One of the industry's biggest players was toppled this week when about 50 people were arrested in a handful of states, many of them charged with racketeering and conspiracy, authorities said. They were all linked to Allied Veterans of the World, a veterans charity accused of masking a $300 million illegal gambling ring.
Allied Veterans had about 50 locations, but by some estimates there are 1,000 such storefronts across Florida. These so-called Internet cafes, which authorities said are actually small casinos with slot machine-style games, have mushroomed in Ohio, South Carolina, North Carolina and elsewhere.
"I'm thoroughly convinced they are illegal in every state in the union," said David Stewart, a Washington lawyer who works for the casino industry's main lobbying group, the American Gaming Association.
He compared the parlors to kudzu, a fast-growing invasive vine. "They grow when people aren't paying attention."
The scandal brought down Florida's lieutenant governor, who was questioned in the probe but not charged. Authorities said charity leaders spent very little on veterans and lavished millions on themselves, buying boats, beachfront condos and Maseratis, Ferraris and Porsches.
An Associated Press review of the key players behind the charity showed they pumped more than $1 million into the campaign accounts of Florida politicians who had the power to regulate or put them out of business.
The businesses in Florida and elsewhere often operate in a gray area. The game makers argue they are legal sweepstakes because there's a predetermined number of winners, similar to a McDonald's Monopoly game or Coca-Cola's cap contest.
The alleged ringleader, the charity's attorney Kelly Mathis, wrote opinion pieces and argued before local governments the games were legal.
To label these businesses as strip mall casinos "is an unfair and inaccurate characterization of these businesses," Mathis wrote to tcpalm.com in 2011.
He said many customers don't have Internet at home and pay bills, prepare resumes and check email there.
"The sweepstakes simply is a marketing tool used to promote the Internet time and telephone time purchased at these cafes, the same type of sweepstakes offered at many checkout counters of large retailers who ask you to go online to complete a survey and the chance to win thousands in gift cards for that retailer," he wrote.
Authorities said the "Internet cafe" was set up like this: Customers buy Internet or phone time on a card and can check email and surf the Web on any number of computers. But instead of doing that, customers play games such as "Captain Cash" and ''Lucky Shamrocks" and players are encouraged to spend more to win more, investigators said.
Marc Dunbar, a Tallahassee attorney, law professor and lobbyist for horse tracks has urged state legislators to shut these businesses down.
Dunbar said then-Florida Attorney General Bill McCollum "punted" on the issue when he ruled in 2007 that they should be regulated by local law enforcement and county commissions. About that time, the games began to explode across the state.
"The closer you get to the local level for the regulation of gaming, the less you are able to keep it under control," Dunbar said.
In Florida, the Department of Agriculture is tasked with regulating sweepstakes if the payout is over $5,000, though many keep it under that amount.
In 2007, Miriam Wilkinson, the then-assistant director of consumer services at the Florida ag agency, wrote a piece for the legal journal Gaming Law Review. She described a prepaid vending card machine that had a game and said it fit the definition of a promotion under state law.
"Should the use of devices such as Freespin/Freedraw succeed within the context of allowable game promotions, this could indicate an increasing level of comfort with and tolerance for recreational gaming devices in Florida," Wilkinson wrote.
Wilkinson left that job when current ag commissioner Adam Putnam took office in 2011. She now works for the firm owned by Mathis, the alleged mastermind.
A phone call to her office was not returned and a home listing was disconnected. She was not charged with any wrongdoing this week. Mathis was in jail Friday afternoon on $200,000 bail.
Putnam, the new ag commissioner, has been a vocal opponent of these businesses.
"Based on a number of concerns related to decisions made by the Division of Consumer Services, and on the recommendation of my transition team, we replaced the leadership of that division, including Ms. Wilkinson," Putnam said.
Since the arrests, Florida lawmakers have quickened action to ban the games. A House committee overwhelmingly approved a bill approved it Friday.
Other states have also cracked down.
In South Carolina, a bill specifying that sweepstakes machines are illegal gambling passed the Senate and is up for debate Tuesday in the House. State Law Enforcement Division Chief Mark Keel said the law would make it clear to local judges that the machines are illegal. Magistrates have issued conflicting rulings.
South Carolina banned video gambling in 2000.
North Carolina legislators spent the past several years trying to rid the state of video sweepstakes games that popped up after a ban on video poker machines in 2007. Other lawmakers, with the backing of sweepstakes operators, filed bills that would regulate and heavily tax the machines. Those bills saw little movement.
That state's Supreme Court banned sweepstakes machines in December.
In Ohio, a measure that would essentially put them out of business cleared the House on Wednesday. The state has more than 800 of storefront sweepstakes parlors, second only to Florida, according to Ohio officials who have argued that the businesses are funding criminal enterprises.
Associated Press researcher Rhonda Shafner in New York and AP writers Seanna Adcox in Columbia, S.C.; Curt Anderson in Miami; Gary Robertson in Raleigh, N.C. and John Seewer in Toledo, Ohio, contributed to this report.
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