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Predetermined Outcome or Not, Sweepstakes and Slot Machines are Illegal under California Law

The California Supreme Court recently held that sweepstakes or slot machine “like” games used to promote internet cafes and phone card stores were illegal under the California Penal Code, even if the results are “predetermined.”  In so holding, the Court rejected claims that where the result or outcome of a game is determined before the player or customer starts playing, the game is not barred by California law. The Court further held the games were illegal, even if the player or customer could obtain his “result” without actually playing a game, and even if no purchase was required to play, because the outcome of the game was based on chance, rather than the skill.  

In People ex rel. Green v. Grewal (Cal., June 25, 2015, S217896) 2015 WL 3893494, the defendants owned internet cafes or stores selling pre-paid phone cards. In each case, a customer who purchased internet time or a phone card also received points based on the amount paid. The businesses promoted their products with sweepstakes giveaways implemented through software preloaded onto each computer terminal in the cafe or phone card store. Customers used the points they received from purchases to play casino type games, like video slot machines, to win prizes. For example, a customer who purchased an hour at an internet cafe for $10 might receive 100 points which could be used to play a computer game resembling a slot machine. Customers were not charged for internet or computer time while they played the games. As it turns out, many customers used only a portion of their paid computer time, if any at all, instead using all their time to play the games. The potential prize pool was determined by how many points a customer used on each game — generally, the more points, the higher the potential reward.  In each case, the result of the game was predetermined, that is, as soon as the customer purchased internet time (or a phone card) and was assigned “points,” the software system assigned the next available entry result to that customer.  The customer could choose the method of revealing the predetermined result  — either by viewing a card or a slot machine interface, or by simply hitting a reveal button that bypassed the interface altogether and simply revealed the result. In any case, the result was the same regardless of how the customer chose to reveal the result, which could not be changed no matter how the game was played (or not).  Non-paying customers could also play the games free of charge by either mailing in a request or signing a form in the store — although both occurrences were rare.

The Court held that regardless of the method of “revealing” the results, and irrespective of the “predetermined” result, such games were illegal under California law because they  (1) constituted devices that reward purchasers of usable products (in this case, internet cafe time or phone cards) with sweepstakes or game points, and (2) allowed purchasers to redeem sweepstakes or game points by playing games that award cash or other prizes of value, where the device (3) standing alone or used with other electronic or mechanical components, (4) when operated by insertion of an electronic key, account number, magnetic card or by any other means, (5) awards cash or other valuable prices to users, and (6) does so by arranging or prearranging winning sweepstakes entries in a manner that is unpredictable — i.e., not known — to the customer or user.

The decision has potentially far reaching implications for advertisers and their California clients. Although the Court did not rule on the matter, the defendants raised the propriety of similar “sweepstakes” games operated by well-known national brands, including McDonalds and Coca Cola. For example, McDonalds' Monopoly game could come under scrutiny because it contains some, if not all, of the elements of the illegal sweepstakes games, including: the game (1) rewards purchasers of usable products (McDonalds' food items), (2) with cash and other valuable prizes to users and (3) does so by arranging or prearranging winning entries in a manner that is unpredictable to the customer.