The legality of video gambling in North Carolina in the form of sweepstakes machines may soon go before the state Supreme Court. This comes after a divided panel of the state’s second highest court found a recently passed law that aimed to outlaw the machines an unconstitutional violation of free-speech rights.
In July 2010, the General Assembly passed House Bill 80, codified as N.C. General Statue § 14-306.4, which prohibited any sweepstakes utilizing an “entertaining display.” The state already had banned video poker; the bill intended to ban its successor, sweepstakes machines. Instead of being a game of chance, sweepstakes parlors offered the chance to redeem entries with predetermined results on video screens featuring games. Sweepstakes entries typically were tied to the purchase of another product, such as Internet time or prepaid phone cards. One could, however, enter by mail at no charge.
A number of companies offering sweepstakes machines went to court to challenge the constitutionality of the law. Superior Judge John O. Craig III held a portion of the law was unconstitutionally vague.
Both sides appealed his ruling, bringing the issue before the Court of Appeals.
“We agree with plaintiffs and conclude that the entirety of N.C. Gen. Stat. § 14-306.4 is an unconstitutionally overbroad regulation of free speech,” wrote Judge Ann Marie Calabria, striking down the law in its entirety.
The state argued that the law regulated conduct, not speech. The appeals court agreed that this is what the law tried to do, but that the “broad manner in which the statute attempt[ed] to regulate this conduct is problematic.”
Calabria wrote that the law allowed anyone to play the companies’ video games as long as the machines weren’t used to promote or conduct a sweepstakes. The companies also could conduct their sweepstakes legally as long as they didn’t notify winners on an “entertaining display” on a video screen. Thus, Calabria noted, what the law criminalized was a specific method of disseminating sweepstakes results.
The U.S. Supreme Court has recently ruled both that “the creation and dissemination of information are speech within the meaning of the First Amendment” and that video games are entitled to First Amendment protections.
“In light of these holdings, banning the dissemination of sweepstakes results through entertaining displays cannot be characterized as merely a regulation of conduct,” wrote Calabria for the appeals court.
“Instead, that portion of N.C. Gen. Stat. § 14-306.4 which forbids ‘the reveal of a prize’ by means of an entertaining display directly regulates protected speech under the First Amendment.”
The appeals court also found the law to be overly broad as it did not put a limit on the definition of what constituted an “entertaining display.” Instead, the statue listed eight examples of what constituted an “entertaining display” plus a catchall inclusion for “any other video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes.
It’s the “any other video game” clause that Craig had found unconstitutional. The appeals court found that Craig was on the right track but had not gone far enough.
“The examples listed … do not limit the definition of entertaining display, and thus, the statute ultimately bans all ‘visual information … that takes the form of actual … or simulated game play,’” the court said.
“This definition necessarily encompasses all forms of video games, from the simplest simulation to a much more complex game requiring substantial amounts of interactive game play by the player, and thus, operates as a categorical ban on all video games for the purposes of communicating a sweepstakes result. As a result, regardless of the types of games the General Assembly intended to regulate, the statute is constitutionally overbroad, as its plain language ‘sweeps within its ambit … the practice of a protected constitutional right.’”
Judge Robert C. Hunter dissented from the majority, finding that the law regulated conduct, not speech.
“Here, one of the legislature’s stated purposes in enacting N.C. Gen. Stat. § 14-306.4 was to protect the morals of the inhabitants of our state from the ‘vice and dissipation’ that is brought about by the ‘repeated play’ of sweepstakes due to the use of ‘simulated game play,’ similar to video poker, ‘even when [such game play is] allegedly used as a marketing technique,’” wrote Hunter.
“The protection of the morals of our state’s inhabitants is a legitimate government purpose. I conclude the state’s prohibition of the use of ‘entertaining displays’ that use actual or simulated game play for the promotion and conducting of sweepstakes is rationally related to this legitimate governmental purpose.
Because of Hunter’s dissent, the N.C. Supreme Court is required to hear the case should the state choose to appeal. Noelle Talley, a spokeswoman for Attorney General Roy Cooper, said the state agrees with the dissent and will appeal.
The case is Hest Technologies, Inc. v State of North Carolina, (11-459).
Michael Lowrey is an associate editor of Carolina Journal.