Get lucky at ‘sweepstakes cafe’

Illegal gambling operations masquerading as Internet cafes are springing up in storefront strip malls across the state according to the California Bureau of Gambling Control – and Gilroy is no exception.
A recent advisory from the Bureau advises law enforcement agencies across California to be on the lookout for businesses such as Liberty PCS at 1325 First St. While the company’s agent, G. Scott Emblidge, described the operation as “strictly retail” according to Revenue Officer Irma Navarro from the City’s Finance Department, the venue is touting more than cheap web surfing, phone cards and mobile phone accessories.
On a recent Thursday morning, the store was alive with the sounds of people chancing their luck.
“Put $60 on it,” said one woman as she handed the cashier her phone card.
Credit added, she returned to her computer terminal in the cafe and resumed playing one of the roughly 60 games offered. Men in cowboy hats rubbed shoulders with local housewives and everyone berated the machines for not paying out – prizes range from $1 to $4,000 – on games such as “Double Down Keno” and “The Devil’s 7s.”
The process at Liberty PCS is straightforward. Customers buy phone cards or other phone-related merchandise and receive 100 sweepstake “credits” or “entries” for every dollar they spend. The credits can then be used to play casino-style games on computers in the cafe and staff members redeem winnings in cash. The “promotional sweepstake” methods are the same as buying a drink in McDonald’s and winning a prize which is therefore legal, according to the cashier.
“People can win big,” laughed an employee, who declined to give her name, when asked what the attraction was. “The biggest was $1,800 since I’ve been working here.”
That business attraction isn’t exactly what Mayor Don Gage has in mind for Gilroy’s economic profile. The mayor first heard about Liberty PCS last week in a letter written by a worried constituent.
“I turned it over to (City Administrator) Tom Haglund and he turned it over to the police,” Gage said.
The “retail” store – owned by a man named Alfred Byrne with a Vallejo-based corporate office – was shut down for one day in February by the City’s code enforcement officers according to Kristi Abrams, Gilroy’s community development director. Liberty PCS re-opened a day later after the City’s investigation found the store to be compliant with its business license. The enterprise now appears to be flourishing from 10 a.m. to 2 a.m. every day.
On Monday, the place was buzzing with roughly 30 people and no one appeared to be making use of the Internet, fax or photocopier services that the business provides. In fact, with armed security manning the front door, the only thing missing from the Las Vegas vibe was a smoky atmosphere and a cold beer.
Whether a disapproving mayor and one upset resident prompt additional police interference remains unclear.
Located in the Hecker Pass Plaza Shopping Center a few doors down from where the now-defunct Medileaf medical marijuana dispensary once operated, Liberty PCS belongs to a growing pool of so-called “sweepstake cafes” that have found a loophole in state gambling laws and certain local business license codes.
Unlike licensed gambling parlors, businesses such as Liberty PCS register as retail operations since no money is placed directly into the machines, allowing the cafes to operate with impunity from state gambling oversight.
GPD Chief Denise Turner is fully aware of Liberty PCS, but has decided there is no criminality taking place.
“At first there were some legal questions,” Turner said. “But it’s my understanding that they are compliant.”
Regardless, Mayor Gage is adamant about the City taking action if Liberty PCS is using smoke and mirrors to avoid having to apply for a gambling parlor license – which is more stringent, is $190 more than the regular $235 business license/inspection costs and requires a police-regulated business review.
Liberty PCS customers like Ernest Hightower don’t understand the brouhaha building over “sweepstake cafes.”
“What’s the difference in me going and buying a scratchcard?” Hightower queried.
Gage scoffed at that logic.
“The lotto is a state program,” he observed. “You can’t just set up your own lotto.”
Another Liberty PCS customer, John Williams of Gilroy, echoed Hightower.
“Cardrooms are boring,” he said, explaining why he prefers to patronize Liberty PCS over Garlic City Casino on Monterey Street, which doesn’t have video games that mimic conventional slot machines. “This is entertaining. I’m playing a video game.”
To Williams, having a nice, air-conditioned place with no cigarette smoke is one of the attractions of Liberty PCS. Having it so close to his house in Gilroy was another plus.
“When you run out of money here you can walk home,” he laughed.
Video games or not, going into an Internet cafe and coming out $1,800 richer sounds like gambling to the California Bureau of Gambling Control, which calls the rising popularity of “sweepstake cafes” a clear violation of state gambling laws that regulate “any slot or card machine.”
As Gage sees it, misrepresenting itself as a business could lead to Liberty PCS ending up in court. Another non-criminal case option is to remove Liberty PCS by legislative means, meaning “we can revoke their business license,” he observed.
That may prove cumbersome if the City’s history with the now-defunct Medileaf medical marijuana dispensary sets any precedence. Prying Medileaf out of the same strip mall required the City to rewrite its local zoning ordinance – a task that cost taxpayers $235,000 in fees for the City’s legal firm, Berliner Cohen.
Liberty PCS’s business license application to the City of Gilroy at the end of January stated that the business only engages in selling telecommunication products and accessories. There were no red flags in the license application, explained City Revenue Officer Irma Navarro.
“The Planning Department signed it off based on zoning,” she said. “The Building Department found no modifications.”
The Gilroy Fire Department was the only City entity that physically inspected the premises at the time of the business application, and they reported no issues.
The California Bureau of Gambling Control defines a “gambling” venue as one that operates with three components: Consideration, price and chance. Claiming to offer the same kind of sweepstakes touted at fast food restaurants cuts no ice with state gambling agents, who argue that business like Liberty PCS “try to hide behind the sweepstake concept,” said an agent who refused to be identified.
The Bureau has assisted in the investigations of roughly 30 to 50 sweepstakes cafes that have popped up in California recently, but confirmed that Liberty PCS is not one of them. Local law enforcement agencies ask for advice and assistance if they require it, said the Bureau’s agent, who believes there are hundreds of these types of businesses throughout the state.
Still, the Bureau may have jumped the gun in its evaluation of so-called “Internet cafes,” according to Harry Frank, manager of Gilroy’s Liberty PCS.
Lots of people are confused, explained Frank, because they don’t understand that customers are only playing a video game that visualizes a predetermined win.
Frank includes the Attorney General in the list of people befuddled by the difference between “promotional sweepstakes” and gambling. He doesn’t rule out a softening of the Bureau’s stance in the future as more information comes out, however.
“It’s possible,” said Frank.