HomeMy WebLinkAbout4.2 Internet Sweepstakes Cafes
STAFF REPORT CITY CLERK
File # 585-50
CITY COUNCIL
DATE:January 21, 2014
TO:
Honorable Mayor and City Councilmembers
FROM:
Christopher L. Foss, Acting City Manager
SUBJECT:
Adoption of Ordinance Adding Chapter 5.50 to the Dublin Municipal Code
Relating to Internet Sweepstakes Cafes
Prepared by John Bakker, City Attorney
EXECUTIVE SUMMARY:
On October 16, 2012, the City Council adopted an urgency ordinance adding Chapter 5.50
prohibiting Internet Sweepstakes Cafes in the City of Dublin. Internet Sweepstakes Cafes are
businesses that allow patrons to play games on computers (or other device) in the hopes of
winning prizes. At the same time, the City Council introduced a regular, non-urgency ordinance
adding Chapter 5.50 to the Dublin Municipal Code. The regular ordinance, the purpose of which
is to protect the ordinance from challenge based on the validity of the urgency findings, was not
promptly presented to the City Council for adoption. The City Council is now being asked to
adopt the non-urgency ordinance.
FINANCIAL IMPACT:
None.
RECOMMENDATION:
Staff recommends that the City Council waive the reading and adopt Ordinance adding Chapter
5.50 to the Dublin Municipal Code relating to Internet Sweepstakes Cafes.
Submitted By Reviewed By
City Attorney Acting Assistant City Manager
DESCRIPTION:
In 2012, the City received inquiries regarding the establishment and operation of an Internet
cafe that would conduct a “sweepstakes” program whereby people may play games on the
computers at the cafe in the hopes of winning prizes. Similar businesses have been opening
throughout the state, and some have come under investigation for being illegal gambling
operations. The following description of the activities of an Internet sweepstakes cafe is based
ITEM NO. 4.2
Page 1 of 3
on information provided by the party that submitted the inquiry, as well as Staff’s review of news
accounts addressing similar businesses.
Internet sweepstakes cafes purport to sell their customers time on computers that are
connected to the Internet. Based on the amount of computer time purchased, customers are
provided a certain number of credits to play games on the computers. These games hold out
the possibility of winning cash prizes. Frequently, the games have the appearance of Vegas-
style games of chance, such as slot machines, thus creating a casino-like atmosphere at
Internet sweepstakes cafes. The operators of these establishments assert that although the
games appear to be gambling games, which are highly restricted and regulated under state law,
they are actually “sweepstakes” that are provided as a means of promoting the businesses of
renting computer time in compliance with state law requirements relating to the operation of
sweepstakes. That said, it appears that the resemblance of the games to casino-style games,
and the possibility of winning cash prizes by playing them is a driving factor for the customers
that patronize Internet sweepstakes cafes.
Business and Professions Code defines “sweepstakes” to mean “any procedure for the
distribution of anything of value by lot or by chance that is not unlawful under other provisions of
law including, but not limited to, the provisions of Section 320 of the Penal Code.” (Bus. and
Prof. Code § 17539.5(a)(12).) Penal Code section 320 relates to commercial lotteries, which
are illegal under State law. State law also prohibits commercially-operated banked or
percentage games and “gambling machines,” and highly restricts and regulates other gambling
operations.
Under State law, a lottery is comprised of three elements: a prize, payment of consideration to
be eligible to win the prize, and distribution of the prize by chance. Though the definition of
“sweepstakes” is not particularly illuminating, case law and other legal sources establish that a
sweepstakes is essentially a lottery in which no purchase or payment is required to play the
game. There are a number of provisions in the Business and Professions Code that regulate
the conduct of sweepstakes, including a requirement that an entry submitted without a purchase
or payment will be treated the same as an entry submitted with payment. Sweepstakes
operators must also comply with certain noticing and advertisement requirements, including the
publication of the odds of winning the sweepstakes.
Operators of Internet sweepstakes cafes argue that they comply with these requirements. That
said, the number of entries given to a paying customer will typically greatly outnumber the
number of entries that will be given to a non-paying participant in the game. There have been at
least a few cases in the state where an Internet sweepstakes cafe or similar operation has been
deemed to be an illegal gambling operation, rather than the operator of a legitimate
sweepstakes program.
Due to the atmospheric similarities between a casino and an Internet sweepstakes cafe and the
presence of large amounts of currency on the premises, the cafes have the same potential to
generate deleterious effects that legal gambling operations generate, such as check and credit
card fraud, loan sharking, robbery, and money laundering. Moreover, Internet sweepstakes
cafes should be closely regulated to ensure that they comply with State law requirements and
that they do not cross the line between a legal sweepstakes program and an illegal lottery or
gambling establishment. Absent such regulation, the public would be unable to have confidence
and trust in the integrity of the sweepstakes program. That said, adequate regulation and
monitoring of the type of sweepstakes programs offered by Internet sweepstakes cafes exceeds
the City’s current financial and technical resources.
Page 2 of 3
At the October 16, 2012, the City Council considered both an urgency ordinance and a regular
ordinance. The mechanics of this “dual ordinance” procedure ensured that only those charged
with violating the ordinance during the time between the effective date of the urgency ordinance
and the non-urgency ordinance could challenge the urgency findings. It is the common, prudent
practice of the City to replace urgency ordinances with non-urgency ordinances in this manner.
The City Council adopted the urgency ordinance and introduced the non-urgency ordinance,
and the urgency ordinance became immediately effective; however, Staff did not immediately
present the non-urgency ordinance for adoption, and the City Council is being asked to adopt it
now. If adopted, the non-urgency ordinance will supersede the urgency ordinance.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
None.
ATTACHMENTS:
1. Proposed Ordinance Adding Chapter 5.50 to the Dublin Municipal
Code relating to Internet Sweepstakes Cafes
Page 3 of 3
ORDINANCE NO. XX - 14
AN ORDINANCE OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
* * * * * * * * * * *
ADDING CHAPTER 5.50 TO THE DUBLIN MUNICIPAL CODE
RELATING TO INTERNET SWEEPSTAKES CAFES
WHEREAS
, pursuant to Article XI, Section 7 of the California Constitution, the City may make
and enforce within its limits all local police, sanitary, and other ordinances and regulations not in
conflict with general laws; and
WHEREAS
, the City has received inquiries regarding the establishment, and operation of an
internet sweepstakes cafe (as defined herein) within the City; and
WHEREAS
, internet sweepstakes cafes are operations that rent time on computer terminals
and in conjunction therewith provide free entries into sweepstakes, with prizes typically, but not
always, distributed based on the results of customers’ operation of games on the computer terminals;
and
WHEREAS,
operators of internet sweepstakes cafes assert that their operations do not violate
state gambling laws because customers pay for the right to use computer terminals and not for the
privilege of entering the sweepstakes; and
WHEREAS,
even if the operations of internet sweepstakes cafes do not constitute illegal
gambling under state law, customers of internet sweepstakes cafes experience an atmosphere that is
similar to the experience that is offered on slot machines and other electronic gambling devices
legally operated in the State of Nevada, and the operations therefore have the same potential to
generate deleterious effects that legal gambling operations do; and
WHEREAS,
it is within the City’s police power authority to regulate gambling activities that are
not regulated by state law; and
WHEREAS,
the City Council finds that internet sweepstakes cafes, like legal gambling
operations, must be appropriately regulated to ensure both that the internet sweepstakes cafes do not
cross the line between a legal sweepstakes program and an illegal lottery or gambling establishment
and that the public can have confidence and trust in the credibility and integrity of the operations; and
WHEREAS
, the City Council finds that the development, establishment and operation of
internet sweepstakes cafes without adequate regulation has the potential to result in associated crime
such as check and credit card fraud, loan sharking, robbery, and money laundering; and
WHEREAS,
City Council further finds that the City at present does not have the financial and
technical resources to appropriately regulate internet sweepstakes cafes; and
WHEREAS,
the City Council believes, for all the foregoing reasons, that it is in the public
interest to prohibit the operation internet sweepstakes cafes in the City.
Page 1 of 3
Ord. No XX-14, Adopted 1/21/14, Item No. XX
NOW, THEREFORE,the City Council of the City of Dublin does hereby ordain as follows:
Section 1.
Chapter 5.50 is hereby added to the Dublin Municipal Code to read as follows:
Chapter 5.50
INTERNET SWEEPSTAKES CAFES
Sections:
5.50.010 Definitions.
5.50.020 Prohibitions.
5.50.030 Violations.
5.50.040 Exceptions.
5.50.010 Definitions
A.
“Computerized sweepstakes device” shall mean any computer, machine, game or
apparatus which upon insertion of a coin, token, access number, magnetic card or similar
object, or upon payment of anything of value, may be operated by the public generally for use
in a contest of skill, entertainment, amusement or chance whether or not registering a score,
and which provides the user with a chance to win anything of value or any cash payout or
anything that could be redeemed, directly or indirectly for any cash payout and which is not
regulated as gambling, a lottery or as a gaming device under state or local law.
B.
“Internet sweepstakes cafe" shall mean any premises upon which a computerized
sweepstakes device is located for the use or entertainment of the public, whether or not such
premises has other business purposes of any nature whatsoever.
5.50.020 Prohibitions.
A.
Internet sweepstakes cafes are prohibited within the City.
B.
It is unlawful for any person toestablish, manage or otherwise engage in the business
of operating an internet sweepstakes cafe.
C.
It is unlawful for any person, either as owner, lessee, agent, employee, mortgagor, or
otherwise, to knowingly permit any room, building or premises, or any furniture, fixtures,
equipment or other article or anything of value to be used in the City for or in connection with
any internet sweepstakes cafe.
D.
The operation, conduct or maintenance of an internet sweepstakes cafe is a public
nuisance.
5.50.030 Violations.
Any person violating, or causing or permitting to be violated, any of the provisions of this
Chapter shall be deemed guilty of a misdemeanor.
Page 2 of 3
Ord. No XX-14, Adopted 1/21/14, Item No. XX
5.50.040 Exceptions.
Nothing in this chapter includes or applies to any act which is made a public offense by any
section of the California Penal Code or by any other law of the state of California.
Section 2.
This Ordinance shall supersede any previously adopted urgency ordinance adding
Chapter 5.50 to the Dublin Municipal Code.
Section 3.
Severability. The provisions of this Ordinance are severable and if any provision,
clause, sentence, word or part thereof is held illegal, invalid, unconstitutional, or inapplicable to any
person or circumstances, such illegality, invalidity, unconstitutionality, or inapplicability shall not affect
or impair any of the remaining provisions, clauses, sentences, sections, words or parts thereof of the
ordinance or their applicability to other persons or circumstances.
Section 4.
Effective Date. This Ordinance shall take effect and be enforced thirty (30) days
following its adoption.
Section 5.
Posting. The City Clerk of the City of Dublin shall cause this Ordinance to be
posted in at least three (3) public places in the City of Dublin in accordance with Section 36933 of the
Government Code of the State of California.
PASSED, APPROVED AND ADOPTED
this 21st day of January, 2014, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
______________________________
Mayor
ATTEST:
_____________________________
City Clerk
Page 3 of 3
Ord. No XX-14, Adopted 1/21/14, Item No. XX