## Facts

- Crazie Overstock Promotions, LLC operated retail stores where customers bought gift certificates usable for merchandise in the stores.
- For every $10 a customer spent on gift certificates, the customer received 1,000 “game points” that could be used on in-store electronic machines.
- The machines offered two sequential games.
- The first game, called the “Reward Game,” simulated a slot machine and was determined by chance.
- In the Reward Game, customers wagered game points for the chance to win “reward points”; customers who used all plays without winning still received 100 reward points.
- Customers could then use reward points to play the second game, the “Dexterity Game,” which tested hand–eye coordination and was described as skill-based.
- Based on performance in the Dexterity Game, customers earned “dexterity points.”
- Dexterity points were redeemable for cash at a rate of $1 per 100 points, and the Dexterity Game was easy enough that more than 95% of customers won at least some money.
- In May 2016, the State of North Carolina began investigating Crazie’s operation as unlawful gambling/sweepstakes activity under North Carolina’s lotteries and gaming statutes.
- Crazie filed suit seeking declaratory and injunctive relief that its machines were lawful.
- The trial court granted summary judgment for the State, concluding the operation violated N.C. Gen. Stat. §§ 14-306.1A and 14-306.4.
- Crazie appealed, arguing the program was lawful because customers could receive cash only through success in the skill-based Dexterity Game.

## Issues

1. Whether Crazie’s machines violated N.C. Gen. Stat. § 14-306.4 by using an entertaining electronic display to award prizes in a game of chance, even if customers did not pay consideration to play.
2. Whether summary judgment was proper on the State’s claim that Crazie violated N.C. Gen. Stat. § 14-306.1A, which turns on whether patrons paid consideration for the opportunity to play a game of chance for money or something of value.

## Decision

- The Court of Appeals affirmed summary judgment for the State on § 14-306.4.
- The court held that Crazie’s operation fell within § 14-306.4 because the machines awarded prizes through a chance-based game (the Reward Game), and the points ultimately could be converted into cash.
- The court rejected Crazie’s argument that the skill component (the Dexterity Game) made the overall system a lawful game of skill; the presence of a skill-based step did not remove the chance-based award of value from the statute’s reach.
- The Court of Appeals reversed summary judgment for the State on § 14-306.1A.
- The court held there was a genuine issue of material fact on whether customers were required to pay consideration for the opportunity to play (as opposed to receiving gameplay without payment or as incidental to a bona fide purchase of gift certificates).
- The case was remanded for further proceedings on the § 14-306.1A claim.

## Legal Principles

- N.C. Gen. Stat. § 14-306.4 prohibits operating an electronic sweepstakes through an entertaining display that awards prizes by chance, and it applies “with or without” payment of consideration.
- A scheme may violate § 14-306.4 even if it includes a skill-based component, when a chance-based game is part of the mechanism that yields cash or cash-redeemable value.
- Cash, and points redeemable for cash through the operation of the machines, can qualify as a “prize” or “thing of value” under § 14-306.4.
- Under N.C. Gen. Stat. § 14-306.1A, consideration is a required element; when the record permits competing inferences on whether patrons paid for the opportunity to play, summary judgment is improper.

## Conclusion

The North Carolina Court of Appeals held that Crazie Overstock’s dual-game machines constituted an unlawful electronic sweepstakes under § 14-306.4 because they used a chance-based slot-style game to award value that could be redeemed for cash, but the court sent the § 14-306.1A claim back to the trial court because a factual dispute remained over whether customers paid consideration for the chance to play.


Crazie Overstock Promotions, LLC v. State, 830 S.E.2d 871 (2019)