Is Gambling at Internet Cafes Legal?
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The answer is almost certainly not, because any fair analysis of what is going on shows that it is gambling, which means that if it's not specifically licensed by the state, it is illegal. However, the laws that internet cafes are violating are fairly technical and require a case-by-case analysis, so many internet cafes can operate for extended periods before any action is taken.
An internet cafe (also called a "cybercafe") is a store where you can buy access to and use the internet. Though once ubiquitous, before Starbucks and most other chain restaurants or coffee shops started providing free wifi, they are still around in large part because they have morphed in many cases into a form of sweepstakes gambling. Cybercafé gambling occurs where a customer purchases Internet access or pre-paid phone cards and receives free sweepstakes tickets which are redeemed on the café’s computers. It is seen by the courts in many states as illegal gambling operations, not as legitimate business promotional activities.
How gambling works at an internet cafe
“Gambling” at internet cafes works like this: you buy online minutes or pre-paid phone cards. For every certain number of minutes you buy, you get a "free" entry to a sweepstakes. If you buy enough minutes, you can get dozens or even hundreds of free entries. You then go to the internet cafe's computers, which have pre-installed software in which you access to "reveal" whether the sweepstakes "tickets" you received won anything. The “reveal” is often accompanied by a display and sound effects which mimic the appearance of some casino game, most commonly slot and video poker machines. Winnings are in the form of "points" which are redeemable for cash, just as the chips at a casino are redeemable for cash.
Internet cafe operators claim that their sweepstakes are legal "promotional" sweepstakes, comparable to McDonald's well-known "Monopoly" sweepstakes, where your soft drink cups or food containers come with a "peel-and-reveal" sticker that you remove to see if you won free food or maybe a chance at some sort of grand prize. This kind of instant win sweepstakes is generally legal as a marketing or promotional tool for the business offering it. Instead of free soda or coffee, the internet café offers “promotional” sweepstakes in exchange for buying internet access or phone time.
However, there's a reason that promotional sweepstakes are legal: they don't meet the definition of gambling and so are not illegal. There are three elements which all must exist for an activity to constitute gambling: 1) prize; 2) consideration; and 3) chance. Promotional sweepstakes clearly have a "prize": whatever customers can win. They have "chance," since it is random (that is, not under your control, as the player) whether you get a winning entry or not. But they lack "consideration," or something paid for the chance to win. That's because customers don't pay anything for their chance to win. If a burger, say, normally costs $4.00, it still costs $4.00 when the sweepstakes is being run--there is no additional cost to enter the sweepstakes. In other words, you pay $4.00 for a burger and you get a burger worth $4.00; that burger happens to come with a sweepstakes entry, but you received that entry for free, as a promotion or "thank you" from the business, without paying even a single cent extra for it.
Without consideration, there is no gambling in the law's eyes. Someone can give you a chance to win a prize or money for free and with no obligation, without you doing or paying anything for it, and that is legal. States tend to also require that people be able to enter and receive at least a limited number of chances to win without even buying the burger, such as writing into the company (or nowadays, emailing, texting, or registering on the company's website) for sweepstakes chances. A very common example is the nation's best-known sweepstakes, the Publishers Clearing House Sweepstakes, which you can enter with "no purchase necessary".
Internet cafe operators claim that their sweepstakes are legitimate business marketing promotions where a customer gets free entries with their purchase of internet minutes. This argument often does not work, and many states consider these sweepstakes illegal gambling, for the following reasons:
(1) If the minutes are sold for more than the per-minute cost (plus a slight, reasonable profit) it takes to provide them, that surplus cost is seen as consideration, or something paid to gamble. For example, say that you could buy a data plan whose cost works out to $0.08 per minute. If an internet cafe sells its minutes for $0.15 per minute, you're paying $0.7 more per minute than you need to. That $0.07 extra cost per minute is seen as payment ("consideration") for the sweepstakes entries.
(2) If people buy many more minutes than they actually use--or reasonably could use--then the cost of the surplus minutes can be seen as the consideration for gambling, since it is money not, as a practical matter, paid for anything other than the sweepstakes chances. For example, if the average internet cafe customer is there for two hours per session, or 120 minutes, but each time buys 1,000 minutes, they are paying for 880 minutes they don't need, don't use, and don't get anything of value. Not receiving anything of value for those 880 minutes, the price paid for them can be viewed as consideration for the sweepstakes, making the sweepstakes gambling.
To sum it up
There is no national rule or law on cybercafé gambling. Since gambling is primarily regulated at the state level, most state courts that have considered the matter have determined that if customers pay more per minute than the going rate for internet access, or regularly buy significantly more minutes than they reasonably can use, then the internet cafe operator received consideration and the sweepstakes are in fact gambling.
However, because states have not outlawed internet cafes or selling online access in such venues (though individual counties in some state, such as St. Johns County, Florida, may refuse to license these businesses) and also allow promotional sweepstakes that meet the state's regulations on the subject, enforcing the gambling laws against internet cafes is a case-by-case endeavor. The authorities have to gather evidence, often from undercover police playing the cafe's sweepstakes, about how much is paid for the minutes, how many minutes patrons typically buy, how many minutes are in fact used by customers, etc., then evaluate whether they believe those facts show that this internet cafe is violating the law and, if the authorities believe it is, then bring an illegal gambling case against the cafe.
This means that internet cafes can--as long as the county in which they are located will license internet cafes as businesses--operate until and unless they appear on the authorities' radar screen and the authorities take action to shut them down.