BILL ANALYSIS Ó
AB 1439
Page 1
Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1439 (Salas) - As Amended: March 24, 2014
Policy Committee: Governmental
Organization Vote: 18-0
Business, Professions & Consumer Protection14-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill extends prohibitions on unfair practices in connection
with the operation of a contest, including misrepresenting the
odds of winning a prize or failing to award or distribute all
prizes to the operation of a sweepstakes. The bill also creates
a new prohibition on the use of electronic video monitors to
simulate gambling or gambling-themed games in connection with
the operation of a contest or sweepstakes.
FISCAL EFFECT
Potentially significant (in excess of $150,000) costs to the
Unfair Competition Law Fund resulting from the enhanced ability
of the California Department of Justice to investigate and
prosecute cases against operators of illegal sweepstakes.
COMMENTS
1) Purpose. According to the author, internet sweepstakes
exploit a gray area of law to operate as de facto gambling
operations, establishing themselves in economically depressed
areas and closing when apprehended by law enforcement. Such
fly-by-night operations often re-open in new locations shortly
thereafter. The author claims such internet sweepstakes
operations have been growing thoughout the state.
The author asserts the law must be updated to prohibit these
activities and provide authorities with the necessary
enforcement tools to regain local control of the public safety
issues that arise because of internet sweepstakes.
AB 1439
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2) Internet Sweepstakes Cafés. Internet Sweepstakes Cafés
ostensibly advertise and sell products, usually internet time
or long-distance telephone cards. Along with the products,
however, customers usually receive bonus "entries" in an
internet sweepstakes, providing the opportunity to win prizes.
With those entries, customers can participate in
internet-based games at the café's specially-programmed
computers. The largest establishments may have over 100
specially-programmed computers.
Though the business model varies slightly, in general,
Internet Sweepstakes Cafés are located in storefront strip
malls and sometimes can be found in gasoline stations and
convenience stores. In some cases, they can also be found as
standalone establishments. The cafes have grown very quickly
in popularity in California and the rest of the United States.
According to the American Gambling Association, Internet
Sweepstakes Cafés are designed to take advantage of state
sweepstakes laws and to avoid state antigambling laws and
gambling licensing restrictions, using games that closely
mimic the experience of traditional slot and video poker
machines. Customers may purchase additional entries while
playing, and may redeem any sweepstakes winnings for
additional entries. According to the California Bureau of
Gambling Control (BGC), customers may win cash prizes ranging
from $1 to as much as $4,000.
3) California appellate court held internet sweepstakes
constitute gambling. In March 2014, the California Fifth
District Court of Appeals held where internet sweepstakes
software resembles a casino slot machine or other gambling
machine, it constitutes an unlawful slot machine or device
within the statutory definition of an "apparatus or device
that is adapted" for use as a slot or other gambling machine.
The court argued the internet sweepstakes software had "all
the trappings and experiences involved in playing traditional
slot machines," and that any technical distinctions did not
change their underlying function as traditional slot machines.
Customers who receive a winning sweepstakes entry receive
additional sweepstakes points on a magnetic value card or
token that can be used to continue playing, or receive other
AB 1439
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prizes of value in exchange for sweepstake points, which
satisfies the statutory definition of a customer "receiving or
becoming entitled to receive any piece of money or thing of
value." (People v. Grewal, F065450 (Cal. Ct. App. Mar. 7,
2014)).
Although the legality of internet sweepstakes is clearly in
doubt following the ruling from the Fifth District Court,
supporters of AB 1439 argue the bill would clearly define the
illegality of gambling at Internet cafes. The bill would add
'sweepstakes' to the list of unfair business practices
prohibited under state law, permitting cities, counties and
the Department of Justice to bring actions against the
individuals at the center of these activities.
4) Opposition. Prepaid Telconnect, a small prepaid telephone
seller, claims the bill prevents the company from utilizing
lawful and legitimate sweepstakes marketing to promote the
sale of its products and services, and that sweepstakes
marketing is necessary to compete with larger prepaid
telephone businesses. The opponents argue laws already exist
to address the complaints raised about internet sweepstakes
cafes, their methods of operation, and their illegal products.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081