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News State / Region State Supreme Court orders sweepstakes machines to shut down by Jan. 3

Sweepstakes parlors are once again the subject of North Carolina litigation as the state Supreme Court filed on Friday to declare the establishments illegal and to uphold a ban that was placed on the games in December 2010. The establishments have until Jan. 3, 2012 to close down operations.

While the law has been in limbo over the last two years, sweepstakes owners have been able to operate the machines since that ban was overturned by the state Court of Appeals, which ruled the ban unconstitutional and a violation of free speech.

Friday’s Supreme Court decision was made with the intention of eliminating the supposed ill-effects of gambling and related activities and was not a discussion of the right to free expression. The decision reverses a March ruling by the state Court of Appeals, which said the move to outlaw the games in 2010 was written too broadly and was unconstitutional.

As they did in 2010, the sweepstakes industry announced they will again appeal the ruling and try to find ways to keep these parlors in operation. "We maintain that video sweepstakes games are no different than traditional sweepstakes games offered by restaurant chains, soft-drink companies and publishing houses," Chase Brooks, president of Internet Based Sweepstakes Operators trade group, said in a statement.

In the past, operators have adjusted their software to comply with laws put into place by previous court rulings. According to Brooks, the industry will once again do this. “We will look at morphing into whatever we need to be under the rule of law to continue our business,” he said.

In March, the state Court of Appeals backed their stance that the ban violated the operators' First Amendment rights to free speech stating that sweepstakes games use "entertaining displays" to tell customers whether they had won or lost.

In Friday's unanimous ruling, however, the Supreme Court said informing winners and losers was inextricably linked to the game and wasn't a separate act of speech. “Operating or placing into operation an electronic machine is clearly conduct, not speech,” Associate Justice Robin Hudson wrote in a 23-page ruling.

The gaming industry has urged state lawmakers to legalize video sweepstakes and then regulate and tax the games, which they say would provide needed revenue. According to Sen. Jim Davis (R-50), the way the law is currently designed, municipalities have the ability to regulate and tax the establishments, while counties within the state do not. Davis noted that if the Supreme Court ruling had not gone the way that it did, he would have liked to see legislation that allowed the county control of taxes and regulations that fall outside of city limits.

After the Court of Appeals rescinded the ban in March, Franklin’s Board of Aldermen agreed to impose higher fees on sweepstakes machines operating within their jurisdiction. In March, Town Manager Sam Greenwood said that sweepstakes machines exploded throughout the town after operators discovered a loophole in the sweepstakes ban the General Assembly passed in 2010. Excluding the town’s recent application from a potential sweepstakes operator, the path on U.S. 441 to Franklin’s city limits had seen a gradual uptick in sweepstakes machines.

On Tuesday, Greenwood stated that while he anticipates yet another court battle before any final ruling is made, in the meantime, the town won't see any substantial lost in revenue due to the newest ban. "We didn't count the money from the sweepstakes machines in our budget, so not getting it won't leave us in a hole," said Greenwood. "The revenue we received from taxes on the machines we used for one time costs that we knew were not going to be recurring."

Franklin has three parlors inside city limits, which generated $19,000 for the town.

Despite the financial impact that municipalities have seen from taxes on the establishments, the Supreme Court's ruling focused on the adverse impacts of the businesses. “The interest in combating the social ills of gambling and gambling-like activities is unrelated to the suppression of free expression,” Hudson wrote. “The restriction imposed here is no greater than necessary because the statute burdens only sweepstakes conducted in a manner that encourages repeated, addictive, gambling-like play through the video display; the statute does not burden or ban any video games outside this context of sweepstakes operations.”

On Tuesday, Senator Davis was on his way back to Franklin after meeting with the Eastern Band of Cherokee Indians on several matters. According to Davis, the Tribe was glad that the Supreme Court passed the law because of the effect the sweepstakes machines have had on the casino located on the Reservation.

Davis stated that now the state must wait for Attorney General Roy Cooper to sort out what is going to happen with law enforcement agencies, as well as what appeals are available to sweepstakes owners. Since the decision on Friday, Davis said that he had heard rumors that Henderson County has already shut down establishments and that Swain County was in the process of closing down two of the businesses there.

Cooper released a statement Friday, saying, “I stood with law enforcement to push for a ban on this kind of gambling and our lawyers have argued for years for the right to enforce it. The Supreme Court got this one right.”

Macon County Board of Commissioner Chairman Kevin Corbin said that he understood both sides of the argument. “A lot of people are beginning to not want the establishments because of the gambling aspect and negative attention they bring,” said Corbin. “But I am sure that those who run it as a business will be hurt by the ruling. While I have no problem with free enterprise, I am glad that we now have a court ruling to give us something to follow.”

Macon County has joined counties across the state who have pushed for reform in the sweepstakes business. Corbin, along with the rest of the board have worked with state legislators to either give counties control on regulating the establishment, or banning them all together. According to Macon County Planner Matt Mason, 11 sweepstakes establishments exist within a nine and a half mile stretch on the Georgia Road. Mason noted that there are four or five others spread out in the county and one operating in Highlands.

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