Was a Kentucky machine selling phone cards with free sweepstakes plays an illegal gambling device?

Plain-English summary

Kentucky's Attorney General concluded that the Pot of Gold phone-card sweepstakes machine described to the Pike County Attorney was a gambling device under KRS 528.010(4). The machine dispensed prepaid phone cards and free game credits after payment. A customer could play chance games for prizes. The AG accepted the requester's description of the reward arrangement as roughly correct and focused on whether the machine was designed primarily for gambling or primarily for a real phone-card sale with an incidental promotion.

The AG found the phone cards incidental to the chance games. It relied especially on the cabinet's prominent “Lucky Sweepstakes” branding and game screen, with phone-card information displayed much less prominently. The opinion acknowledged that the cards offered more minutes than cards in some earlier cases and said customer use of the cards was difficult to determine without further evidence. Even with that uncertainty, it found the machine's overall presentation showed a gambling purpose. The conclusion applied to the described Pot of Gold machine and substantially similar machines, not every promotion that offers a chance to win.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did giving a customer phone minutes make this sweepstakes machine legal?
A: The AG said no for the Pot of Gold machine. It found that the phone-card sale was secondary to the machine's chance games and prize display.

Q: What separated an incidental promotion from a gambling device in the opinion?
A: The AG asked which activity was primary. A machine primarily selling a product for equivalent consideration, with a chance game only as a promotion, was treated differently from a machine primarily offering a prize game with an incidental product.

Q: Did the AG prove customers threw away the Pot of Gold phone cards?
A: No. It cited discarded cards in a different case, but said it was difficult to determine without more evidence whether Pot of Gold customers would keep and use their cards. The opinion relied on the substance and presentation of the described machine.

Q: Were all phone-card sweepstakes machines covered by the conclusion?
A: The opinion reached the Pot of Gold machine and machines substantially similar to it. Its reasoning turned on their design and on whether the product sale was incidental to gambling.

Background and statutory framework

Pike County Attorney Howard Keith Hall sought an opinion for a constituent who wanted to operate the machine. KRS 528.080 made possession of a gambling device a crime, and KRS 528.010(4)(b) addressed devices designed primarily for gambling that could deliver money or property through chance. The AG assumed chance-based prizes were present and concentrated on the machine's primary purpose. It discussed early Kentucky cases involving machines that delivered gum along with prize chances and compared decisions about phone-card games in other states, but decided this request based on the Pot of Gold design described in the submitted brochure.

Citations and references

• KRS 528.010(4)(b): gambling-device definition applied by the AG.
• KRS 528.080: criminal prohibition described in the opinion.
• OAG 09-004: video lottery terminals distinguished in a footnote.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_d0750611-aca3-4482-84e8-5641a232b8e4/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_d0750611-aca3-4482-84e8-5641a232b8e4

Original opinion text

OAG 10-007
November 3, 2010
Subject:

Whether a phone card sweepstakes machine is a
gambling device in violation of KRS 528.

Requested by:

Howard Keith Hall
Pike County Attorney

Written by:

Tad Thomas
Assistant Deputy Attorney General

Syllabus:
A machine that has as its primary purpose the sale of
a
product for equivalent consideration, and additionally offers
an opportunity to participate in a game
of chance for prizes
of value as a promotional
scheme, is not a gambling device.
A machine that
sells a product that is merely incidental to
the
accompanying game of chance for prizes of value is a
gambling device. The phone card sweepstakes machine at
issue sells a product that is merely incidental to
the accompanying game of chance for prizes, and is
a gambling device
in violation of KRS 528.
Statutes construed:
OAGs cited:

KRS 528.010

OAG 09-004

Opinion of the Attorney General

OAG 10-007
Page 2

On December 15, 2009, Mr. Howard Keith Hall, Pike County Attorney, requested an Opinion of the Attorney General pursuant to KRS 15.020, asking about “the legality of a phone card sweepstakes machine” that one of his constituents would like to put into operation in Kentucky. We requested that Mr. Hall submit a brochure describing the machine in question, and Mr. Hall complied. Background KRS 528.080 makes it a crime to possess a gambling device. KRS 528.010(4) defines “gambling device,” and provides in relevant part: (4) "Gambling device" means… (b) Any other machine or any mechanical or other device, including but not limited to roulette wheels, gambling tables and similar devices, designed and manufactured primarily for use in connection with gambling and which when operated may deliver, as the result of the application of an element of chance, any money or property, or by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property. The machine in the brochure sent by Mr. Hall is a Pot of Gold Phone Card Sweepstakes Machine (“Pot of Gold machine”). 1 The name of the machine displayed on the cabinet is “Lucky Sweepstakes, with “prepaid phone cards” written below and to the right in much smaller lettering. It features a prominent video screen showing twelve games available for play. A picture of a phone is on each side of the video screen, and in comparatively small cursive writing below the screen is written “One Dollar Gives You 5 Minutes Anytime, Anywhere in the Continental US.” The relevant features in the brochure are listed as follows: 1

The brochure is viewable at http://www.slotsdirect.com/sweepstakes/html.

OAG 10-007
Page 3



You insert money and immediately a phone card is
printed which gives you pin codes for 15 minutes per
dollar inserted. You insert $20 you get 300 minutes of
phone card time.



You also get FREE credits to play the game, you insert $20 you get 80 credits.



Games are: Jacks or better, Shamrock 7’s, Deuces
Wild, Joker Poker, Hi Roller Jacks, Super Gold 21,
Triple Sevens, Gold Row Bonus, Spin Ball Bonus,
Respin 7’s, Super Pick Lotto, Super Double Up, Touch
Easy Keno, and Super Ball.

The brochure does not specify what happens if the customer
wins, although Mr. Hall claimed in his letter that “if a customer wins a
game, points are added to the calling card, which he can then use as a
calling card or be cashed in at the store,” and we assume that Mr.
Hall’s description of the reward structure is roughly correct. 2 The issue
in the present case is whether the Pot of Gold machine is whether it is
a machine designed primarily for the purpose of gambling under KRS
528.010(4)(b). We are of the opinion that it is.
Discussion
The elements of KRS 528.010(4)(b) determining when a machine
is a gambling device are that it is: (1) designed and manufactured primarily for use in connection with gambling, and (2) may deliver money or property (3) as a result of the application of an element of chance. It is presumably not disputed that the Pot of Gold machine may deliver money or property as a result of the application of an element of chance; the only issue is whether it is made primarily for use in connection with gambling. The primary purpose of the machine may be said to turn on whether it is designed to sell phone cards, and the accompanying game of chance is only an incidental promotion, or whether the phone card sale is merely incidental to the accompanying 2

The brochure does mention that “these are redemption games,” although what that means is unspecified.

OAG 10-007
Page 4

game of chance. Kentucky precedent, cases from other jurisdictions,
and the substance of the transaction involved all tend to point to the
conclusion that the phone card sale is incidental to the game of
chance, and thus the Pot of Gold machine is an illegal gambling device
in Kentucky.
Kentucky authorities on the status of machines like the Pot of
Gold machine are sparse and dated, but favor treating it as an illegal
gambling device. A series of Kentucky cases in the early 20 th century
dealt with slot machines that cost a nickel and produced five cents
worth of gum along with a chance to win other prizes, and found them
to be illegal gambling devices despite receiving roughly fair consideration for the amount spent.3 What Kentucky precedent there is on this issue points against allowing machines that offer inexpensive products in addition to a game of chance for prizes.4 While not persuasive, statutes and cases from other jurisdictions can provide guidance in cases of first impression. Knuckles v. Com., 2010 WL 2470850 at 3 (Ky. June 17, 2010). Mr. Hall notes in his letter that similar machines have been approved in North Carolina. The case approving them is American Treasures, Inc. v. State, 617 S.E.2d 346 (N.C.App. 2005). In American Treasures, the North Carolina Court of Appeals approved of a machine that sold pre-paid two-minute phone cards for one dollar each. Attached to each phone card was a promotional game piece with a scratch-off area, which varied but generally provided two chances for the purchaser to win cash prizes of up to
$50,000, or prizes such as a Corvette. Id. at 348. The American Treasures court reasoned that an advertising promotion directed at increasing sales of a legitimate product or service would be permissible, while a product being sold that is merely ancillary and incidental to the ac3

Allen v. Commonwealth, 198 S.W. 896 (Ky. 1917); Welch v. Commonwealth, 200 S.W. 371 (Ky. 1918); Commonwealth v. Gritten, 200 S.W. 884 (Ky. 1918). 4

Recently, we have opined that the Kentucky Lottery Corporation has the power to authorize video lottery terminals on racetracks, consistent with Kentucky Constitution §226 and KRS 154A.063. OAG 09-004. Video lottery terminals would ordinarily fit the definition of gambling device in KRS 528.010(4), but are exempt because KRS 154A.010(3) specifies that “’lottery’ means any game of chance approved by the cor poration and operated pursuant to this chapter.” OAG 09-004 at 9. The Kentucky Lottery Corporation may thus operate any game of chance not forbidden by statute or constitutional provision. However, there is no Kentucky precedent for a private person to operate any gambling device inconsistent with KRS 528.

OAG 10-007
Page 5

companying game of chance would be impermissible. Id. at 350-351.
The court concluded that the “price paid for and the value received
from the pre-paid phone cards is sufficiently commensurate to support
the determination that the sale of the product is not a mere subterfuge
to engage in an illegal lottery scheme.” Id. at 351.
Although we understand the court’s conception of the determination of the gambling purpose of a machine in terms of whether the product sold is merely incidental to the accompanying game of chance, we find the American Treasures court’s decision to be inconsistent with the decisions of almost every other state that has ruled upon the topic, and inconsistent with its own reasoning given the facts. A series of cases in various states in the early 2000’s dealt with similar phone card sweepstakes machines. The details varied slightly from state to state, but most commonly offered a one or two minute phone card plus either a game piece or an opportunity to play a video game of chance, with prizes typically of up to $500, although sometimes more. In almost all of these cases, the phone card sweepstakes machines were found to be illegal gambling machines.5 We are also of the opinion that the ruling in American Treasures is inconsistent with its own reasoning based on the facts presented in the case. The court may be right in that the rate per minute may be fair consideration, but each individual phone card sold lasted only two minutes. We find it implausible that consumers would want to stockpile and use two-minute phone cards, as if a consumer wanted to make a phone call longer than two minutes, a new number from a different 5

See Midwestern Enterprises v. Stejenheim, 625 N.W.2d 234 (N.D. 2001); Sun Light Prepaid Phonecard Co,. Inc. v. State, 600 S.E.2d 61 (S.C. 2004); Mississippi Gaming Com’n v. Six Electronic Video Gambling Devices, 702 So.2d 321 (Miss. App. 2001); Black North Associates, Inc. v. Kelly, 281 A.D.2d 974 (N.Y.A.D. 2001); People ex rel. Lockyer v. Pacific Gaming Technologies, 98 Cal.Rptr.2d 400 (Cal. App 2 Dist. 2000); Diamond Game Enterprises v. Howland, 1999 WL 397743 (D. Or. 1999); Azzurro v. State, 2001 WL 323498 (Ark. App. 2001); Katmandu, Inc. v. Liquor Control Com’n, 2002 WL 31750261 (Ohio App. 10 Dist. 2002). The only cases where phone card sweepstakes machines have been found to be legal in states with restrictions on gambling machines that are similar to Kentucky’s are American Treasures, supra, and Mississippi Gaming Com’n v. Treasured Arts, 699 So.2d 936 (Miss. 1997) (holding a phone card game offering a scratch-and-win game piece legal). However, Treasured Arts was subsequently distinguished by Mississippi Gaming Com’n v. Six Electronic Video Gambling Devices, supra (holding a phone card video slot machine game illegal), and Six Electronic Video Gambling Devices is more similar to the present case.

OAG 10-007
Page 6

card would have to be entered, making it impossible to have an uninterrupted conversation of any length. These cards have been marketed as “emergency” phone cards, but one would have to hope that any emergency arising could be dealt with effectively in under two minutes. There is also explicit evidence in one of the cases that the cards were regarded by the customers as incidental, and thrown away. 6 We think that such machines offering two-minute phone cards for one dollar would more clearly be incidental to the accompanying game of chance than the American Treasures court found, and thus such machines would qualify as illegal gambling machines under the American Treasures ruling. The Pot of Gold machines at issue may present a stronger case that independent consideration has been offered than in the prior cases, since it offers 15 minutes of phone time per dollar spent. However, the apparent increased consideration may be mitigated by depreciation in the phone card market, as most phone cards available currently charge rates well under ten cents per minute in the continental U.S. The issue for purposes of determining consideration is whether consumers would treat the cards as incidental and discard them, as had been done with the two-minute phone cards, or whether the customers would keep the cards and use them, and we find that difficult to determine without further evidence. While the consideration purchased in a Pot of Gold machine is greater than those machines held to be gambling devices in other states, the substance of the transaction involved in the Pot of Gold machine indicates that the phone cards are incidental to the game of chance attached. “It is familiar law that it is the duty of courts to look to the substance rather to than the form of a transaction,” Collins v. Kentucky Tax Commission, 261 S.W.2d 303 (Ky. 1953), and “no trick, device, or subterfuge should or will be permitted to defeat the operation of the law against gambling… courts will look through the shadow 6

See Midwestern Enterprises, 625 N.W.2d at 238 (“At four of the North Dakota locations with the Lucky Strike devices, personnel reported the phone cards were often discarded. Discarded phone cards were placed in a basket and were available free for the taking. Despite this ready availability of two-minute phone cards, people continued to put their dollars into the Lucky Strike devices. Since phone cards were available free for the taking, it is logical to conclude people paid their dollars for a chance to win cash.”)

OAG 10-007
Page 7

and veil of dissimulation to the substance.” Commonwealth v. Bowman, 102 S.W.2d 382 (Ky. 1936). The substance of the Pot of Gold machine is best revealed in its cabinet design. It represents itself as primarily a “Lucky Sweepstakes” machine, with “prepaid phone cards” below the title in much smaller lettering, and the most prominent feature on the machine is the screen displaying the video games of chance that can be played for prizes. The amount of phone time purchasable is only listed in small lettering under the screen, and the pictures of phones on each side of the screen are clearly secondary to the display of the gambling features. The Pot of Gold machine, while arguably a phone card machine with a promotion in form, in substance represents itself as a gambling machine, with the phone cards as only incidental to the games of chance. Kentucky precedent, the vast majority of cases in other jurisdictions, and the substance of the transaction involved all point toward the conclusion that the Pot of Gold machine is a machine designed primarily for use in accordance with gambling. Accordingly, it is the opinion of this Office that the Pot of Gold machine, and machines substantially similar to it, should be considered illegal gambling devices under KRS 528.010(4).

Jack Conway
Attorney General

Tad Thomas
Assistant Deputy Attorney General