N.C. Gen. Stat. § 14-306.4 bans the operation of electronic machines to “[c]onduct a sweepstakes through the use of an entertaining display, including the entry process or the reveal of a prize.”[i] The statute defines “sweepstakes” as “any game, advertising scheme or plan, or other promotion, which, with or without payment of any consideration, a person may enter to win or become eligible to receive any prize, the determination of which is based upon chance.”[ii] “Entertaining display” can refer to any video game that is “not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes.”[iii]
The statute includes two popular types of games that have been the subject of recent legal controversies: 1) “fish table” arcade games in which players use a joystick to shoot at electronic fish on a tabletop screen, and 2) video slot machine-style sweepstakes games. The central question courts must consider regarding the legality of these games under N.C. Gen. Stat. § 14-306.4 is whether the game is predominantly won by chance or skill.[iv] The question is typically resolved through an extensive technical analysis of a particular game’s mechanics, but it is not just a technical question. It requires courts to consider the fundamental policy reasons why the legislature bans games of chance, and it illuminates further questions about the social impact these games tend to have on communities throughout North Carolina. Three recent cases illustrate the prolonged and complicated litigation required to answer the basic question of chance versus skill.
Fun Arcade v. City of Hickory, 891 S.E.2d 329 (N.C Ct. App. 2023)
Fun Arcade addressed the popular table video game, Ocean Fish King.[v] While the game appears to be a game of skill due to its joystick controls, the North Carolina Court of Appeals held Ocean Fish King is predominantly a game of chance and therefore illegal under § 14-306.4.[vi] An analysis of the game showed that players pay for virtual ammunition and use a joystick to aim at fish on the screen, but the number of shots required to destroy a fish is entirely random.[vii] The requisite number of shots can be anywhere between five and thirty shots, and there is no pattern for players to pick up on.[viii] An expert witness stated that “there was no specific strategy or advantage that a player could learn to receive a better outcome in the game.”[ix] The court concluded, “Since a player wins credits proportional to the number and type of fish destroyed, this game is predominantly one of chance, and any ‘skill and dexterity involved is essentially de minimis.’”[x]
Gift Surplus v. State ex. rel. Cooper, 868 S.E.2d 20 (N.C. 2022)
In Gift Surplus, the North Carolina Supreme Court held that an operator’s video slot machine game, even after several alterations to the game’s rules, was predominantly a game of chance and therefore illegal under § 14-306.4.[xi] In the original version of the game, three reels would spin and after the slots stopped, the player would have to “nudge” one slot into place by selecting an “up” or “down” arrow on one of the slots.[xii] The game was also programmed so that on 75% of turns, the player would win nothing.[xiii] In response to court proceedings prior to the 2022 final ruling, the game company altered the game’s settings so that retailers could program the game to allow for two “nudges” and award “a token prize of a few cents” on the 75% of turns that had previously yielded no payout.[xiv] The operator argued that these alterations diminished the element of chance and placed the game outside the scope of § 14.306.4.[xv]
The court disagreed, holding that the prizes were still determined by chance.[xvi] On the question of whether an additional “nudge” feature tipped the balance of the game from chance to skill, the court stated that skill and dexterity still had no more than a “de minimis role” in the new game.[xvii] Chance still predominated because chance determined “the relative winnings for which a player is able to play.”[xviii]
No Limit Games v. Sheriff of Robeson Cnty., 2024 N.C. App. LEXIS 1046
In late December 2024, the NC Court of Appeals held that an operator’s slot machine-style sweepstakes game was illegal, even after the operator had made significant alterations to the game in response to prior litigation. The decision reversed a Superior Court decision that had granted the plaintiff’s motion for a preliminary injunction against forced removal of the gaming kiosks.[xix] In No Limit Games, the Court of Appeals considered the alterations that had been made to the appellee’s games, including a “Follow Me” memory matching game. The base game resembled a video slot machine that included a “nudge” feature that allowed players to toggle the panels into a winning combination within a five-second time limit, and the “Follow Me” memory matching game was offered as a way for players to earn additional entries to play the base game.[xx]
The court reasoned that the prizes available to players in each entry were still determined by chance.[xxi] So even if players exercised some skill in playing the game, the players had no control over the prizes they were trying to win. Furthermore, the gameplay itself was optional. Once a player purchased entries, each entry was categorized as a “winner” or “loser,” and the “winner” entries were assigned prizes of randomly determined monetary value.[xxii] To reveal the prizes, the player could play the “nudge” video slot machine game or decline gameplay entirely and simply reveal the prizes associated with the winning entries.[xxiii] If there were no winning entries in the group of entries redeemed, the player could then play the “Follow Me” memory matching game, which—upon completion of fourteen rounds of the memory game—rewarded the player with additional sweepstakes entries equivalent to the amount of entries the player had just redeemed.[xxiv] Since players could redeem up to five hundred entries at a time, the “Follow Me” memory game was realistically only available when redeeming small numbers of entries. As a result, the skill-based memory feature was not enough to change the court’s holding of the overall character of the game. Moreover, research showed that players only completed an average of 6.7 rounds of the “Follow Me” game—less than half the total rounds required to complete the memory game and earn additional sweepstakes entries. The court deemed the “Follow Me” option “an impossible task” and concluded, “Plaintiff’s game is exactly the type of electronic sweepstakes the legislature intended to prohibit by enacting Section 14-306.4.”[xxv]
Policy Considerations
The underlying purpose of the statute is to prevent the negative personal and social consequences associated with games of chance.[xxvi] Games of chance can be highly addictive and financially destructive to their players, which is exacerbated by the fact that video sweepstakes games in North Carolina are popular primarily in low-income communities.[xxvii] Games like Ocean Fish King are deceptive and arguably predatory because they seem like skill-based arcade games, but the results are based almost entirely on chance. News reports have shown that establishments offering these games often become hubs of criminal activity,[xxviii] and there have been law enforcement efforts across the state to crack down on illegal gaming operations.[xxix]
Since games of chance conducted via video sweepstakes are illegal in North Carolina, they are not subject to the kind of robust regulatory oversight that generally exists in jurisdictions with high concentrations of legal gambling establishments. In the absence of such regulations, the burden often falls on North Carolina courts to determine which particular games violate state law. Game operators can customize and tweak game settings in response to unfavorable court rulings, which has created a pattern of operators returning to court to argue that they’ve made some critical change to their game’s programming that has miraculously transformed the game into one predominantly based on skill rather than chance.[xxx]
Given the prospect of “marathon litigation with the well-financed stakeholders in the industry,” some legislators have sought to legalize and tax chance-based video sweepstakes games.[xxxi] North Carolina legalized online sports betting in 2024, so legalizing certain sweepstakes games seems within the realm of possibility. One could argue that individuals have a right to play these games if they so choose, and tax revenue could be reinvested into communities where these gaming establishments are popular. However, legalization would likely lead to heavier use of these games, and any benefit from tax revenue could be offset by an increase in the negative effects these gaming establishments tend to have on the communities where they are located.[xxxii]
Ultimately, as long as the text of § 14-306.4 remains substantively the same, and as long as the legislature adheres to its longstanding commitment to banning games of chance, we can expect to see courts continue to develop the contours of this niche area of North Carolina law.
[i] N.C. Gen. Stat. § 14-306.4(b)(1).
[ii] § 14-306.4(a)(5) (emphasis added).
[iii] § 14-306.4(a)(3)(i) (emphasis added).
[iv] Gift Surplus v. State ex. rel. Cooper, 868 S.E.2d 20, 26 (N.C. 2022) (quoting Sandhill Amusements v. Sheriff of Onslow Cnty., 762 S.E.2d 666, 685).
[v] Fun Arcade v. City of Hickory, 891 S.E.2d 329, 331 (N.C Ct. App. 2023).
[vi] Id. at 334.
[vii] Id. at 331.
[viii] Id.
[ix] Id.
[x] Id. (quoting Gift Surplus).
[xi] Gift Surplus v. State ex. rel. Cooper, 868 S.E.2d 20, 30 (N.C. 2022).
[xii] Id. at 23.
[xiii] Id.
[xiv] Id.
[xv] Id. at 28.
[xvi] Id.
[xvii] Id. at 29.
[xviii] Id.
[xix] No Limit Games v. Sheriff of Robeson Cnty., 2023 N.C. Super. LEXIS 102 (June 20, 2023), at *28.
[xx] Id. at *17.
[xxi] Id. at *22.
[xxii] Id. at *16.
[xxiii] Id. at *17.
[xxiv] Id. at *18.
[xxv] Id. at *24, *27.
[xxvi] See S.L. 1010-103 (“Whereas, the 1791 General Assembly determined that ‘all public gaming-tables are destructive of the morality of the inhabitants of this State, and tend greatly to the encouragement of vice and dissipation . . .’”).
[xxvii] Multi-Agency Raids Target Illegal Gaming Establishments Across NC, Charlotte-Mecklenburg Police Department News (Apr. 9, 2024) (“Often the most vulnerable members of our communities are targeted to gamble at these locations.”).
[xxviii] Id.; see also Morgan Frances, Charlotte City Council Discusses Ways To Crack Down on Fish Game ‘Arcades’, Queen City News (Oct. 16, 2024).
[xxix] Id.
[xxx] See No Limit Games, at *8 (“Sweepstakes operators continued to refine their products, adapting them to the language in our courts’ decisions.”).
[xxxi] Alexandria Sands, Charlotte City Council Members Want To Crack Down on “Skill” Arcades, Axios Charlotte (Oct. 11, 2024).
[xxxii] See id. (“In the council’s view, the operations are hindering multi-million-dollar efforts to improve historically marginalized areas”).