Monday, Nov. 05, 2012

Holly Springs boxes out sweepstakes parlors

Town rules limit gaming to industrial zone

Online sweepstakes machines are legal here, as long as they’re kept at, say, the dump or the quarry.

The town’s “most intense heavy industrial” zone is not exactly the ideal place to make money off a flashy video gambling game, so it’s not surprising that several local gas stations are flouting the ordinance, according to town staff, with illegally placed consoles.

Now the town’s grinding through the legal process to rein in the practice, and the results have been slow to materialize.

One business, the Valero gas station on North Main Street, has tried to work around the rules by rezoning itself to Industry & Technology, the only local zone where the gaming computers are allowed. The proposal was dead on arrival – no surprise, given that the IT zone is more appropriate for “smokestack style industry,” according to Town Planner Jeff Jones.

“They basically put it in a zoning where it’s impossible to actually have the machine, whereas the state and the county have said that those machines are OK,” said Gaurang Gala, a manager of the Valero and eight other gas stations around the state.

Mayor Dick Sears acknowledged that the town’s zoning rules leave no desirable legal place to put sweepstakes machines, which are often found in bars, Internet parlors or gas stations.

“I understand, by law, we have to have a place where they’re allowed,” Sears said. “There are three different (potential) locations, none of which are what they’re looking for.”

The town of Apex similarly restricts electronic gaming machines to its light industrial district, an offer that no businesses have taken. (Seven machines in town were “grandfathered in” when the rules changed in 2010.)

The town of Cary is considering rules that would allow sweepstakes machines in its general commercial district, though the owners would need to get permits and operate at least 500 feet from residences and other “electronic gaming operations.”

In Holly Springs, the Valero manager believes he could make a legal case that the town’s rules are over-restrictive. Whether he’d succeed is not clear.

David Owens, an expert on North Carolina land-use rules, said the state’s courts and legislature haven’t offered a definitive answer to the question of whether a municipality can effectively ban a use like electronic gaming.

Towns “can certainly have very restrictive location restrictions, but an actual or practical total exclusion may be suspect,” said Owens, of UNC’s School of Government.

The professor was speaking about the law in general, but he has noted in his writings on video sweepstakes that a “total jurisdiction-wide ban” may be possible in some circumstances, depending on whether a court accepted the town’s rationale for the limits.

Legal thorn

Sweepstakes games have long been a thorn in the side of rulemakers: They offer points redeemable for cash, and many have slot machine-style interfaces, but their technical workings have helped them avoid regulation.

The N.C. Court of Appeals in March overturned a state ban on video sweepstakes. An appeal before the N.C. Supreme Court is pending. But, for now, the games are legal statewide.

In Holly Springs, the local government is entering a new phase in its push to rid the town of illegally placed consoles.

The town first issued a warning to Valero in June, but the business paused the violation by filing to rezone the land, Jones said. Since that effort failed, the town could start fining the business $50 a day per machine, though it sees cash penalties as a last resort.

Gala, the Valero manager, said he would move the games this week, which have been provided by a third-party company since he and his family bought the store in August 2010. The loss of $3,000 to $4,000 in monthly revenue from the four computers could cripple the business, he said.

“It affects my revenue significantly, to the point where I’m thinking of selling the site,” Gala said.

The town also is preparing to send notices of violation to Sunset Mart and the Exxon on North Main Street.

Bharat Patel, owner of Sunset Mart, said he would listen to the town.

“If they say it is illegal, I will take it out,” he said. “If you want to do business in a town, you have to abide by the rules.”

And those rules don’t leave a lot of room for sweepstakes parlors. The mayor said he generally opposes online sweepstakes because they encourage “a lot of people to spend money, perhaps waste money. ... I’m just not a fan of the machines at all.”

For his part, Gala thinks he has a legal case against the town, but he believes a lawsuit would be too costly and time consuming.

He’ll likely remove the machines, he said, but he proposes another route: “If the state was smart, they would come in, legalize it, regulate it and tax it,” he said. “Tax me at 30 percent or 40 percent, have the lottery run it, and have more money go to education.”

Correction: Updated Nov. 5 to reflect that the town of Cary is considering but hasn’t implemented rules allowing sweepstakes machines in some areas.