BILL ANALYSIS Ó
AB 1439
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CONCURRENCE IN SENATE AMENDMENTS
AB 1439 (Salas, et al.)
As Amended August 21, 2014
Majority vote
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|ASSEMBLY: |75-0 |(May 27, 2014) |SENATE: |34-0 |(August 25, |
| | | | | |2014) |
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Original Committee Reference: B., P. & C.P.
SUMMARY : Prohibits any person, when conducting a contest or
sweepstakes, from using an electronic video monitor to simulate
gambling or play gambling-themed games that offers the
opportunity to win sweepstakes cash, cash equivalent prizes, or
other prizes of value.
The Senate amendments :
1)Exempt from this prohibition game promotions and sweepstakes
conducted on a limited basis as an advertising and marketing
tool incidental to substantial bona fide sales of consumer
products or services, as specified.
2)Define a "business establishment," for purposes of this bill,
as a business that has any financial interest in the conduct
of the sweepstakes or the sale of the products or services
being promoted by the sweepstakes at its physical location.
3)Add coauthors.
AS PASSED BY THE ASSEMBLY , this bill:
1)Prohibited a person, in operation of a sweepstakes or contest,
from using or offering to use any method intended to be used
by a person interacting with an electronic video monitor to
simulate gambling or play gambling-themed games in a business
establishment that directly or indirectly implements the
predetermination of sweepstakes cash, cash-equivalent prizes,
or other prizes of value, or otherwise connects a sweepstakes
player or participant with sweepstakes cash, cash-equivalent
prizes, or other prizes of value.
2)Defined "sweepstakes" as a procedure, activity, or event, for
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the distribution, donation, or sale of anything of value by
lot, chance, predetermined selections, or random selection
that is not unlawful under other provisions of law.
3)Specified that nothing in this bill shall be deemed to render
lawful any activity that is unlawful pursuant to any other
law.
4)Specified that nothing in this bill shall be deemed to render
unlawful or restrict otherwise lawful games and methods used
by a gambling enterprise licensed under the Gambling Control
Act or operations of the California State Lottery.
5)Clarified that sweepstakes are bound to the same prohibitions
on unfair business practices as contests.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
Purpose of the bill: According to the author, a loophole in law
has permitted internet gambling sweepstakes to operate in a
"gray area" and evade law enforcement. These Internet
sweepstakes are thinly veiled gambling operations that establish
themselves in an economically depressed area, accrue hundreds of
thousands of dollars through online gambling, and close when
apprehended by law enforcement. Often, these illegal gambling
cafés will then re-open in a new location, threatening to
negatively impact another neighborhood in the community.
Recently, there has been a growing proliferation of these gaming
operations throughout the State.
The author further states that 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 illegal Internet
gambling sweepstakes. This bill will close the loophole that
has allowed these illegal cafés to operate.
Internet Sweepstakes Cafés: "Internet Sweepstakes Cafés" also
known simply as Internet Cafés are business establishments that
give individuals the opportunity to win prizes with the purchase
of some kind of product, usually in the form of telephone cards
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or Internet access. They began appearing in Southern United
States in 2005, but have quickly expanded throughout the rest of
the nation, including the State of California.
Though the business model varies slightly, in general, Internet
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.
Numerous computers are placed in either tables or rows and can
number from just a few to over 100 computers.
Customers can purchase Internet or phone time that is added to a
magnetic striped card that is provided by the Internet Café.
With the purchase of Internet or phone time, the customer also
receives "entries" or "credits" into the Internet sweepstakes.
Though the number of entries per Internet or phone time
purchases can vary from establishment to establishment, it is
very common to receive 100 "credits" for every $1 of Internet or
phone time purchased.
After the purchase of credits, the customer can then head to one
of the computer screens to play several gambling-themed games
and place bets with the "credits" they have purchased.
Customers can purchase additional "credits" from the Internet
Café employee and almost always can purchase additional credits
directly at the computer. Customers who win prizes can cash in
any winnings, or use the winnings to purchase additional
"credits." According to the Bureau of Gambling Control, "cash
prizes ranging from $1 to as much as $4,000 are paid out daily."
Legality of Internet Cafés: The proliferation of Internet Cafés
throughout California has resulted in dramatically different
interpretations as to the legality of such businesses between
law enforcement agencies and Internet café owners themselves.
While California law enforcement agencies have maintained that
such businesses are illegal, not surprisingly, Internet Café
owners have maintained that the business they operate are in
fact legal.
Law enforcement agencies have long maintained that Internet
Sweepstakes Cafés are engaged in practices that violate gambling
prohibitions that currently prohibit lotteries and unlawful slot
machines or devices. On the other hand, Internet Cafés argue
that their business establishments merely offer lawful
sweepstakes that promote the sale of their products and that
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even though customers can reveal sweepstakes results by playing
a computer game, this does not satisfy the required statutory
elements of an unlawful slot machine.
Two years ago the differences in opinions finally headed to
court when the Kern County District Attorney's (DA) Office filed
lawsuits against three Internet Café businesses; I-zone Internet
Café, Oz Internet Café and Hub, and the A-Z Café. Kern County
Superior Court Judge William Palmer agreed with the DA's Office
that these types of sweepstakes were in fact illegal; Internet
Cafés immediately appealed that ruling.
On March 7, 2014, the Fifth Appellate District Court found in
favor of Kern County and once again ruled that Internet Cafés
that offer the type of sweepstakes described above were in fact
illegal under California law. In that ruling the court found:
All the trappings and experiences involved in playing
traditional slot machines are actualized in one form
or another by the defendants' sweepstakes software
systems and networked computer terminals, since in
each case points are received upon making a purchase,
a game program is activated by the customer at a
terminal, points are used or bet in selected
increments, audio-visual scenes are played out on the
screen to create the feel and anticipation of a slot
machine or other gambling games, and prizes are
won...the mere fact that winnings are based on a
predetermined sequence of results programmed into the
software system, rather than on a randomly spinning
wheel (or the like), does not change the nature and
character of devices herein, which as integrated
systems function as slot machines.
Soon after the favorable ruling, the DA's Office sent a letter
to all Internet Café operators ordering them to "immediately
cease and desist all gambling activity including the so called
sweepstakes," by March 21, 2014. By that date, all Internet
Cafés in Kern County had shut down except for one Internet Café
that was no longer offering sweepstakes.
Unfortunately while the cease and desist letter, combined with
the favorable ruling, initially seemed to shut down all Internet
Cafés in Kern County, less than one month later another Internet
Café was shut down by local authorities in Bakersfield. During
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the raid, the owners of the Internet Café told authorities that
they thought they were operating legally because they were using
a different sweepstakes system. As this example shows, the
ruling of the Fifth Appellate District Court has not completely
shut down all Internet Cafés in California. It is believed that
this bill will help to close the perceived loophole in law once
and for all.
Analysis Prepared by : Felipe Lopez / G.O. / (916) 319-2531
FN: 0005350