Were Kentucky internet sweepstakes cafes illegal gambling even when customers bought computer time?

Plain-English summary

The Kentucky Attorney General concluded in 2015 that internet sweepstakes cafes were illegal lotteries and their computers were gambling devices. In the operations described, customers bought internet access or similar services and received a chance to play simulated casino games for prizes. The AG viewed the service purchase as incidental to the underlying game of chance.

The opinion applied the lottery elements of prize, chance, and consideration. It also read the gambling-device definition to cover computers used primarily for chance-based prize games. The AG cited earlier Kentucky decisions involving machines that supplied five cents of gum for a nickel while also offering a chance to win prizes. The fair-value purchase was incidental to the game of chance.

Currency note

This opinion was issued in 2015. 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

Did charging for internet time make the sweepstakes lawful in the opinion?

No. The AG said fair value for a purchase did not save a scheme when the purchased service was incidental to the chance to win prizes.

What made the cafe game a lottery under the AG’s analysis?

The AG identified a prize awarded by chance in return for consideration in the cafe games it described.

Were the cafe computers themselves covered by gambling law?

Yes. The opinion concluded that the computers used primarily for chance-based prize games met the statutory gambling-device definition.

Background and statutory framework

The Kentucky League of Cities asked about internet sweepstakes cafes. The AG applied Ky. Const. § 226(3), which generally forbade lotteries, and the definitions in KRS 528.010(5)(a) and KRS 528.010(4)(b). It quoted A. B. Long Music Co. v. Commonwealth, 429 S.W.2d 391, 394 (Ky. 1968), for the lottery elements and Commonwealth v. Bowman, 102 S.W.2d 382, 384 (Ky. 1936), for looking to an operation’s substance.

Citations and references

Authorities: Ky. Const. § 226(3); KRS 528.010(5)(a); KRS 528.010(4)(b); A. B. Long Music Co. v. Commonwealth, 429 S.W.2d 391, 394 (Ky. 1968); Commonwealth v. Bowman, 102 S.W.2d 382, 384 (Ky. 1936).

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Pages/Opinions.aspx
• Original Word document: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG15-005.doc

Original opinion text

OAG 15-005

February 6, 2015

Subject: Whether internet sweepstakes cafes constitute illegal gambling

Requested by: James D. Chaney, Deputy Executive Director

Kentucky League of Cities

Written by: Matt James

Syllabus: Internet sweepstakes cafes constitute illegal lotteries, and the devices used in them constitute gambling devices

Statutes construed: Ky. Const. § 226; KRS 528.010

OAGs cited: OAG 10-007

Opinion of the Attorney General

James D. Chaney, Deputy Executive Director of the Kentucky League of Cities, has requested an opinion of this office regarding whether internet sweepstakes cafes constitute illegal lotteries. We advise that internet sweepstakes cafes constitute illegal lotteries, and that the devices used in them constitute gambling devices.

In People v. Grewal, 168 Cal.Rptr.3d 749 (Cal. Ct. App. 2014), the court provided a general description of internet sweepstakes cafes:

Broadly speaking, the term “Internet café” depicts a café or similar establishment that sells computer use and/or Internet access on its premises. . . . Many such businesses now promote the sale of their products (e.g., computer time, Internet access or telephone cards) by offering a sweepstakes giveaway that allows customers to ascertain their winnings, if any, by playing specialized game programs on the businesses' own computer terminals. Typically, these programs simulate casino slot machines or other gambling games.

Id. at 752 n. 2. An internet sweepstakes café is any business that purports to sell internet access or other computer services in combination with a sweepstakes giveaway which simulates slot machines or other casino games. Recently, internet sweepstakes cafes have begun operating in Kentucky. At issue is whether these internet sweepstakes cafes are illegal lotteries.

Ky. Const. § 226(3) provides that “except as provided in this section, lotteries and gift enterprises are forbidden.” “The elements of ‘lottery’ are a prize, an award thereof by chance, and a consideration. . . . The word ‘lottery’ is a generic term and embraces all schemes for distribution of prizes by chance for consideration . . . .” A. B. Long Music Co. v. Commonwealth, 429 S.W.2d 391, 394 (Ky. 1968); see also KRS 528.010(5)(a). In addition, KRS 528.010(4)(b) provides that “gambling device” means “any other machine or any mechanical or other device . . . designed and manufactured primarily for use in connection with gambling and . . . 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.” A lottery is any game that awards prizes by chance for consideration, and a gambling device is any device designed primarily for use in gambling that awards money or property as the result of the application of chance. KRS Chapter 528 prescribes various penalties for operating a lottery or possessing a gambling device.

In OAG 10-007, we addressed the legality of a phone card sweepstakes machine, which sold phone cards that also entitled the purchaser to play a game of chance for prizes. We advised that the phone cards were merely incidental to the underlying game of chance, and the phone card sweepstakes machines were illegal gambling devices. We relied on Commonwealth v. Gritten, 202 S.W. 884 (Ky. 1918), Welch v. Commonwealth, 200 S.W. 371 (Ky. 1918), and Allen v. Commonwealth, 198 S.W. 896 (Ky. 1917), which all held that various games that cost a nickel and provided five cents’ worth of gum in addition to the chance to win prizes were illegal gambling machines, even though they offered fair consideration. Even if a person receives fair value for a purchase, if the value received is merely incidental to the underlying game of chance, it is a forbidden lottery.

Internet sweepstakes machines meet the definition of an illegal lottery. They award a prize by chance in return for consideration. While they may appear to offer fair consideration for value received in the form of internet access, the consideration is merely incidental to the game of chance. “No trick, device, or subterfuge should or will be permitted to defeat the operation of the law against gambling, and courts will look through the shadow and veil of dissimulation to the substance.” Commonwealth v. Bowman, 102 S.W.2d 382, 384 (Ky. 1936). Other courts have similarly found that internet sweepstakes cafes constitute illegal gambling. See, e.g., United States v. Davis, 690 F.3d 330, 339-340 (5th Cir. 2012) (“the main purpose and function of . . . Internet cafés was to induce people to play the sweepstakes, and that the Internet time sold by the cafés—albeit at fair market value—was not the primary subject of the transaction, but instead mere subterfuge”); Cleveland v. Thorne, 987 N.E.2d 731, 744 (Ohio Ct. App. 2013) (“customers went to these establishments in hopes of winning money. . . . not for internet time, but for gambling”); see also Barber v. Jefferson Cnty. Racing Ass'n, Inc., 960 So.2d 599, 611 (Ala. 2006) (“looking through the form of the operation to its substance, consumers are paying for the entries, in whole or in part, regardless of the cybertime acquired in conjunction with those entries”). Regardless of the purchase of internet access and other computing services, the primary purpose of internet sweepstakes cafes is to get people to play slot machines or other casino games. Internet sweepstakes cafes are therefore impermissible lotteries in violation of Ky. Const. § 226 and KRS Chapter 528.

Similarly, the computers used in internet sweepstakes cafes constitute gambling devices. They are machines used primarily in connection with gambling that award prizes by the operation of chance. Again, other courts have found that the computers used in internet sweepstakes cafes constitute slot machines. See, e.g., Barber, 960 So.2d at 615 (“the readers are slot machines as to those who pay to play them”); Moore v. Mississippi Gaming Comm'n, 64 So.3d 537, 542 (Miss. Ct. App. 2011) (“the computers and other equipment . . . constitute illegal slot machines”). Accordingly, the computers used in internet sweepstakes cafes constitute gambling machines as defined in KRS 528.010(4).

In summary, internet sweepstakes cafes are illegal lotteries in violation of Ky. Const. § 226 and KRS Chapter 528, and the computers used in them are gambling devices in violation of KRS Chapter 528.

JACK CONWAY

ATTORNEY GENERAL

Matt James

Assistant Attorney General