"You're being scammed": Insider gives secrets into internet sweepstakes arcades

An unregulated, illegal gambling industry is still cashing in, despite a decade-old law that making internet sweepstakes cafes illegal.

"It"s all tax-free," said one insider, who FOX 46 is not identifying.

The insider went through the process of opening an internet sweepstakes cafe but ultimately decided against the idea. He's now sharing the secrets he learned from talking to the people who sell the games.

"You're being scammed," he said. 

A FOX 46 hidden camera investigation found the gaming parlors, which were banned a decade ago, have stayed in business by exploiting a loohole in the law that bans "games of chance" but not games of "skill." The game's manufacturers have tweaked the machines enough that that the courst have sided in their favor. 

"Are they skill or luck?," asked FOX 46 investigative reporter Matt Grant.

"Neither," said the insider. "They're programmed."

He says he was told he was told he could set "whatever" payout he wanted on the slot machines he was looking to purchase. 

"Fifty percent, forty percent, whatever," he said. "It's whatever you want to pay out."

The games operate only in cash and customers have no idea what their odds of winning are when they walk through the tinted glass doors into the neon arcade rooms.  

He says one person who sells machines told him it's customary for other arcades to set an initial payout of around 80 percent in order to get customers "hooked." Then, it's advised to lower the payout to around 70 percent. That would generate a 30 percent profit on every machine and can quickly add up -but not for you. 

"If you're making $450 a machine, you got 10 machines, that's $4500 a day," the insider said. "And in 10 days, that's $45,000. That's more than most people make in a year."

Terry Pennington used to own Winners World Adult Arcade. He was shut down, over zoning, but says if he was still in business he would be making $20,000 "a week."

So far the industry has survived court challenges. The state is currently appealing arguing the games amount to illegal gambling. 

State Sen. Andy Wells (R-Catawba) says the law needs to be updated to close the loophole.

"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."

FOX 46 found some police agencies are uncertain whether or not to go after these gaming parlors. Last November, the State Bureau of Investigation, which enforces anti-gambling laws, raided several businesses , confiscated games and arrested at least nine people. In a news release, SBI warned that games involving "financial wagers, elements of chance, and the lure of winning cash" are "illegal."

One former CMPD officer says he was told to "stand down" when it came to enforcing the law banning "games of chance."

"You got a situation where the police are frustrated as can be," said Wells. "And so am I."

He says he will work on measures to shut down the games. Last November, SBI warned it "intends to conduct similar operations across the state."

So why take the risk?

"Everybody wants easy money," the insider said. 

Several law enforcement agencies, including CMPD, the attorney general and Harrah's Cherokee Casino, which is exempt from state law, all declined to comment.