Wanna bet?

All but invisible to many Buncombe County residents — and allegedly operating on the fringes of the law — the video-poker industry is thriving, with more than twice as many machines per resident as the statewide average, based on information from the N.C. Department of Crime Control and Public Safety. Evidence from other areas suggests that such gaming may be a multimillion-dollar business here. Yet due to lax regulation by the Buncombe County Sheriff’s Department and conflicting Sheriff’s Department and Tax Office records, thousands in ad valorem taxes may be going uncollected. And according to a fairly steady stream of tips flowing into Xpress, operators routinely make cash payouts — sometimes large — in violation of state law, which allows only merchandise worth no more than $10 as prizes.

If true, this could be one reason business is booming. But lost tax revenues aren’t the only potential fallout. Gambling experts call such machines “video crack” because like crack cocaine, the cost per “hit” is low, but the effect can quickly become addictive.

Users typically play one-handed, keeping the other hand free to extract and light a steady stream of cigarettes. Butts mount up in ashtrays, and players feed fresh $20 bills into the automated slot when the credits on the screen drop to zero. “Winnings” mount up into hundreds or thousands of dollars on the display, only to melt again as the player delivers rapid-fire hits to the touch-screen or button control.

An estimated 520 machines are housed in convenience stores, gas stations, body shops, furniture stores, tire stores, beauty parlors, restaurants, fraternal organizations and other venues throughout Buncombe County. This number includes the machines listed in documents obtained from the Sheriff’s Department, machines listed with the Tax Office that don’t appear in Sheriff’s Department records, and other machines discovered by Xpress in the course of a yearlong investigation. An exact tally is impossible to calculate, given inaccuracies and omissions in Sheriff’s Department records and the fact that many machines are hidden from view — in violation of state law. This could make it easier for operators to make illegal cash payouts (and for gamblers to avoid whatever social stigma their behavior might invite).

Many (perhaps most) of these machines were moved here after the South Carolina Legislature banned them as of July 2000, and many are still owned by Palmetto State corporations. Although South Carolina law had long prohibited gambling on machines that made cash payouts, video-poker owners squeezed through a loophole by using machines that issued tickets to winners instead (which could then be redeemed for cash). At the high point, there were 33,000 machines in use — one for every 100 state residents, according to reports that year by CNN and The State newspaper of Columbia, S.C.

Gambling opponents raised the issue to a fever pitch in 1999, and the Legislature responded by passing a law that banned the machines — unless voters approved them in a statewide referendum. But the South Carolina Supreme Court stepped in and prohibited the vote, because the state constitution did not provide for such votes. Thus the legislative ban automatically took effect.

North Carolina, too, tried to ban the machines a few years later. A bill prohibiting video poker in the state (but exempting the Cherokee Reservation) was passed by the Senate in 2003 and 2005 but has never reached the floor of the House, due to opposition by Speaker Jim Black. Black has received upward of $100,000 in contributions from the video-poker industry, according to an investigation by Democracy North Carolina, a nonpartisan, nonprofit watchdog group. Black maintains that his opposition to the ban is unrelated to contributions and represents an effort to protect jobs.

Unreported and untaxed

In July 2002, when the bill was moving through the General Assembly, the North Carolina Sheriffs’ Association issued a letter calling on state legislators to support the measure. Sheriff Bobby Medford signed the letter (along with every other sheriff in the state), but his stated opposition to video gaming has apparently not resulted in rigorous enforcement of the law.

An Xpress investigation last year found only a few sites, out of dozens checked, that appeared to be in full compliance with state gambling regulations (see “Letter of the Law?” Oct. 13, 2004 Xpress). The most frequent violation noted is screening machines from public view (and in some cases, placing them in a closed room). North Carolina general statute S14-306.1(f) reads, “Plain View. – Any video gaming machine available for operation shall be in plain view of persons visiting the premises.”

State law also requires sheriff’s departments to report all such machines to the county tax office (video-poker machines are subject to ad valorem taxation as business equipment). But a comparison of Buncombe County Tax Office records and registration information provided by the Sheriff’s Department reveals significant discrepancies, with each agency listing some machine owners who don’t appear in the other’s records (see “Falling Through the Cracks” below).

N.C. general statute 14-292 states, “Each Sheriff shall report to the Joint Legislative Commission on Governmental Operations no later than November 1, 2000, on the total number of machines registered in that county, itemizing how many locations have one, two, or three machines [the maximum the law allows per site].” Yet according to Sheriff’s Department records, there are six machines at Ward Lake. Such machines, the law continues, must be “listed in this State by January 31, 2000 for ad valorem taxation for the 2000-2001 tax year.” Machines subsequently moved into the county from elsewhere in the state must also be reported. But in Buncombe County, no one seems to know how many machines are actually in use, and there’s no evidence of any attempt to verify whether those machines are in compliance with the law.

Asked about the discrepancies, Business Personal Property Appraiser Heather Lunsford of the county Tax Office told Xpress, “If the Sheriff’s Department has names of video-poker-machine owners that we don’t have, then the sheriff hasn’t been reporting the names to us.”

The Sheriff’s Department lists at least 39 machines that don’t appear in county tax records, but it’s difficult to estimate how much that’s costing the county, since the tax listing assigns widely varying values to different owners’ machines. Robert D. Garren‘s 36 machines are pegged at $4,186 each, for example, whereas Charles McBennett‘s 39 units are valued at a mere $64 apiece (which Lunsford said may represent a depreciated value). At the higher figure, Buncombe County is losing about $1,000 per year in tax revenues from unreported machines. And if all of the machines in use were valued at that rate, the county would collect more than $14,000 per year from their owners in property taxes. Current collections hover near $3,000, according to the Tax Office. (Machines located within the city limits are also subject to city taxes.)

Sheriff’s Department Attorney Julie Keppel, who was charged with maintaining the video-poker files for a number of years, responded to questions about the records by observing that the video-gambling business is essentially self-regulating. “They report to us when they move a machine,” she said. “We don’t go out looking for them.”

State law requires sheriff’s departments to keep documentation on file showing that each machine currently in use has been in North Carolina at least since Dec. 31, 2000. Xpress examined these documents, which consist of sworn statements by the machine owners that they are in compliance. There is no evidence of any effort by the Sheriff’s Department to corroborate the statements. Asked about this, Keppel said she feels certain that the owners would not misrepresent the information “because they could get in trouble with the FBI.”

A multimillion-dollar business?

The North Carolina Division of Alcohol Law Enforcement is charged with enforcing video-poker-machine regulations at the state level. Xpress contacted the agency’s Asheville office last September. At first, this reporter was referred to the Sheriff’s Department, but after two subsequent calls, Xpress was put through to Rodney Kaylor, the director of the ALE’s District IX office, who said: “The problem for our department is personnel. We have about 80 field agents to cover the state, and we tend to focus on underage drinking and sale to minors. But we do enforce the gambling laws, and there are two cases in process in the eastern part of the state which should prove to be precedent-setting.”

One of those cases involved Clarence “Bucky” Jernigan, an Asheboro video-poker vendor who was charged in a public-nuisance lawsuit. Jernigan settled out of court with Randolph County in early April, agreeing to quit the business, surrender hundreds of poker machines, and pay a $500,000 penalty.

On April 9, The Herald-Sun of Durham reported that the investigation “showed Jernigan’s 263 poker machines took in $4.3 million in the last four years at 126 convenience stores and other businesses in 18 counties.” The Randolph County lawsuit was based on investigations by state and local law-enforcement agencies, which found that convenience stores and other businesses where Jernigan’s machines were located routinely made cash payouts. Store owners were charged with misdemeanors and paid small fines.

But in a virtually unregulated cash trade, even the $4.3 million figure amounts to an informed guess, at best. In 1999, during the political battle that led to the South Carolina ban, a CNN report stated, “Each machine costs about $6,000 to buy but rakes in about four times that amount annually.” That would put Jernigan’s receipts at $6.3 million per year. (Rates of return comparable to either figure would place Buncombe’s video-poker trade at somewhere between $2 million and $12 million a year.)

In a follow-up conversation last month, however, Kaylor noted that the ALE doesn’t have a lot of incentive to investigate video gambling, because the machines may soon be banned. “If the state institutes a lottery, it is hard to imagine that they will tolerate competition from video poker,” he said. At press time, the state Senate was considering a lottery bill passed by the House and being pushed hard by Gov. Mike Easley.

Among Buncombe County’s many video-poker vendors is Jackie Shepherd, who owns Western Amusement. Sheriff Medford once worked for Shepherd, who has not returned numerous phone calls requesting clarification of Medford’s role in Shepherd’s operations. Informed sources, including an acquaintance of Shepherd’s and a former deputy, have independently told Xpress that Medford’s job was collecting change from laundromat machines.

Western Amusement is the fourth-largest video-poker-machine operator in the county, holding permits for somewhere between 32 and 39 machines, according to Sheriff’s Department records. And though Shepherd told Xpress that he doesn’t operate any machines outside of Buncombe, Haywood County Sheriff’s Department records indicate that he also has machines in operation at Billy Jack’s Flea Market. Shepherd said his poker machines are “in convenience stores and commercial rental property, and that’s not anything that I depend on.” At the rate of return reported in South Carolina, 30 machines would bring in as much as $720,000 per year.

Another acquaintance of Shepherd’s, retired Capt. Don Fraser of the Buncombe County Sheriff’s Department, recalls the game operator showing him a register tape to support a boast that he’d taken in $27,000 from one machine in a single week. But Shepherd told Xpress, “It ain’t true.” Asked what a more accurate estimate would be, he replied, “The girl in my office does the paperwork on them and turns it in for the taxes, but that isn’t nowhere close.”

Shepherd also challenged the Sheriff’s Department’s record of how many machines he operates. “I’ve only got 16 machines,” he told Xpress. Told that the Sheriff’s Department credits him with 39 machines, Shepherd said, “Thirty-nine is probably how many I’ve got, but I’d have to get with the boy that runs that to find out how many we have on location.”

When even the business owner isn’t sure how many machines he has in use — and there’s no real accountability or enforcement — it appears that the real numbers are anybody’s guess.

Any bets?

Falling through the cracks

The Buncombe County Tax Office provided Xpress with the following names of video-poker-machine owners listed for ad valorem taxes as of June 6, 2005.

Blackwell Music Inc. (of Greenville, S.C.)

Bradley, Johnny Lawrence

Carolina Coin Inc.

Cole Vending Co. Inc.

David West Company

Garren, Robert D.

Hot Dog King Amusements Inc.

Henderson Amusement Inc.

J.M. Brown Amusement Inc. (of Gaffney, S.C.)

Jordan Oil Co. (of Spartanburg, S.C.)

Mountain Music & Amusement (of Seneca, S.C.)

Mountain View Services Inc.

Truck Stop Games LLC (of Virginia)

The following companies failed to update their listings in January but are presumed by the Tax Office to still have machines and are billed for them:

Amusement Unlimited

McBennett, Charles

Shepherd Enterprises

Western Amusement Inc.

However, Sheriff’s Department records include the following other owners not listed with the Tax Office:

Best Games and Amusements Unlimited (of Spartanburg, S.C.)

Carolina Redemption (of Greenville, S.C.)

Peterson Amusement

Tapper’s Tavern

VFW Post 891

The Tax Office, meanwhile, lists two companies not listed with the Sheriff’s Department:

Gamemaster LLC

Sugarloaf Creations