Internet gaming a regulatory challenge
by Sara Hottman, Staff Writer
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EZ Access patrons use computers at the Internet café’s Lackey Street location. The computers use Virtual Sweepstakes software to enter people into the sweepstakes and tell them whether they won.
EZ Access patrons use computers at the Internet café’s Lackey Street location. The computers use Virtual Sweepstakes software to enter people into the sweepstakes and tell them whether they won.
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LUMBERTON — For almost 200 years North Carolina has regulated gambling in all its guises, but new ways to make a wager are proving more difficult to legislate.

Gambling on tables, at races and on slot machines has long been outlawed in North Carolina, and last month games of chance in digital form were confirmed as illegal. However, online gambling and sweepstakes games skirt state law, and have positioned themselves in the legal gray area of the Internet.

Before lawmakers can regulate online gambling, they must determine who is responsible for gambling Web sites: The patrons who open the sites, the business owners who sell Internet time on their computers, or the company that runs the Web sites.

Municipalities in Robeson County are trying to use local ordinances to restrict the number of businesses that can provide Internet access — and thus online gambling, they say — but in Lumberton, the county seat, the Legal and Planning departments are waiting on the state before taking action.

“Most cities don’t want to do all this legwork only to have the state come in and make more stringent rules or overturn everything,” City Attorney Thomas Powers said. “Then you’ve put in all this effort, you’ve gathered the support of the community, and then you have the state law overturn everything you’ve done.”

In the hierarchy of gambling laws, the state is the first authority. Gambling regulations are under criminal law in the general statutes, and municipalities can modify those laws with zoning ordinances, conditional-use permits, and fees. Current gambling laws criminalize betting and any game of chance in which money is paid in the hope of winning a prize.

North Carolina gambling laws were first enacted in the 1830s based on the same mores that restricted other adult establishments. Over time laws expanded to make gambling operations illegal for everyone except federally-recognized Indian tribes, a product of the 1988 federal Indian Gaming Regulatory Act.

In 1994 the Eastern Band of Cherokee Indians of North Carolina entered an agreement with the state — recently extended to 2030 — to open a casino that operates all forms of gambling. Each year the casino serves 3.5 million people and generates more than $250 million in revenue, according to a North Carolina Court of Appeals decision.

The court decision, released last month, reaffirmed that video gaming machines — essentially digital slot machines and poker games — are illegal in the state except for the Cherokee tribe. Video gaming machines were legal but heavily restricted up until 2007, when a 2006 law banning them took effect.

In the six to eight months between the District Court decision — which determined video gaming machines were legal for everyone if they were legal for Cherokees — and the Appeals Court decision that overturned it, video gaming machines spread throughout Lumberton, Planning Director Brandon Love said.

“From a zoning standpoint, if the state allows it, it’s an accessory use with four machines or less,” Love said of that period. “Now it’s illegal, so it’s a criminal offense” for the police to enforce, not the Planning Department.

Sweepstakes games remain solidly outside the law’s restrictions. State law makes illegal the payment of money for the chance to win money or a prize; sweepstakes game rules specifically say that “no purchase or payment of any kind (is) necessary to enter or win this sweepstakes.”

Businesses like EZ Access on Lackey Street in Lumberton have computers connected to the Internet, and patrons may enter a sweepstakes when they buy time to go online; entering the sweepstakes is a byproduct of buying minutes to go online so the sweepstakes isn’t an exchange of money for prizes. People can also mail in an entry to the establishment for free. Internet time is 25 cents per minute, and each minute is one entry into the sweepstakes. Computers are also equipped with media players and word processing programs, said Sherry Upchurch, owner of the EZ Access chain in North Carolina.

Upchurch said the stores use Virtual Sweepstakes software on the computers, which is how people can see if they’ve won the sweepstakes, and also restricts “undesirable Web sites” like pornography and gambling.

Web sites on which people can play games of chance are perplexing state lawmakers. Businesses that sell time on the Internet say they cannot regulate which Web pages their patrons choose to open; some patrons may be checking their e-mail, and some may be playing poker. Companies that run the sites could be based anywhere in the world, and are only subject to North Carolina law if they’re in the state; only seven other states, all in the South, have gambling laws as strict as North Carolina, so prosecuting across borders isn’t feasible. If patrons are held responsible for opening gambling sites, the question is who enforces the law. And if the state makes Internet gambling illegal, it has to define whether that extends to private home computers.

“Everybody that has an iron in the fire” — the gaming industry, religious leaders, and lobbies on both sides — “has been talking to the state and trying to get this done,” Powers said. “There are loud voices on both sides.”

Powers said cities like Charlotte have zoned such businesses together and away from residential areas, but the multitude of questions on mode, enforcement, purview and responsibility are leading most cities to hold off on establishing their own regulations until the state acts.

“We wish the state would give us some direction,” Love said. “It’s like group homes or adult establishments — we have to allow them, but we can regulate them from there.”

Lumberton’s Planning Department has been issuing permits to allow businesses to provide Internet access — the businesses other municipalities say are portals to gambling Web sites. Those and sweepstakes operations are listed under “Internet café” in the phone book. According to an e-NC Authority report prepared for the state General Assembly, by 2007, between 50 and 69.9 percent of Robeson County had access to high-speed Internet.

“You can’t tell through conversation with an applicant whether the person wants to open an Internet café where you can buy coffee and a scone and surf the Internet or whether it’s set up for gambling,” Love said.

“Everybody knows the problem is there, we just need to find a way to regulate that will hold up to scrutiny,” Powers said, adding the online gambling industry is stout enough it could carry lawsuits to the highest courts. “In the next two months or so we’ll probably have something for council on what we can and cannot regulate, whether it’s zoned or all conditional-use.”

Fairmont and Rowland have already cracked down on businesses that provide Internet access with privilege license fees.

In December the Fairmont Board of Commissioners voted to impose annual privilege fees on businesses to have computers: The fee is $1,500 for each computer not connected to the Internet, and $3,000 for each computer connected to the Internet.

At Rowland’s January meeting, the commissioners took a similar step, imposing a $300 annual fee for each computer in an establishment, regardless of whether it’s attached to the Internet. The board held a public hearing Wednesday to discuss requirements for zoning and hours of operation.

St. Pauls already regulates the number of sweepstakes machines in an establishment based on the square footage, but in December commissioners authorized Town Administrator Stuart Turille to look into other ways to regulate them.

Even with regulation, Internet café-style businesses are legal in South Carolina, and “that’s why you see all those establishments along the border,” Powers said.
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