Towns respond to sweepstakes ban

By Stina Sieg and DeeAnna Haney | Dec 20, 2012

It seems the industry famously called a "Whack-A-Mole" by N.C. Rep. Ray Rapp is down for the moment.

On Friday, video sweepstakes, the latest name for video gaming, was banned in North Carolina following a ruling by the N.C. Supreme Court. Starting Jan. 3, law enforcement officers across the state and right here in Haywood County will be enforcing the ban, which is the latest development in a long tug of war between the gaming industry and state government. For years, many laws have been put on the books to ban various forms of video gaming, but the industry keeps reconfiguring new machines that find loopholes in the laws. The industry got a boost in March, when a 2-to-1 Court of Appeals ruling determined that banning the machines was in violation of free speech.

This most recent ruling, however, says that just isn't so. As it stands now, anyone found operating a video sweepstakes machine after the cut-off date will be charged with a misdemeanor. There is a 90-day window for appeals, and the industry may very well come up with a new machine to skirt current law, but that's all fairly hazy for the time being.

Meanwhile, some in the industry have requested that enforcement be delayed while the appeal is pending.

Maggie's unique experience

This turn of events is a victory for the legislators who have been fighting the industry for years, but there's no sense of elation for local business owners like Torry Pinter Sr. Along with his wife, former Maggie Valley mayor Jo Pinter, he owns 25 of the county's several hundred such machines. Vegas in the Valley, located at Maggie's eastern end, has only been open for a few months — not enough time, Torry Pinter Sr. said, to come out ahead.

"I'm not making any money," he said. "By the time I'm paying my employees, my tax, my employment tax, I'm not making any money."

While there are dozens of video sweepstakes parlors across the county, Pinter's experience and level of investment is unique. He and his wife were instrumental in getting a ordinance changed in Maggie to allow high-density video sweepstakes machines in one business. Once that got the OK in August, the couple went to task, spending thousands of dollars revamping a building on Soco Road to become Maggie's first (and only) dedicated gaming parlor. By the time Vegas in the Valley opened, Pinter estimates they four-and-a-half  months in the process, leaving them little time in the season to make money. While October was "pretty good," he said, it's been pretty slow since.

Adding to his frustration is the fact that he still owes Maggie more than $9,000 in fees for the machines. He agreed to pay the first $9,125 when he opened, with the idea of paying the remainder later in the year. Now, even though the machines are banned, he still needs to pay up.

This stings all the more because Pinter had asked to have his fees prorated for the year (meaning he would only pay for the months he was open), and was flatly refused.

That was "very unethical, unfair and greedy of the town," Pinter said.

But Town Manager Tim Barth disagrees, explaining that legally the town couldn't prorate until Jan. 1, the middle of its fiscal year.

"We could not prorate," he said. "We just weren't able to do that — by law. We just couldn't find a way to be able to help them there."

Barth also stressed, however, that the town is playing the same waiting game as Pinter and won't be enforcing anything until the Jan. 3 date.

For now, that means Vegas in the Valley, which employs four people, will stay open — and will continue if the gaming industry finds a way to sidestep the current court decision.

"If there's a loophole, I would definitely stay open, keep my employees working," Pinter said.

Waynesville impact

Though video sweepstakes machines are now tucked into every corner of the county, their potential absence will probably be felt the strongest in Waynesville. According to Town Manager Marci O'Nieal, Waynesville has collected $98,000 in fees from 82 machines in 16 locations since March. Initially, it was a "windfall" for the town, she said, and it was set to continue. Starting Jan. 1, 61 new machines were to be added — with their owners forking over tens of thousands of dollars in fees.

"It represents roughly a penny on the tax rate," she said, of the fees collected thus far.

This money had come at a "great" time she added, as Waynesville has been dealing with the loss ABC funds, which have been suspended as a new ABC store is being built. The sweepstakes funds had been plugging up that fiscal hole, and now the town will have to find a revenue source. Whether it could come from a new form of video gaming is anybody's guess.

"We're all trying to make sense of what the next step will be," O'Nieal said.

Canton and Clyde

The Canton town board was the first in the county to draft an ordinance to allow sweepstakes machines in 2010, which has gained momentum in just the last year.

Those carrying the machines must pay a privilege license fee of $2,500 for the first four and then $1,000 per extra machine.

In 2010, Canton raked in about $30,000. That revenue more than doubled to about $65,000 this year, all of which went into the general fund, said Town Manager Al Matthews.

The increase of revenue was because some stores added more machines when the original ban was lifted in March.

“Because of the uncertainty due to the court case, we did not allocate money to any specific project,” he said.

Still, losing that extra income will be felt by the town.

“Any time you lose $65,000 in revenue it will make an impact,” Matthews said.

But like many others who have been following the court cases involving video sweepstakes, he said he wouldn’t be surprised if producers of the machines haven’t already come up with a way around the law.

Currently, Canton police keep tabs on the machines by attaching a serial number to each one with a different design when storeowners pay the annual privilege license fee.

If a loophole for the machines is found, Matthews said storeowners could have their current machines reconfigured to meet legal standards or exchanged for a new one that does.

And storeowners will still have to abide by the rule that the sweepstakes machines cannot account for more than 15 percent of their income. That was put in place to avoid having stores that only carry video sweepstakes.

The money for all the machines has already been paid for through July, so the new ruling won’t affect the town’s budget, Matthews said.

Clyde’s ordinance, put in place in March this year, set the privilege license fee at $2,500 per machine for the first four machine, and then $700 per machine after that each year.

So far, the sweepstakes have brought in $7,500 for the town from 12 machines in four locations.

Despite the ban, Clyde Police Chief Gerard Ball says he expects the issue will not die.

“It’s not over I can tell you that. These software folks are so far ahead and already have loopholes set up,” he said.

Enforcing the ban

On Tuesday, District Attorney Mike Bonfoey urged police chiefs and sheriffs in all seven counties of the 30th judicial district to wait until Jan. 3 to enforce the ban.

That’s because the Supreme Court could modify or change the mandate up to 20 days after it was filed.

“It’s unlikely, but it could happen,” Bonfoey said.

He said officers should warn store owners of the date of enforcement and that officers should become familiar with the law.

“Any enforcement needs to be conducted by officers after they carefully read and understand the statute because in all likelihood, some of these operators will try to modify or change these machines to a different configuration to get around that statute,” he said.

That means store owners must either get rid of the current machines by Jan. 3 or they could face criminal charges and immediate confiscation, said Canton Police Chief Bryan Whitner.