Death by regulation
12/11/2012Don't let the perfect become the enemy of the good: That’s the best you can say about the Ohio House’s latest effort to get rid of the Internet sweepstakes cafés that have sprung up all over the state.
The cafés sell prepaid phone cards or Internet time that customers can use to play Web-based games. Winning earns them more Internet time, as well as points that allow them to win money in sweepstakes. The winners are predetermined.
Few rules govern the cafés’ activities. They don’t face the same scrutiny — or pay the same taxes and fees — as casinos or race tracks that have slot machines.
That sounded a lot like unregulated, illegal gambling to Ohio’s top prosecutor, Attorney General Mike DeWine, who made closing the cafés a goal and intimated he was prepared to defend an outright ban. More recently, though, Mr. DeWine praised a bill sponsored by state Rep. Matt Huffman (R., Lima) and passed by the House that is intended to regulate the businesses out of existence.
Mr. Huffman’s original bill narrowed the definition of a sweepstakes to exclude Internet cafés. The substitute bill takes a simpler approach: It allows Web-based games at cafés, but removes the incentive to play by banning cash payouts and restricting other prizes to a value of $10.
The bill was rushed through the House in the hope that the Senate would act on it before the legislative session ends, probably this week. But the bill’s fate in the Senate is unclear.
Senate President Tom Niehaus (R., New Richmond) has said he tends to favor regulation rather than a ban. He was noncommittal about whether he’d support new rules that in effect ban the cafés.
Internet cafés divert money from churches and fraternal groups that host legal gambling such as bingo, are strictly regulated, and must give part of their proceeds to charity. The sweepstakes stores are mostly in poor neighborhoods, patronized by Ohioans who are least able to afford to throw away money.
Café owners argue that the games they run are no different from sweepstakes sponsored by companies such as McDonalds. They note that people who buy phone cards don’t have to play the Internet games. They warn that as many as 5,000 jobs would be lost if they close.
Opponents say there is no way to track the money that flows through sweepstakes cafés, several of which are accused of making illegal cash payouts. Law enforcement officials say storefront quasi-gambling operations attract crime.
This month, Mr. DeWine told a House committee hearing that poorly regulated Internet cafés could be used to launder money and are “ripe for organized crime.” The Ohio Fraternal Order of Police has warned that the gaming operations could become fronts for sex trafficking and other illegal activity.
Ohio voters did not endorse a gambling house on every street corner when they approved state constitutional amendments to create the Ohio Lottery, permit charitable bingo, and allow four full-fledged casinos with thousands of computerized slot machines to operate.
A ban on Internet cafés remains the preferable solution. But death by regulation is an acceptable alternative, worthy of Senate approval.