people should be free to spend their money how they want.
"Under that theory, we'd have heroin stores," said Rand, D-Cumberland. "There are certainly things that we as a society deem to be improper."
In a similar analogy, video gambling is often referred to by opponents at the legislature as the "crack cocaine" of gambling.
But Keith Whyte, the executive director of the National Council on Problem Gambling, said that the drug analogy is a bad one. A better analogy, he said, is alcohol.
Even though liquor is more potent than beer, the state doesn't ban liquor while allowing beer. All forms of alcohol can be dangerous if someone becomes addicted, Whyte said.
"You don't get less of a traffic sentence because you were drunk on beer or drunk on wine," he said.
Gambling, he said, is similar. Compulsive gamblers can become addicted to scratch-off lottery tickets just as they can become addicted to video poker.
To be sure, there are several risk factors that can increase the likelihood of someone becoming addicted. And some of those factors -- such as a high speed of play -- are common in video gambling, Whyte said.
But he said that as gambling technology advances, the lines between different types of games are blurring, and public policies that draw boundaries between different types can be dangerous because they may imply that certain types of gambling are safe.
Whyte's group is neutral on legalized gambling and does not take a position on state policies related to gambling. He did say that, rather than banning certain games and sponsoring others, he believes that states should adopt holistic policies that focus on preventing and treating problem gambling.
"Americans have grown up thinking about gambling and seeing gambling, being exposed to gambling, in very different boxes," Whyte said. "The technology has destroyed what were pretty artificial boundaries in the first place."
jromoser@wsjournal.com
919-210-6794
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