Can a Virginia 'free spin parlor' sell a $5 phone card mainly to give customers a chance to win prizes on a slot-style game?

Plain-English summary

Senator Houck described a Virginia retail scene called a "free spin parlor": a customer pays $5, supposedly to buy a long-distance phone card, a DVD rental ticket, or computer internet time, but receives a chance to play a slot-machine-style game that can pay out money or prizes. Most customers don't use the phone card, the DVD rental ticket, or the internet time. They discard them and just play the game.

The AG concluded these operations are illegal gambling. Virginia defines illegal gambling under § 18.2-325 as making or receiving any bet or wager in exchange for a chance to win a prize, stake, or other thing of value dependent on chance. Operating an illegal gambling enterprise is a Class 6 felony under § 18.2-328, with enhanced penalties (up to a $20,000 fine and one to ten years' imprisonment) for operations of 30+ days or gross daily revenue over $2,000. Possession of a gambling device is also prohibited under § 18.2-331.

The legal test: an activity is illegal gambling when prize, chance, and consideration are all present together. A sweepstakes requiring no purchase to participate lacks consideration. But a free spin and the notices required by § 18.2-325.1 did not save the parlor in the senator's hypothetical. Customers could keep playing by paying $5 each time, and the AG concluded that the product was a pretext for paid play.

The AG distinguished his recent Opinion 10-064, which had concluded that certain internet cafe practices were not gambling on their specific hypothetical facts. That earlier scenario offered computer and office services and a way to enter the sweepstakes by mail without a purchase. Here, by contrast, the product was demonstrably of no interest to the customer and served as cover for a paid chance to win.

For persuasive authority the AG pointed to the Court of Appeals of Texas, which in an analogous fact pattern upheld a gambling conviction, observing that "the mere pretense of free prizes, designed to evade the law, would not negate the element of consideration." The opinion added that decisions from other courts had reached the same conclusion.

The AG closed with the same caveat he had used in 10-064: the application of these elements to specific facts is for the Commonwealth's Attorney, the grand jury, and the trier of fact. Some sweepstakes are legitimate marketing; others cross the line into gambling. The line is fact-specific.

Section 18.2-325.1 sets requirements for lawful sweepstakes and promotional offerings, including free entry, equal odds, and disclosures. The opinion says this provision does not legitimize gambling disguised as a purchase. The hypothetical parlor's notice and free daily spin did not change the conclusion.

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.

Anyone evaluating a current operation should check the present versions of §§ 18.2-325 and 18.2-325.1.

Common questions

What are the three elements of illegal gambling?
Prize, chance, and consideration. The opinion says all three must be present together. It explains that consideration is missing when no purchase is required to enter a drawing or other game of chance, but present when eligibility for a prize is limited to purchasers.

Why does the structure of the "purchase" matter?
The opinion says consideration is present when eligibility to win a prize is limited to purchasers and absent when no purchase is required to enter. In this hypothetical, the customer paid $5 for each further chance to play and showed little interest in the purported product. The AG concluded that the purchase was a pretext for gambling. A product's usefulness alone does not decide whether consideration is present.

Are sweepstakes always legal in Virginia?
No. Section 18.2-325.1 states requirements for a lawful promotional contest, including a free entry method, equal opportunity and odds, and disclosures. But the AG says that section "does not legitimize gambling that masquerades as a purchase." The hypothetical parlor provided a free daily spin and posted the required notices, yet its paid play still constituted illegal gambling on the facts presented.

How did this opinion differ from Opinion 10-064?
Opinion 10-064 addressed a hypothetical internet cafe offering computer and office services with a free sweepstakes entry by mail. This opinion addresses a different hypothetical: the product was of no interest to the customer, who paid for further chances to play. The AG emphasized that each opinion applies to its own facts.

What's a "gambling device"?
Defined broadly in § 18.2-325: any machine that, depending on chance, may eject something of value or determine the prize, or any thing actually used in illegal gambling. There are carveouts for machines that only dispense items of equivalent value (vending machines), and for those that return only additional plays. A slot-machine-style "free spin" machine plainly fits the gambling-device definition when the operation as a whole is illegal gambling.

Who actually decides whether a specific parlor is illegal?
The Commonwealth's attorney, the grand jury, and the trier of fact apply the elements of a criminal offense to a specific set of facts. The AG cautioned that sweepstakes operations require individual assessment.

Background and statutory framework

The defining statutes:

• § 18.2-325. Definitions, including "illegal gambling" and "gambling device." Subdivision 1 b sets up the exception for lawful games meeting § 18.2-325.1 requirements. The same section defines "gambling device" broadly, with two carveouts (additional plays only; merchandise of equivalent value).
• § 18.2-325.1. Enacted during the 2010 General Assembly session. Conditions for lawful sweepstakes and promotional offerings: free entry method, equal odds regardless of paid versus free entry, and specified disclosures. Declared to be declaratory of existing law.
• § 18.2-328. Operator of an illegal gambling enterprise: Class 6 felony with enhanced penalties for operations of 30+ days or gross revenue over $2,000 for a single day.
• § 18.2-331. Possession of a gambling device.

The interpretive thread:

• Prize, chance, and consideration must coexist for gambling.
• Free-entry sweepstakes lack consideration (per prior AG opinions).
• A sham purchase does not eliminate consideration. The purchase is consideration for the game, not for the product.
• The fact-finder decides whether a given purchase is sham or legitimate.

The persuasive authority the AG cited (a Court of Appeals of Texas decision, plus other out-of-state decisions he did not name) converges on the same proposition: courts treat "free spin" / "free play" machines that hide the purchase-for-play structure behind a nominal product as gambling devices.

Citations

• Va. Code § 2.2-505
• Va. Code Ann. § 18.2-325, including subdivision 1 b
• Va. Code Ann. § 18.2-325.1
• Va. Code Ann. § 18.2-328
• Va. Code Ann. § 18.2-331
• 2010 Op. Va. Att'y Gen. 10-064

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2010/10-095-Houck_w_Disclaimer.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

Important note about the following legal opinion

The following legal opinion is in response to a question regarding whether a certain set of hypothetical facts would constitute illegal gambling as defined in the Virginia Code.

Senator Edward Houck's question sets forth certain hypothetical scenarios centering on payment of money in exchange for a product, such as a phone card or a DVD. The product offered to the consumer is not, in fact, the actual object of the transaction. Instead, the consumer disregards the item "purchased" and seeks the opportunity to play a game of chance in order to win other prizes or money.

Based on a review of existing law and relevant prior court decisions, the attorney general's opinion is that the hypothetical examples described by Senator Houck constitute illegal gambling because the elements of prize, chance and consideration are present.

A separate attorney general's opinion (#10-064; July 30, 2010) recently concluded that, in a different hypothetical situation, certain practices of "internet cafes" did not constitute illegal gambling. The conclusions reached in these opinions are consistent, in that each opinion analyzes and discusses different sets of hypothetical scenarios. This opinion does not change or supersede opinion #10-064. The opinions rendered are specific to the unique facts as presented.

Nothing in either opinion should be interpreted as a blanket statement concerning the legality or illegality of "internet cafes" that conduct sweepstakes "promotions." Each of these operations or sweepstakes promotions needs to be considered on a case-by-case basis. This most recent opinion emphasizes that while "some will constitute legitimate marketing exercises or entertainment, others will cross the line into illegal gambling."

October 15, 2010

The Honorable R. Edward Houck
Member, Senate of Virginia
P.O. Box 7
Spotsylvania, Virginia 22553

Dear Senator Houck:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether illegal gambling statutes have been violated in certain hypothetical scenarios that center on payment of money in exchange for a product, such as a phone card or a DVD, but the product offered to the consumer is not in fact the object of the transaction; instead, the consumer disregards the item "purchased" and seeks the opportunity to play a game of chance in order to win prizes or money.

Response

It is my opinion that the hypothetical examples you describe would constitute illegal gambling because the elements of prize, chance and consideration are present.

Background

You posit several scenarios in which a customer enters what you refer to as a "free spin" or a "free spin parlor" and the customer inserts $5 into a machine or provides $5 to a clerk. In exchange, the customer receives one of the following:

• A long distance telephone card purportedly worth $5 of long distance calls. Most customers do not use the calling cards and simply discard them in the store;
• A DVD rental ticket purportedly valued at $5, which entitles the customer to rent two DVD movies. The DVD selection is very limited and most customers simply discard the rental tickets on the floor or in trash bins;
• Computer internet rental time worth $5, but the internet time is rarely used by customers, except to play a "sweepstakes" game over the internet.

Following one of the purchases described above, the customer is given the opportunity to play on a "slot machine" style game, which may be through a stand-alone gaming device, computer, or other similar game, where the customer has the chance to win money or a prize.

In your hypothetical, the majority of customers do not claim the product being promoted by the machines, but rather continue to play casino-like games in an effort to accumulate sufficient points to win prizes that are paid out daily.

You further assume that the "free spin parlor" posts the notice of odds of winning prizes and other information required by § 18.2-325.1. Each free spin customer is entitled to one completely free spin (one play worth a certain amount of points) per "free spin parlor" per day. The customer's ability to otherwise play the "free spin" machines, however, is limited only by the number of times he pays $5 to "purchase" the product as described above.

Applicable Law and Discussion

Illegal gambling is a crime. Code § 18.2-325 broadly defines "illegal gambling" as:

The making, placing or receipt of any bet or wager in the Commonwealth of money or other thing of value, made in exchange for a chance to win a prize, stake or other consideration or thing of value, dependent upon the result of any game, contest or any other event the outcome of which is uncertain or a matter of chance, whether such game, contest or event, occurs or is to occur inside or outside the limits of the Commonwealth.

Section 18.2-325 further states that

the making, placing, or receipt of any bet or wager of money or other thing of value shall include the purchase of a product, which purchase credits the purchaser with free points or other measurable units that may be risked by the purchaser for an opportunity to win additional points or other measurable units that are redeemable by the purchaser for money at the location where the product was purchased.

In addition, § 18.2-331 prohibits the possession of a "gambling device." A "gambling device" is broadly defined as

a. Any device, machine, paraphernalia, equipment, or other thing, including books, records and other papers, which are actually used in an illegal gambling operation or activity, and

b. Any machine, apparatus, implement, instrument, contrivance, board or other thing, including but not limited to those dependent upon the insertion of a coin or other object for their operation, which operates, either completely automatically or with the aid of some physical act by the player or operator, in such a manner that, depending upon elements of chance, it may eject something of value or determine the prize or other thing of value to which the player is entitled; provided, however that the return to the user of nothing more than additional chances or the right to use such machine is not deemed something of value within the meaning of this subsection; and provided further, that machines that only sell, or entitled the user to, items of merchandise of equivalent value that may differ from each other in composition, size, shape or color, shall not be deemed gambling devices within the meaning of this subsection.

Such devices are no less gambling devices if they indicate beforehand the definite result of one or more operations but not all the operations. Nor are they any less a gambling device because, apart from their use or adaptability as such, they may also sell or deliver something of value on a basis other than chance.

Section 18.2-328 provides that "[t]he operator of an illegal gambling enterprise, activity or operation shall be guilty of a Class 6 felony." The section further provides that operators who engage continuously in the illegal endeavor in excess of thirty days, or whose gross revenue exceeds $2,000 for a single day, are subject to a fine up to $20,000 and one to ten years imprisonment.

Finally, if a "lawful game, contest, lottery, scheme or promotional offering" complies with the requirements contained in § 18.2-325.1, it is not prohibited. Section 18.2-325.1, enacted during the 2010 General Assembly, provides in relevant part that

Pursuant to subdivision 1 b of § 18.2-325, any lawful game, contest, lottery, scheme, or promotional offering (the contest) may be conducted provided the following requirements are met:

1. There is available a method of free entry to all participants wishing to enter the contest without a purchase.

2. There is equal opportunity to play and equal odds of winning for all participants regardless of whether a participant entered with a valid purchase or through a free alternative method of entry.

Section 18.2-325.1(3) through (6) requires that certain disclosures be made. Finally, the legislation states that its provisions are declaratory of existing law.

It is well settled that "an activity constitutes illegal gambling when the elements of prize, chance and consideration are present together." Prior opinions of the Attorney General consistently have concluded "that the element of consideration is missing when no purchase is required to enter into a drawing or other game of chance, but that it is present when eligibility to receive a prize is limited to those who make a purchase." Section 18.2-325.1, which expressly provides that its provisions are declaratory of existing law, is consistent with this longstanding interpretation of "consideration." This means that sweepstakes offers do not constitute gambling when no purchase is required to participate in the sweepstakes. The element of consideration is missing in that scenario.

A recent opinion of this office concluded that the practices of certain hypothetical "internet cafes" did not constitute illegal gambling on the specific hypothetical facts described. That opinion contemplated a situation in which an internet cafe offered computer services, including electronic mail, software such as word processing and spreadsheets, and other office services like fax and copying machines, and offered patrons a chance to earn free minutes when they purchased minutes for computer usage. Computer users could play a game to earn free minutes, or the cashier could inform the patron whether they had won. Furthermore, there were opportunities to participate in these sweepstakes by mail, with no requirement of purchase. Copy centers and certain coffee shops meet this description: they offer computer use for a fee, and those legitimate businesses are not precluded from using sweepstakes to promote their businesses. The opinion cautioned, however, that "ultimately, the application of various elements of a criminal offense to a specific set of facts rests with the Commonwealth's attorney, the grand jury and the trier of fact."

You describe a scenario different from the one at issue in the prior opinion. In your hypothetical examples, the elements of prize, chance and consideration are present. The hypothetical transactions purport to constitute a bargained for exchange, aided by a sweepstakes style game. In your hypothetical examples, however, the product is, demonstrably, of no interest to the consumer. Instead, the consumer is interested in the opportunity to play a game of chance in an effort ultimately to win money or prizes. As the Court of Appeals of Texas pointed out in an analogous fact pattern, "the decision turns on whether the sweepstakes was intended to promote the sale of telephone cards or whether the telephone cards were there as an attempt to legitimize an illegal gambling device." The court persuasively observed that "the mere pretense of free prizes, designed to evade the law, would not negate the element of consideration." Ultimately, that court upheld the jury's conclusion that the defendants had engaged in illegal gambling because the evidence established that

the main purpose and function of the machines, and the business, was to induce people to play the game, agreeing to gain or lose something of value at least partially by chance, and not to promote telephone cards; that it was [the defendant's] intent to structure the business to entice players to exchange money for chances to play, which they did; and that the telephone cards were not the primary subject of the transaction, but mere subterfuge.

Decisions from other courts have reached the same conclusion.

Section 18.2-325.1 does not compel a contrary result. That section governs a "lawful game, contest, lottery, scheme or promotional offering" and specifies certain requirements for such contests. That section does not legitimize gambling that masquerades as a purchase. Rather, it specifies certain requirements for lawful sweepstakes and promotions. Offering a customer a free spin of the roulette wheel or of a slot machine at a casino, with subsequent turns requiring payment, would not render casinos legal in Virginia.

The United States Supreme Court aptly observed, in the context of lottery schemes, that

[e]nforcing such legislation has long been a difficult task. Law enforcement officers, federal and state, have been plagued with as many types of lotteries as the seemingly inexhaustible ingenuity of their promoters could devise in their efforts to circumvent the law. When their schemes reached the courts, the decision, of necessity, usually turned on whether the scheme, on its own peculiar facts, constituted a lottery. So varied have been the techniques used by promoters to conceal the joint factors of prize, chance, and consideration, and so clever have they been in applying these techniques to feigned as well as legitimate business activities, that it has often been difficult to apply the decision of one case to the facts of another.

The same holds true of various machines and sweepstakes. Some will constitute legitimate marketing exercises or entertainment, others will cross the line into illegal gambling. I must again caution, as I did with the most recent opinion on the subject, that, in the final analysis, "the application of various elements of a criminal offense to a specific set of facts rests with the Commonwealth's attorney, the grand jury and the trier of fact."

Conclusion

Accordingly, it is my opinion that the hypothetical examples you describe would constitute illegal gambling because the elements of prize, chance and consideration are present.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General