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Cover Story: Clarkston's war against video gambling

How one tiny city became a battleground in the coin-operated amusement machine war

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Some of the bodegas on Clarkston's Market Street do a brisk business selling pandan cakes, aloe vera drinks, fresh-fried fish, and other Southeast Asian provisions to the weekday lunchtime crowd. But inside one bodega, nobody is browsing the dusty back parts of the aisles or considering the cans of sugar cane, some of which expired in 2012. All the store's customers are sitting in the game room glued to the video gambling machines.

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In a Clarkston restaurant's game room, "Georgia Skill" is emblazoned across the top of the machines. Empty chairs are positioned at each of the six terminals. The games are touch-screen versions of the old one-armed bandits, though the machines take paper money rather than coins. Line up three pictures for a prize. One offers patriotic pictures of eagles, Lady Liberties, and silver dollars. It took less than three minutes to burn through $5 on 25-cent antes.

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Clarkston City Manager Keith Barker gets a little tense talking about these terminals, what the gambling industry calls coin-operated amusement machines or COAMs. The video terminals offer a kind of gambling that experts say is especially toxic. Some Clarkston officials are skeptical of the machines and are enforcing some of the state's most stringent laws aimed at keeping COAM operators in check.

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But now the small city is facing a state Supreme Court challenge from one shop's owners who say Clarkston is unfairly making them choose between selling six-packs and running state-sanctioned COAMs. The justices' decision could send ripples throughout the state, affecting where video gambling is allowed — and what kind of new cash flow that would mean for Pre-K programs and HOPE scholarships and grants.

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About 40 percent of Clarkston's nearly 8,000 people live below the poverty line — more than twice the state average. Half the city's population was born outside the United States. Clarkston is in the middle of an area of DeKalb County that became the new home for thousands of refugees resettling from troubled places worldwide such as Eritrea and Bhutan between 2001-2013. The little city just east of Decatur has been called the "most diverse city in America."

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It's difficult to measure how much the state's COAM industry is worth or where it's concentrated. Georgia recently finished more than a year's worth of work linking the state's roughly 5,000 COAM sites into a database that automatically tracks sales numbers. In the past, revenue officials had to trust machine and shop owners to report their incomes accurately. The state estimates that across Georgia, COAM profits add up to around $200 million-$600 million per year.

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The machines are probably worth something in the hundreds of thousands dollars per month in combined profit to the owners of the machines and the handful of shops that house them in the 30021 ZIP code, an area about two miles across that includes Clarkston. The figures come from data from the first five months of 2015 collected by the Georgia Lottery Corporation, the same public body that oversees daily lottery draws and scratch-off tickets.

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The number of stores in 30021 that sent reports to the state varied between seven and 13 each month from January through May this year. But within a 10-minute walk of Barker's office there are at least three places to feed cash into the 32-bit bandits.

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Business isn't what it once was at Clarkston's Star In and Out Food Mart say owners Aster and Efrem Gebrekidan. The store sells typical U.S. convenience store fare, wine and beer, and some east African groceries. It also sells lottery tickets.

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The store has a game room. It holds a pool table and a card table, but there's a bare wall where COAMs and their players used to be. In June 2014, Clarkston Police wrote the shop a $250 ticket for allowing gaming at the convenience store. A 2012 city law prohibits the games in any place that sells packaged alcohol. The Gebrekidans fought the citation — and lost — in city court and later in DeKalb County Superior Court. They're now taking their fight to the Georgia Supreme Court.

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In court documents, the Gebrekidans argue that state law pre-empts Clarkston from forcing shops to choose between packaged alcohol sales and COAMs. They say that the 2013 state law lays out a handful of rules that cities and counties can choose to enact to regulate COAMs. Clarkston's ban on six-packs and COAMs doesn't fit, they say.

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Clarkston says the Gebrekidans are misunderstanding state law and are confident that its local rule will stand. Efrem says they may have to sell their business. The state Supreme Court is set to consider the case in September.

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Just a little more than two years ago, the state had such a light touch on video poker regulations that some shops amounted to "little casinos," says state Rep. Matt Ramsey, R-Peachtree City. Some stores generated more than half their revenue from the machines.

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In 2013, Ramsey sponsored state legislation corralling COAMs and lassoing some of their receipts for the lottery corporation. Gold Dome leaders endorsed the legislation. Gov. Nathan Deal's official attorney helped present the bill for its first committee hearing. Prosecutors, convenience store owners, and the state lottery all helped shape it.

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The bill's centerpiece was the lottery takeover of COAMs. Linking all the machines to a database, supporters argued, would help cut down on illegal cash payouts. The system could also help flag those "little casinos." The bill passed the House with nearly unanimous support and a better than 3-1 majority in the Senate. The lottery corporation is just now beginning enforcement.

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For machine owners and the shop owners who host COAMs, they offer fairly hassle-free income. The two parties pay the state off the top. Last year Georgia received a five percent share, which will rise to 10 percent by 2020. Once the state is paid, machine and shop owners set the payout rate and, per state law, split the remaining income 50/50.

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For the state and its Pre-K and HOPE scholarship and grant programs, however, COAM is fairly full of hassle.

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While legal machines are now hooked into the state database, it's still an administrative headache to license and conduct background checks on machine owners. Officials also must make sure everyone is on the narrow path of legal operation: Cash payouts and virtual card games are not allowed on the consoles. If a player cashes out, winnings must be paid in store merchandise, gas, or lottery tickets, according to both Clarkston and Georgia code. The GBI and state auditors are all cooperating on enforcement, but it's a Herculean task.

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Compared to other games, Georgia's 10 percent maximum share from COAMs is no jackpot. Before the lottery took over nothing went to education. But traditional lottery draws and scratch-offs return about 25 percent of total sales to education. The lottery raised approximately $980 million for education in the last 12 months. COAM's contribution to that sum was essentially a rounding error: about $10 million.

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The COAMs are coming online just as the state Legislature is looking for ways to keep HOPE healthy that don't involve cutting off kids from rich families, an idea the GOP-led solons have ruled out. Instead, they emphasize growing HOPE and Pre-K funds. Lottery officials estimate that 2015 will be the year they celebrate passing the $1 billion mark. Every COAM dollar gets them closer to that goal.

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Clarkston officials are skeptical of having too many COAMs. Barker's vision of Clarkston includes street life, festivals, and building an art and cuisine destination on the city's multinational foundations.

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"We don't want to be known for COAMs," he says.

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Barker prefers the vision of Clarkston presented in sketches for the streetscape project the city wants to get underway soon: tree-lined streets, well-marked pedestrian crossings, landscaped medians, inviting little corner plazas, and wide sidewalks complete with café tables. It's meant to make the town center more attractive to people and businesses and will take a few million dollars in federal and state funds to accomplish.

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Clarkston Mayor Ted Terry says the way COAMs have been run amounts to "predatory" marketing.

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"They were in back rooms, they weren't visible, there weren't signs saying, 'Here are your rights as a player,'" Terry says.

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In 2014, the city held a series of town hall meetings and asked the public's opinion about COAMs. The overwhelming response from citizens was for more regulation, according to Terry.

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Clarkston changed the odds on the industry with a series of new local laws that took effect this year. The measures ban machines from being located too close to schools, libraries or parks; limit any one location to six machines; and require that COAMs must be placed near a window and visible from the street. The city is also requiring that shops report their COAM and business earnings to city hall.

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Barker says shops that are overdependent on COAMs won't make Clarkston the "destination" that it could be. "They just don't cut it," he says. "The COAMs and the convenience stores with the dusty food, the restaurants that aren't selling food just don't cut it."

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Beyond the city's economic development, Barker points to the public health concerns that come with gambling. The only addiction besides drugs and alcohol recognized by the American Psychiatric Association is gambling.

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There's not a lot of extra cash sloshing around Clarkston. New Americans describe the tough, low-paying jobs where they start on the career ladder. For many, it's chicken plants with a two-hour commute each way. Some speak quietly about neighbors or friends who seek escape from stresses at home, at work, or with acculturation via drinking or gambling.

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"I certainly do not see these machines as beneficial to the community," says J.D. McCrary, executive director of International Rescue Committee in Atlanta, a refugee relief organization. McCrary sat on Clarkston's COAM study committee. "I think it takes advantage of the inexperience of refugees as well as the entire community, whether they be refugees or not."

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"Video slots are commonly referred to as the crack of gambling," says Eric Groh, a licensed counselor and president of the Georgia Council on Problem Gambling. He calls the COAMs "overwhelming" to the treatment industry. The Council has had clients report multiple suicide attempts due to addiction to the machines, he says. Most of the Council's hotline calls involve COAMs, Groh says.

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Gambling at video terminals is more addictive than table games, scratch-offs, or lottery draws, says Natasha Dow Schüll, a professor at the Massachusetts Institute of Technology who studies human-machine interaction and authored the book Addiction by Design: Machine Gambling in Vegas. Schüll says each kind of gambling game sits somewhere on the spectrum of addictiveness. The strongest draw is for those that are "solitary, rapid and continuous," she says.

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Lottery ticket buyers have to wait for the daily or weekly draw. Scratch-off tickets are faster, but still don't carry players so completely into what Schüll calls the "flow."

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Video line-em-ups like Georgia's rank high for all three characteristics. The player inserts money, makes a bet, and pulls the lever with a push of a button. The icons line up and more often than not, deliver a losing result.

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To those who don't play, video gamblers might seem like they missed a probability lesson in math. But "they're not dupes" Schüll says. They know it's a losing proposition, but they get something out of it. It's the flow. The prolonged, continuous interaction creates a "loss of sense of self," she says, and can be an escape from thinking about life's troubles.

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Across town from Star, a Dollar General opened its doors a few years ago. Efrem Gebrekidan thinks the city wants more of such shops and that it's costing him his livelihood.

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"Clarkston, even though they may have good intentions ... they may want to attract big businesses ... but the smaller ones, they're getting rid of the small ones," he says.

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Clarkston is "very much an outlier" for COAM regulation, says Les Schneider, counsel to the Georgia Amusement and Music Operators Association and one of its lobbyists at the state Capitol. He thinks the Supreme Court should rule for the Gebrekidans.

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"Most every city and county that I've dealt with has changed their ordinance because they have read House Bill 487 the 2013 law and they see the things that a local government has been permitted to do and they have followed it accordingly," Schneider says.

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Like many state laws, the COAM law says a city or county can make a few adaptations. But cities and counties cannot override the law completely. If the Supreme Court supports the Gebrekidans' argument, Clarkston will have to drop the law that bans COAM and packaged alcohol sales under the same roof. But Terry says cities have an established right to regulate alcohol.

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"I think it would send pretty big shockwaves if our ordinance did get overturned," Terry says.

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He says it's worth the legal bill to try to prevent store refrigerator cases from operating like illegal self-serve bars just feet away from the same store's gambling terminals. Terry says the city's package store ordinance, though it predates his time as mayor, was a response to a situation where "people could buy a beer, buy some gin, walk two feet away and start gambling."

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The city cannot ban COAMs from bars.

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"Banning a product where alcohol is served is not permitted under state law except in the instance of nude dancing," Schneider says. That's the aftermath, he says, of a state Supreme Court case and subsequent state constitutional amendment giving localities the right to regulate only nude dancing and drinking in the same place, not any other legal practice just because it happens to take place in a bar.

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On one hand, anything Clarkston does will have limited impact on its residents' access to games. There are places to gamble just outside city limits. But if Georgia's Supreme Court supports Clarkston's argument other local governments could decide to copy its law. That could result in the closure of stores like the Gebrekidans' and fewer COAM consoles statewide.

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Whatever the decision, an industry worth hundreds of millions will definitely take notice. So will the lawmakers and lottery administrators who want to maximize the HOPE and Pre-K money collected on their watch.




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