'Outsmarting the politicians:' How an unregulated, illegal gambling industry is still thriving

An unreglulated, illegal gambling industry is still open for business and raking in money by exploiting a loophole in a decade-old state law, a FOX 46 investigation has found.

"They want to call it a loophole," said Terry Pennington, who used to own Winners World Adult Arcade in Stanley County. "I call it outsmarting the politicians."

Pennington's arcade, which had several video slot machines, was shut down over zoning. Officials told him he was too close to a church.

"It's discrimination," said Pennington. "It's hypocritical. And, most important, it's mafiaism." 

Using hidden cameras, FOX 46 went behind the tinted glass doors into the neon rooms of several Charlotte arcades where money is won and lost. They are referred to us "arcades" and "internet sweepstakes cafes" but they operate like speakeasy casinos. 

Getting in requires ringing a doorbell and being wanded by security. 

"It's a 'skills game,'" said an employee at one arcade, when asked how they are allowed to operate. "It's not gambling." 

For the most part, with the exception of the state lottery and Harrah's Cherokee Casino, gambling is illegal in North Carolina. Around a decade ago, state law makers made internet sweepstakes cafes illegal. The law banned the use of video slot machines, or, what the politicians call "games of chance." But the law didn't ban games of "skill." And that's where the game's manufacturers found its loophole. 

"You work for your money," said Pennington, who believes all gambling should be made legal. "You should be able to spend it how you want to." 

Pennington showed FOX 46 how some of his slot machines got around the law. By pressing a button to "raise" or "lower" a symbol, after a spin, you technically alter the result - even though it is still a game of luck. The industry calls it a "nudge game" and claims it is now a "game of skill." 

Either way, it's big business. 

"If I was still open today, I'd at least be pulling in 10 to 20 grand a week," said Pennington. 

That number was backed up by another man who looked into opening a gaming parlor. That individual says he was told he would make upwards of $30,000 "a week" on "initial startup."

Pennington questions why the state lottery can offer video games like Keno but he can't. 

"Paying cash for the chance to win cash is illegal," said Republican State Sen. Andy Wells (R-Catawba). "They're illegal. The legislature made it clear they're illegal."

Wells says the law "needs to be clarified." He says the courts and lobbyists have allowed an illegal and unregulated industry to stay in business.

"These businesses are not taxed. There are no regulations," said Wells. "You don't know when you walk in to play a game if your odds are one in three or one in three million." 

Wells says the "game of skill" loophole is a case where "technology is outrunning government." He plans to meet with stakeholders to find a solution that ultimately leads to the games being shut down. 

"We've got a situation where the police are frustrated as can be," he said. "And I am too."

In response to our investigation, former North Carolina Supreme Court Justice Barbara Jackson tweeted that the current situation is akin to "legal whack-a-mole."

Back inside one Charlotte gaming parlor, one sign warns customers to "STOP BEGGING FOR MONEY." It's an indication that those who play these games are the ones who can least afford to. 

The courts have sided with two of the biggest distributors and operators of these games, which operate much like any you would find in a casino. The governor and attorney general are appealing, arguing the games amount to nothing more than illegal gambling. 

The confusion around the law has trickled down to law enforcement. FOX 46 found police agencies across the area aren't quite sure what to do. While some cities go after gaming parlors, others leave them alone. One police chief told FOX 46 the current law is "clear as mud." 

Walter Bowers, a former CMPD officer who is now an attorney, says that uncertainty has allowed an industry to thrive even while operating in a "legal grey area."

"There were times back when I was with CMPD," said Bowers, "we were essentially told to 'stand down' until certain things were clear."

Things still are not clear. While the industry is currently winning, it will be up to the courts and our politicians to decide if the game should be over for good.

FOX 46 reached out to the attorney general's office, along with several law enforcement agencies, including CMPD. All declined to comment. 

"We are going to respectfully pass on an interview about sweepstakes businesses," said Melissa Teradaway with CMPD.

"The issue is in active litigation," said Laura Brewer, spokeswoman for Attorney General Josh Stein. "Which makes it difficult for our office to comment."