Payout Panic

November 23rd, 2010

A very common question that people new to this industry ask us is “can I change the payout?” (or the prize percentage). The answer is a definitive NO. Allow me to explain.

It is a common misconception that there is a “setting” or a “switch behind the counter” that can be moved up and down to determine how much people win. Back in the days of traveling carnivals and snake-oil salesmen there was frequently a “switch behind the counter” that allowed the operator to cheat his customers.

That was then, this is now. It is highly illegal to alter the payout in any way during the game. The game usually lasts about a year–depending on how many entries are in the game (or the pool size).

Furthermore, the sweepstakes software companies employ mathematicians (actuaries and statisticians) to develop the payout tables. These employees are usually people who have gone to school for years before several more years of professional experience all to do one thing–determine the best payout tables. They study trends to determine how much to pay out and when to pay it out to provide the most FUN for customers. This isn’t just about saying “customer should win $10″, but about saying “should the customer win one $10 bill, or two $5 bills, or ten $1 bills?” Sound tough? That’s because it is tough! Believe it or not, it is our professional opinion that “the math” of a sweepstakes game is every bit as critical to its success as having interesting games with good graphics.

Payout dynamics are extremely complex. We’ve seen several sweepstakes companies go out of business while trying to fine tune their payout tables.

So to answer the question “Can I change the payout?” I would respond: in the short run it would be highly illegal, and in the long run you don’t want to! Let the professionals do their job.

Now I’d like to discuss what I call Payout Panic. This is what happens to nearly all new sweepstakes business owners in their first few days of opening their store. It’s almost inevitable. We’ll get an urgent phone call during which the new business owner emphatically insists that the games are either paying out too much, or that they are paying out too little. Which is more common? It’s about 50/50. Go figure.

Although sweepstakes use a finite pool (or a closed system), there is still LOTS of fluctuation. Most good sweepstakes companies will pay out somewhere in the low 90 percent range. But it’s critical to understand that some days will be higher than that and some days will be lower than that. This is NORMAL and is all part of running a sweepstakes promotion. When a business owner calls us after being open for 2 days and says OUR STORE IS PAYING OUT TOO MUCH! We’re going to BANKRUPT! we sometimes want to put him directly on the phone with another new business owner, who called 5 minutes ago to say OUR STORE ISN’T PAYING OUT ENOUGH! after being open for two days. There are HIGHS and there are LOWS and they ALWAYS, ALWAYS balance out. This is because it’s a finite pool. If you pay out at 80% today (too low!) you’ll probably pay out at 100% or more tomorrow (too high!) – but in the end it all evens out. It has to–it’s a mathematic fact.

Generally during the first few days of just about every new store we spend a great deal of time on the phone with business owners explaining this point over and over again. People new to sweepstakes promotions almost always hyper-analyze payouts during the first few weeks and panic at every peak or valley. Finally after a few weeks of watching ups and downs, they begin to see the average and can sleep at night with the understanding that, much to their relief, the sky is NOT really falling.

Getting Started: A-Z

September 13th, 2010

This is the step-by-step overview of how to get started in the Internet cafe sweepstakes industry. It’s long but it covers it all. Rome wasn’t built in a day, and an Internet cafe can’t be opened in “3 easy steps”. There’s just a lot to cover. If you’re seriously considering jumping into this industry, keep reading.

I want to get started. What do I do first? What are the next steps? What does the process look like and how much is it going to cost me?

First of all let’s be clear–there are a number of companies in this industry who will be fighting over your business. A few of those companies offer strong, legitimate products and a handful are “mediocre”. The majority of the sweepstakes software products on the market are simply terrible. Unfortunately, some of the junky products are represented by smooth-talking salesmen eager to separate you from your wallet. Be sure to use common sense as you do your homework and avoid sweepstakes scams.

It’s not rocket science to put together a software application that looks like a slot machine and attach a “sweepstakes” label to the front of it. However, creating a legal, well-balanced, beautiful sweepstakes promotional platform that makes money doesn’t happen overnight. Once this is done you must get the sweepstakes software certified by an authorized third party or many law enforcement agencies will not recognize it as a legitimate sweepstakes. For this reason you’ll want to avoid most of the sweepstakes you’ll find advertised on Google.

Above all, as you’re entering this new industry be sure to use common sense! Here’s a great article that walks through a quick checklist of what makes a sweepstakes company good and what makes it… “fishy”. SHOPPING SWEEPSTAKES–using common sense!

The first thing anyone considering getting into the sweepstakes business should do is do your homework. Do you know what this business is? Have you visited a sweepstakes Internet cafe? Start by read through our site (especially the FAQ section, the Services section, and the entire Sweeptalk section). Step 1: Do some research!

Next, visit a sweepstakes Internet cafe to play the games. Sometimes people call us wanting us to explain the business. The first question we ask is have you ever seen one? Trying to understand this business without ever seeing it in action is extremely difficult. You should definitely visit one–especially if you’re considering investing a lot of of time in the sweepstakes business. Explaining the concept to someone who has never seen it is like trying to explain what chocolate ice cream tastes like to someone who has never tasted ice cream. Step 2: go get a bowl and dig in!

Now that you have an idea of what the business is all about, two fundamental questions are How much money can I make in this business? and how much does it cost to get started? Obviously the answers vary wildly, but here are a few quick, specific answers.

Revenue from a sweepstakes Internet cafe that is: a) using a good sweepstakes software, b) in a good location, and c) run properly will bring in at least $1,000 per terminal (computer) per month. We have clients making 10x this much, but this is a good benchmark. NOTE: Don’t assume that all sweepstakes games will do this well–many of them are absolutely terrible; nobody will play them and could lose the entire investment. The Internet cafe sweepstakes industry is not for the squeamish. Be smart, be careful, and try to find someone you can trust. That’s why we’re here.

Startup costs also vary tremendously depending mainly upon the size of your business (how many systems) and the sweepstakes promotional product you select (which games). Our favorite products on the market currently range from about $400 to $700 per station. So if you’re opening a sweepstakes Internet cafe with 20 stations your total cost for computers is about $8k. Of course, there should be NO UPFRONT COST for the sweepstakes software. Some sweepstakes companies may try to charge you something for the sweepstakes software upfront – but we are highly skeptical of any company that does that. They will make their money once your business is running. Why should they try to charge you for it before that point? Sweepstakes software companies should make their money when you make your money and not a moment before that.

Other than the technical solution, hardware and software, the only other significant expenses are leasing or buying the location and getting it ready. “Getting the place” may require first and last month’s rent–count on spending at least a few thousand dollars on this. Preparing the commercial property for business can include: painting, carpeting, lighting, decor, electrical work, networking, building counters or buying tables, getting chairs, getting a front desk, and sometimes even some construction work (if you need to add a bathroom, for example). For a typical location of about 2,000 sq ft, total site preparation for 30 stations could be about $5-$10k. You can bring this price down by doing some of the work yourself instead of hiring it out to local contractors.

Thus, opening a standard Internet cafe sweepstakes business with 30 player stations (including renting a place, paying for the buildout and site preparation, and purchasing the sweepstakes systems) would probably cost between $15k – $25k. The biggest variable here is the cost of getting the location and building it out. If you already own the location and it requires little or no buildout costs this cost could be as low as about $12k – $15k.

For a quick look at some of the projects we have completed, check out our image gallery.

Now that you have done research to understand the Internet cafe sweepstakes business, you have visited one, and you have an idea of the potential REVENUE associated with the business and the COSTS involved, you can make an educated decision about whether or not you want to launch the business. If your decision is YES, keep reading.

Next steps: You’re ready to get started. Now what?

Ask permission, not forgiveness. This is contrary to the popular phrase–but you can never be too safe in this industry. We don’t care if you’re absolutely sure it will be okay, or if there are already three of them in your town so “one more won’t hurt”. Always, always ask. Go to the city or the county licensing office. Ask to get a business license and tell them you want to open an Internet cafe with sweepstakes promotions. If they ask what it is, tell them. Our clients sell all kinds of products, but the most common is Internet time and running promotional sweepstakes to increase product sales. Make sure you have an OKAY from the local authorities before moving forward with anything.

You may even consider scheduling a quick meeting with the local law enforcement (Sheriff or Police) to give them a “heads up”. This is a delicate matter. You’re not asking permission of the Sheriff because it’s not up to him to interpret the laws. It’s up to him to enforce the laws. So once you already have approval of the city/county for your business, the meeting with law enforcement would be more of an “FYI”. Essentially you’d be saying “We have approval, we’re excited to be opening our new business in your community. Thanks for protecting us. We’d love to have some of your officers over to give them a tour and maybe have an activity at a discount, etc.” You get the point, this is a public relations meeting, not a “can we get approval” meeting.

A word to the wise–if the local authorities or law enforcement tell you they’re not okay with the business model it’s much easier to pack up and find another city or county than to try to prove to them why it should be okay (or worse, opening without permission and picking a fight). Moving your proposed spot could take a few days. Going through the process of proving that it’s okay once the authorities have told you they don’t like it could easily take 6 months – a year and cost a fortune.

Find a location. Look for a place near your customers. Lower to middle income spots are great. Strip malls are great. The kinds of businesses you may want to be near include Wal-Mart, check cashing businesses, pawn shops, maybe slightly seedy but still safe. The elderly frequently love Internet cafes as well because the concept is very similar to BINGO. They’ll come not to “win big” but to spend $10 or $20 to be entertained for a few hours. High traffic areas are good. High visibility and accessibility is good.

How much space will you need? A good rule of thumb is to get about 50 square feet per computer. Thus, 1,200-2,000 sq ft would be great for a 30-system business with room to grow.

NOTE: Some of our distributors or clients employ a slightly different model. Rather than opening one large store with 20+ sweepstakes machines, they place a few of them (usually 2-6) in a business that is already open. This setup can be placed in convenience stores, bars, laundry mats, or other high-traffic areas and can be a very lucrative model. For more information, watch the video on the front page of our website that describes “sweepstakes kiosks” or “Totems”, and read the articles on our site about Totems. If you’re interested in doing something like this let us know and we can discuss.

Talk to the landlord (or the commercial leasing agency). Some will be perfectly fine with the idea. Some will not. Again, if they don’t like what you’re doing it’s much easier to move on than to engage in an argument and try to prove to them why it’s okay. Trust us on this.

While you’re working on finding a location, figure out which games (sweepstakes system) you’ll be using. This is perhaps the most critical decision of all. At this phase it would be very helpful to have input from a trusted industry expert. Search the Internet, compare sweepstakes companies, call people, and learn everything you can about the industry to make an intelligent decision. Be sure to find a company that uses legally certified sweepstakes and one that answers its phones.

NOTE: Someone who works in a sweepstakes store will likely be an expert on one product but have no experience with any other kind of sweepstakes software. Going back to our ice cream example; this would be like asking someone who has only eaten chocolate ice cream which flavor of ice cream is the best. “I LOVE CHOCOLATE!” Take it for what it’s worth.

Speaking with salesmen for specific products can be informational and can’t hurt. Of course, they’re all going to tell you why their product is the best. A real strength of SweepsCoach is that we can discuss strengths and weaknesses of many of the different products because we have actually used them in Internet cafes. We’ve seen them all in action, we’ve helped our clients set up, install (and uninstall) dozens of different sweepstakes products and we’re happy to give you the lowdown. For more information on our background, check out the Services, the About section of our site.

There are many, many kinds of sweepstakes products. We are familiar with just about all of them and have worked with most of them first hand. We know which companies are making money and which are not. This is because we get phone calls all day long from people who are using the different games. Many are switching from one sweepstakes software to another because those they are using aren’t very good and they’re not making money. You don’t want those games. We have a very short list of games that are working well for people. Which games are making the most money? Give us a call and we’ll give you our professional opinion of the top 2-3 options in your area–which are the best and why.

Sometimes the best sweepstakes solution may not be as obvious as you think. Keep in mind that no sweepstakes software company will tell you about their weaknesses. Are their games good? Is the math model they use in their games good? Is their technical support good? Will they protect the area and not let someone else open with the same software right across the street from you? Will they add on bonus, surprise expenses once you’re already open (and threaten to turn off your games if you don’t pay?) There’s a lot to think about!

Ironically, some of the busiest games are popular because they pay out TOO MUCH. This means that the customers love the games because they keep winning but the business owners are paying out at slightly greater than 100%. The busier the sweepstakes store is, the more money the business owners lose. We have received a number of calls from people using sweepstakes software with this problem. Who would have guessed? Using this sleazy tactic, some sweepstakes software companies makes a fortune on licensing fees. In this case the sweepstakes manufacture is raking it in–at the expense of the business owner who is slowly losing his shirt.

There are dozens of sweepstakes gaming companies but only a small handful that are are really working for business owners. Contact us and we’ll give you our honest opinion on who’s who out there. Then you can make an informed decision about which sweepstakes product makes the most sense for you.

Now that you understand the business, you’ve asked permission of the local authorities, found a perfect location and selected a promotional sweepstakes solution, what’s next?

Buildout and Marketing. When you get to this point we’ll be happy to hold your hand through the process. Carpeting, painting, lighting, decor, counters, tables, or cabinets for the sweepstakes systems, chairs, electrical work, networking, Internet connection… This stuff is all in a day’s work for us. You’ll also start spreading the word that your business is coming so that when you open the doors your customers will be waiting for you. Don’t assume that “if you build it, they will come”.

While you’re busy with these projects we’ll be working on two things. First we’ll be coaching you through the buildout and marketing, and second we’ll be getting the sweepstakes technology solution put together for you. It usually takes the same amount of time for our technical group to get the systems assembled and ready to go as it does for you to get the onsite preparation completed. We’ll coordinate our efforts so that by the time you’re cleaning up the paint and sawdust, your sweepstakes systems will be showing up and you’ll be ready for installation and training. This process should take a few weeks.

You’re open! Finally the business is ready to go, the place is all set up and smells of fresh paint, the new sweepstakes systems are installed and your employees are trained. You’re exhausted but it’s all worth it because here come the customers!

What are you Selling?

September 12th, 2010

When people are getting started in the business of using sweepstakes promotions they frequently misunderstand one of the most critical principles of this business. What are you selling? If your answer is “Sweepstakes Entries”, you are wrong–dangerously wrong. Do not pass go, do not collect $200.

This common misunderstanding goes against the very definition of sweepstakes. A sweepstakes is used as a marketing tool to promote a product. No true sweepstakes will allow a customer to buy sweepstakes entries. If it does allow this, the sweepstakes sponsor can expect serious legal trouble sooner or later because it is not really a sweepstakes; it is GAMBLING.

The sweepstakes sponsor sells something else, a PRODUCT, and uses sweepstakes to encourage sales of that product. Let’s look at Coca-Cola. When you buy a bottle of Coke and find a number on the bottom of the cap, you can enter that number into an online sweepstakes form to determine whether or not you have won. The product, in this case, is Coke. Coca-Cola did NOT sell you a sweepstakes entry for $1.25. They sold you about 1 cent worth of carbonated water, sugar, and flavoring and 19 cents worth of packaging and shipping for $1.25 (this is a bottle of Coke). In order to encourage you to buy their product instead of a competing product they used a sweepstakes promotion. This marketing tool is designed to entice customers to buy the product, but the product is never, EVER, the sweepstakes entry.

So let’s ask that question again. What are you selling?

Our Internet kiosks, as the name implies, sell Internet access and the use of a touch-screen computer terminal. Thus, when a customer buys $10 worth of Internet time he will receive a number of free entries into the promotional sweepstakes. In the case of the sweepstakes promotion running on our Internet kiosks, the PRODUCT (Internet access) is being sold and the SWEEPSTAKES ENTRIES are being given out for free. The difference is subtle but critical.

It is fundamentally important that you as a sweepstakes sponsor and all of your employees understand this. More than one Internet cafe has landed in hot water because an undertrained or lazy employee told a customer (who happened to be an undercover law enforcement officer) that they were selling sweepstakes entries instead of selling some other product and then getting the sweepstakes entries for free. Don’t make this mistake and don’t let your employees make it.

The line between PRODUCT and PROMOTION blurs when we’re selling an intangible product such as Internet access time. In every case the product must be kept separate from the promotion. Specifically, if you sell Internet time and then give away sweepstakes entries to people who purchase that Internet time, using the Internet time cannot consume the sweepstakes entries. Alternatively, using the sweepstakes entries should not get rid of the time you have purchased to access the Internet. The Product and the Sweepstakes Promotion must always be kept separate.

For clarification and simplification, let’s bring this back to a model that uses a tangible product. When you buy a Quarter Pounder with Cheese at McDonald’s and get a Monopoly sweepstakes game token, eating the burger will not make your Monopoly sweepstakes game piece disappear. And revealing (or redeeming) that game piece will not make your hamburger disappear. Furthermore, if your Monopoly sweepstakes entry (which you have not yet revealed) is a $1 million grand prize, the value of that prize will not (and should not) decrease as you eat your burger. The same rules apply to any product that is promoted by a sweepstakes, whether it be cheeseburgers, Internet time, or anything else.

Sweepstakes are a fantastic marketing tool. As you begin to promote your products with sweepstakes, you must understand exactly what you’re selling. Sweepstakes Promotion is a marketing tool used to help increase sales of that product. You are selling a PRODUCT, which will NEVER be “sweepstakes entries”. Good luck with your product sales, good luck with your sweepstakes promotions, and feel free to contact us if you have any questions.

Product Licensing

August 27th, 2010

Every sweepstakes software company expects compensation when a business owner uses their sweepstakes promotional platform. Also, every sweepstakes software company charges an ongoing licensing cost. This payment will be a percentage of the revenue you, the business owner, make after paying out customer winnings. Sometimes this number (Gross Revenue minus Customer Winnings Payout) is called the Net Win. Thus the Net Win is the amount you have left after all “payouts” to customers. The companies that make Sweepstakes Products want a piece of the Net Win. Even though all sweepstakes companies charge a different percentage, those that are more reputable are usually in the mid 20 to high 30 percent range.

We have had some of people ask “Can’t I just buy the sweepstakes software outright and avoid any ongoing payment?” Unfortunately, the answer in all cases is “no”. Sweepstakes software companies don’t allow this. Although this rubbed us the wrong way as we were learning about the industry, we eventually learned to deal with it as we realized how much money our clients, distributors and business owners, were making in spite of licensing fees. Sweepstakes promotions can be an extremely profitable for nearly any business.

Furthermore, in time it became apparent that these sweepstakes software providers made money when the businesses that they supply made money. One would think that this would naturally result in all sweepstakes platform providers being exceptionally good at supporting their products. Although this is surprisingly not always the case, at least the smart companies provide good ongoing support.

Sweepstakes Companies use three different systems to collect. By far the most common is a billing system (or invoicing system), which works like this.

I’m the customer and you’re the business owner. I give you $20 to buy a product (usually Internet access time) and you give me the product and free sweepstakes entries to play the sweepstakes games. These entries are usually called sweepstakes credits, entries, or points. I then walk over to a sweepstakes terminal and play games (reveal my entries) using the credits. After a while I’ll decide I’m done playing and I want to “redeem” whatever I have won. This is sometimes called cashing out, but technically cashing out is a casino or gambling term so it’s not accurate. At this point I, the customer, still have all of the Internet access (time) that I have purchased. I can browse the Internet using that time if I want. Finally when I’m done I walk back up to you, the business owner, and tell you I’m done. You look at my account and realize that I have won $10, so you give me the cash and I walk out happy. In this scenario I, the customer, walked in, gave you $20, played games for a while, won $10 back, surfed the web for a while, and then left. You, the business owner, made $10.

Next week you, the business owner, will get a bill from the software company that says “You owe us $3 because we know you made $10 from the customer and you have to pay us 30% of your net win”.

A second way to handle billing is a Credit-based Accounting System, which works like this.

I’m the customer and you’re the business owner. I give you $20 to buy the product and you give it to me with 20 free sweepstakes credits to reveal by using the sweepstakes games. I then walk over to a sweepstakes terminal to reveal entries by “playing games”. Again, at any point I may decide I want to surf the Internet. After all, this is what I purchased, right? Eventually I may decide that I’m done and will want to “redeem” whatever I have won. I return to you, the business owner. You look at my account and realize that I have won 10 “prize credits”. You take my 10 credits and give me $10. In this scenario I, the customer, walked in, gave you $20, played games for a while, won $10 back, and then left. You, the business owner, made $10 and lost 10 sweepstakes credits.

To the customer this feels exactly the same as the invoicing model. To the business owner it is also very similar. However, this entire system is based on credits. Every time a dollar worth of product is sold (one dollar into your cash register), a free credit is given out. And if a customer redeems prize credits to get cash, credits are coming back in on 1 for 1 basis; 1 credit for 1 dollar. This relationship between dollars and credits makes this system very simple.

Customers will continue coming to your store purchase products and you will keep giving them free sweepstakes credits when they purchase a product (usually Internet time). As customers use sweepstakes credits to reveal entries, they will consume (lose) those credits or entries. As this keeps happening, your pool of credits will diminish and your cash register will fill up. Eventually you will need more credits so that you have credits to give your customers. At this point you will call us to buy more credits. You might call next week, or you might call in a month, or it might be tomorrow–but sooner or later you’ll need to purchase more credits to continue running your sweepstakes promotion. You, the business owner, decide when to buy credits and how many you want to purchase. While using a credit-based system you will never receive an invoice or a bill.

The credit system, explained in more detail in this article: www.sweepstakesmachines.com/sweeptalk/credit-based-accounting/ , is completely automated in our Internet Kiosk system. This means that while using an Internet Kiosk (sweepstakes Totem), you don’t even need a point-of-sale computer or a sweepstakes game server!

The credit system simplifies the accounting process because there can never be any confusion about how much you owe or when to pay. As a business owner you buy as many credits as you want whenever you want and you know that every time a dollar shows up in your cash register, one credit will be consumed by your customers from your available pool of credits.

Another big advantage of the credit system is the way that it compensates for the rare, but occasional loss day. As new businesses are starting out with any sweepstakes solution, it is not uncommon to experience a day when the combination of a low volume of customers (because the store is new) and a few big winners (which is normal in any sweepstakes) results in a day with an overall LOSS–when you pay out more in winnings than you make. In a billing/invoicing system this is considered a wash. Unfortunately, the sweepstakes company is not going to send you a check for 25% of your loss. You just lose it.

However, with a credit-based system you actually EARN credits if you have a loss day. If you LOSE $500 on a “big payout” day with a billing/invoicing system all you have to show for it is an empty cash drawer. With a credit-based system you would have 500 extra credits that you did not have before the day started. These will be given out as dollars come in, and the net result will ultimately be $500 back in your cash drawer. Although this concept may be a little tricky to get your head around, it is a significant advantage of a credit-based system (especially as your new business is getting off the ground).

For distributors the credit system is a godsend. Instead of billing, invoicing, and chasing store owners to pay their bills, the store owners will call you when they need more credits. Instead of being a bill collector, you’re an order taker.

A third and final way to bill customers is a Flat, Monthly Rate. This system has recently been introduced to the market and is very simple.

The software company bills you, the customer, based on the number of terminals you have rather than volume or the amount of money you make. At first pass this sounds like a fantastic plan. As a matter of fact, if you could get this deal from any significant sweepstakes solution you would truly be getting a bargain. Unfortunately, there is always free cheese in a mousetrap!

We have only seen this billing method implemented by one or two very new companies with sweepstakes platforms that have not been able to compete with any of the legitimate sweepstakes games. Since their product is not in high demand, the sweepstakes companies have attempted to lure novice investors into selecting their seemingly low-priced software. Of course, VALUE is more important than PRICE. Is it a good deal to buy a CAR for $1,000? Sure it is; especially if that car is a Ferrari! Unfortunately, companies that offer this pricing scheme are selling broken down Pintos.

More than one rookie who aspires to build a successful business with sweepstakes promotions has fallen prey to this “easy money” mirage. Ultimately what happens is the seemingly clever plan backfires utterly. This software is usually so bad that the business owners make extremely little money from customers. Thus the “low, flat fee” becomes a millstone around their necks when the total income generated is miniscule.

NOTE/UPDATE: This update was added years after the original article was written. To this day we have seen a total of FOUR sweepstakes software companies try this method–usually as a “last ditch effort” to compete with more successful sweepstakes companies by undercutting price. We have never–not once–seen an Internet cafe using software with a “flat fee” payment program succeed. Never, ever. Hence a “flat fee” is certainly a warning sign of a sweepstakes platform that simply does not work.

All three systems work perfectly well and all accomplish the same thing–paying the software company to use their sweepstakes platform. If the “flat rate” plan were ever offered by a decent software provider this would be our preferred choice. But since this is not the case, we are only left with the billing/invoicing model and the credit-based system. In our professional opinion the credit-based system emerges as the intelligent solution. It enables simple reconciliation and accounting and offers the most benefits for business owners.

Swipe Cards & Logins

August 24th, 2010

Tracking Customer Accounts–Swipe Cards and Logins

Every promotional sweepstakes product requires that all customers have unique accounts. When sweepstakes entries (points or credits) are added to a customer’s account, the server records it. When a customer accesses his account to participate in the promotional sweepstakes, the entries are reduced as he “reveals” whether or not he has won–which uses credits. The account continues to track how many credits he has. If the customer exits the business leaving credits on his account and returns later, the server will keep track of important information, including how many credits are left on his account.

Two prevailing systems exist for identifying Sweepstakes Internet Cafe customer accounts. The older system tracks customers by using a Swipe Card. A common misconception is that this card actually has “money” or “credits” on it. The truth is that the card is merely an identification card. When the customer swipes the card, the computer associates the card with the appropriate account. If the account has a balance of credits left on it, those will stay in the account until the customer removes them.

A few disadvantages of this older system are:

1) Swipe Cards are expensive. Business owners are frequently charged as much as $1.00 per card to purchase the cards for their customers.
2) Card readers are expensive. If you decide to use a sweepstakes promotional system that requires card readers, you’ll pay about $50 more per station–which is how much the card readers cost.
3) Customers lose cards. Most sweepstakes businesses simply say “if you lose it, it’s gone.” Of course, this is never a fun thing to tell a customer. On the other hand, a customer will never lose his name, which is frequently used for a login system.

The more modern approach for identifying Sweepstakes Internet Cafe customer accounts is to use a Login System. The login system is simply an easier way to identify the customer instead of using a swipe card. When the customer enters the store for the first time, the employee creates the customer account by using some sort of a unique identifier. Anything can be used as an account name, but most businesses use a driver’s license number or the customer’s name. The customer is then asked to select a password that he can remember. Once this has been done the employee adds the appropriate amount of credits to the account, just like with a card-based system. Now instead of swiping a card, the customer merely types in his user name and password. Again, just like the swipe card system, if the account has a balance of credits on it when the customer leaves, the credits stay on the account until the customer removes them.

Most pundits agree that the login system is more efficient, and is obviously less expensive, than the swipe card system. However, in the end both accomplish exactly the same thing–allowing the system to match a customer with his sweepstakes account.

Prize Percentage, Hold, and Volume: Explained

August 19th, 2010

Three key factors can be used to determine the health of a sweepstakes Internet cafe business: Prize Percentage, Hold, and Volume.

A good sweepstakes product will have an appropriate Prize Percentage. This is a fixed, finite, or predetermined ratio that has been programmed in advance by the sweepstakes software company. It is not determined randomly each time the player plays a game. Sometimes this is called payout or payout rate, and it can be defined as follows. Each unique “turn” or “spin” will “win” or return a certain amount. That amount is the prize percentage. Thus, if the AVERAGE return for EACH play over time is 90%, the prize percentage, or payout rate, is 90%.

EXAMPLE: If you made 1,000 plays (or spins) each with a $1 value, and then averaged the win amount for each one, and the average return was 90 cents, then the prize percentage is 90%.

Note: In the example above many spins that pay out higher than 90 cents. But for each payout that is higher than 90 cents you will have an equal number of payouts that are lower than 90 cents. Thus the average payout is 90 cents on the dollar, or 90%.

Note: The prize percentage can be too high–which means that the customers win back almost 100% (or sometimes even more than 100%). In this scenario the customers are very happy with the games because they win a lot, but the business owner doesn’t make much money (or sometimes even loses money). Prize percentages can also be too low–which means that the customers don’t win back enough to continue enjoying themselves.

Another key indicator of a healthy sweepstakes Internet cafe business is the Hold. The overall percentage of the customers’ money that the business owner keeps is called the HOLD. If the average customer walks in with $10 and walks out with $7, the business owner keeps the $3, which is 30% of $10. In this case the hold is 30%. Even though most sweepstakes games have a prize percentage of around 90%, the customers usually end up keeping a lot less than 90%. This is because when a customer has won back 90% he will usually keep playing games.

So, if the customer brings in $10 and plays one time through (ie. ten $1 bets), he will have about $9 left. Then he’ll play again and keep 90% of $9, or $8.10. If he plays again and keep 90% of $8.10, or $7.29. One more round will put him at 90% of $7.29, which is $6.56. As you can see, the longer the customer continues to play, the greater the HOLD is.

Good games with a good prize percentage encourage customers to play more, thus increasing the hold.

Note: Although you can have a prize percentage that is too high or too low, you always want the hold to be high. If every customer that enters your store always plays until all his money is gone, you will have a 100% hold. Good games usually have a hold that is between 30-50%.

The final indicator of a healthy sweepstakes Internet cafe is the Volume. Simply put, the volume is how many dollars are being played. If one customer comes into the store in a day and plays $1, you could have a great prize percentage (around 90%) and a great hold (100%) and still only make a dollar. Good games with a good payout ratio help increase the volume.

When evaluating any sweepstakes product, always consider the Prize Percentage, the Hold, and the Volume. A healthy, profitable business has a prize percentage around 90%, a hold in the 30% – 50% range, and a very high volume.

North Carolina Sweepstakes Internet Cafes Dealt a Heavy Blow

July 9th, 2010

The last few weeks have been tense for sweepstakes business proponents in North Carolina.  As some lawmakers rallied to ban sweepstakes gaming, those involved in the industry fought to defend their right to play the games and entertainment they love.  It is estimated that several hundred thousand people play sweepstakes games with some degree of regularity across the state, and at least ten thousand are employed in the industry.

Although it was believed that the primary purpose of this session of Congress was to balance the budget, a few representatives evidently had a bone to pick with sweepstakes gaming.  They made no secret of their intent to abolish this industry from the state.

At first the North Carolina Senate postponed discussing the bill several times due to its controversial nature.  However, when the bill (House Bill 80) finally made it to the table it was quickly and overwhelmingly approved.  Here’s an article that was written about the situation shortly after the Senate approved it: Gaming Bill not a Sure Bet

What, exactly, does the bill do?  Essentially it aims to prevent all electronic sweepstakes gaming.  For specifics on the bill, feel free to read the actual document here: North Carolina House Bill 80

After making its way through the Senate, the bill was again delayed in the House of Representatives.  Here it was postponed more than once as Congress pushed the discussion back.  It seemed nobody wanted to talk about it.  Apparently Congress realized that this was a delicate and politically charged topic.

Finally, yesterday (July 7), the bill was brought up again in the House.  Discussions were heated as both sides of the debate were heard.  On the “Pro” side (getting rid of sweepstakes) it was argued that sweepstakes games can become an addiction.  Horror stories were told of the poor and unfortunate who had become so addicted to the games that they spent all their rent money or grocery money, leaving their children hungry.  One proponent of the bill, with tears in his eyes, related a story involved a “church-going” woman who supposedly, as a result of her involvement in sweepstakes gaming, got so far in debt that she bought a gun and robbed a bank to “feed her addiction”.

I’m sure I’m not the only one who was rolling my eyes at this point in the debate.  Another congressman quickly interjected that it shouldn’t be the government’s role to regulate morals.  Just because someone can become addicted to something doesn’t mean we should outlaw it.  The vast majority of people who visit sweepstakes Internet cafes do so as a casual form of entertainment.  They view sweepstakes gaming as a social activity similar to going to the movies or a sporting event.  They plan to spend $20 or $30 in an evening and this is how they choose to spend it.

Unfortunately, since some people can become addicted to the activity, others feel a moral obligation to “protect us from ourselves”.  Are we three years old?  Perhaps the next law passed will involve keeping small objects away from us because we might put them in our mouths and choke on them.

Then there’s the issue of the the state-run lottery.  This topic was also brought up and discussed.  How are sweepstakes any different from a lottery–except that the government is running one of them?  Of course, sweepstakes machines compete with the lottery.  Hmm…  I smell hypocrisy.

Is it possible that some can become addicted to *any* highly entertaining activity?  YES.  Some people watch too much football.  Some people play too much Xbox (can’t the gov’t make THAT illegal and help me get my kids out from in front of the TV?)  Some people drink too much.  Some people read too many trashy novels.  Some are even addicted to working out.  And some people play sweepstakes games.  Which are morally okay and which are not?  Just ask the North Carolina government.  They’ll tell you.

But what are they going to tell Trina and Karen, two hard-working, entrepreneurial North Carolina women who have battled their city for months to get a permit to launch their new sweepstakes Internet cafe?  They’ve invested an incredible amount of time and money into their new business, and on Wednesday, the SAME DAY that the state passed the ban, they FINALLY got the approval from their city to open…   After careful consideration they’ve decided to continue as planned with their business to see if they can recoup their investment in the six months before the law takes affect. What does the government have to say to them? I’ll say this: good luck Trina and Karen.

And what about Najam, an ambitious NC man who just spent tens of thousands of dollars to get his sweepstakes business open?  He’s been working on this project for months, and finally, yesterday (the day after the ban was passed), his business was open to the public.  He has about six months to recoup his investment before the law takes effect.  What will they tell HIM?  What about his employees?

Consider the fact that many sweepstakes business owners have already paid thousands (or tens of thousands) of dollars to local government for special use permits.  Cities and counties have been collecting “special taxes” on sweepstakes businesses.  One of our clients called yesterday asking “I already paid a $20,000 yearly tax to my city for the right to run this business.  So do I get to stay in business for a year or will the ban shut me down in December?”  Good question.  Ask your congressman.

In spite of the new legislation, North Carolina sweepstakes business owners say “we’re not done yet”.  This is, by all accounts, a Pandora’s box.  There will undoubtedly be backlash as people fight to get this changed and seek loopholes.  However, there can be no argument about this fact; the North Carolina government doesn’t want sweepstakes cafes in their state.

Sweepstakes Games Dodge a Bullet Today in North Carolina

June 15th, 2010

Those “in the know” in the sweepstakes internet cafe business have been carefully watching the current General Assembly in North Carolina.  The session has been meeting to discuss a number of issues, but somewhere on the list was the proliferation of sweepstakes machines across the state.

It is unclear whether the concern is about sweepstakes internet cafes attracting “undesirables” (like a casino), or simply that the state needs to have its fingers more deeply thrust into these business owners’ wallets.  In any case, rumors ran wild as the politicians had a sweepstakes gaming discussion on the agenda.  Some pundits believed the sweepstakes games would be completely shut down, others thought they might be taxed, and many believed that at the end of the day nothing would change.

Just to be clear, this certainly isn’t the first time that Internet sweepstakes software has been in the crosshairs of state and local authorities.  About two years ago a very similar incident took place in North Carolina.  For a short while sweepstakes machines were out of luck, until a loophole was found and they were back in business.  The state of Virginia has gone back and forth on the issue, and sweepstakes gaming in Florida has been checkered with controversy.

Let’s get real, folks.  It LOOKS like gambling.  People that don’t fully understand how the technology works (Hello “bad boys, cops of North Carolina”) are likely to embark on a crusade to save the world from the evils of what appears to be gambling.  From across the state they can be heard chanting  ”If it looks like a duck…”  Well, the truth is that it is NOT a duck.  But it takes someone more qualified than your average police officer to know the difference.  Heck, *I* can’t even tell the difference half the time and I’ve been in this business for years.  So I’m not trying to throw the local law enforcement under the bus.

The good news is that at the end of the day today the North Carolina state legislature has tabled the discussion on sweepstakes.  This is a BIG WIN for advocates of the sweepstakes gaming industry.  Does this mean that there’s no way the government can cause any trouble with sweepstakes in this session?  Unfortunately not.  But it DOES mean that it’s much, much less likely.

Furthermore, even if the worst case scenario happens (which most of us feel is extremely unlikely) and the state tries to close down sweepstakes games instead of imposing a small tax, it would still take at least six months to execute.  Of course, during this time the decision would be challenged and we could anticipate even more delays before any real action is taken.  The hundreds and hundreds of business owners across the state wouldn’t go down without a fight.  And in the meantime, with good software in the right location these businesses can easily recoup the entire initial investment in 3-4 months.  Contact us for details on that–it’s what we do best.

A hearty “high five” to all those advocates of sweepstakes gaming in North Carolina.  It looks like we’re still in the game!

Sweepstakes Explained

May 25th, 2010

Sweep-stakes [sweep-steyks] – noun.

“A sweepstakes is a legal contest or game where anything of value is distributed by lot or chance.” (from USLegal.com)

It is a self-funded promotion that offers a chance for participants to win. Winning sweepstakes entries are selected from a finite pool of entries. A Sweepstakes Internet Cafe is a business that uses sweepstakes promotions to market a product (frequently Internet time). Customers enter the Internet Cafe, purchase Internet access time, and are given free sweepstakes entries. The customers then surf the Internet and/or use computer terminals to reveal, in a very entertaining way, whether or not the free entries they received are winning entries.

Sweepstakes entries must be given away for free upon the purchase of a product (which can include goods, services, or intangible products). Thus, sweepstakes promotions are used to increase sales of that product.

Generally sweepstakes laws require a free, alternative method of entry into the sweepstakes as well. The McDonald’s Monopoly Game, for example, requires participants to mail in a self-addressed envelope to obtain a free entry.

It is critical to understand that the method used to reveal the sweepstakes entries and the way in which the results are displayed to the participant DOES NOT MATTER as long as it does not affect the results. McDonalds uses a Monopoly game wherein participants collect game pieces over time and stick them to a game board. Coca-Cola prints a number on the bottom of its bottle caps that participants must enter into a website on the Internet from their computer to participate in a simulated “Wheel of Fortune” game.

The results of the sweepstakes can be delivered or conveyed in ANY way. It doesn’t matter if the results are revealed by using a board game simulation (McDonalds), a computer website simulating a casino (Coca-Cola), a singing telegram, or a carrier pigeon! The method of displaying results does NOT affect the legality of the sweepstakes.

Some of the games used to reveal sweepstakes entry results on our sweepstakes platform resemble slot machines or have keno or poker themes. Consequently, participants may feel like they are actually playing casino games. Although sweepstakes games can resemble gambling (just like Coke’s simulated roulette), those that follow sweepstakes rules properly are legitimate, perfectly legal, and are definitively NOT gambling.

Finite Games

May 25th, 2010

A question that frequently arises is “what, exactly, is a finite system” or “what’s the difference between a finite system and games of chance?”

A true sweepstakes system is “fixed” or “finite”. When we say FIXED we don’t mean that it’s RIGGED. We mean that before the contest or sweepstakes even starts, we know with a 100% certainty what the outcome will be. We know exactly how many entries there will be, how many winners there will be, and how much each will win. We do NOT know WHO will win. This also applies to computer sweepstakes games in our sweepstakes internet cafe businesses.

Let’s use the McDonald’s Monopoly game as an example. These aren’t the exact numbers, but to illustrate the point we can say that McDonald’s knows that by the end of the contest there will only be a fixed, or finite, number of grand prize winners. If the maximum prize is a million dollars and in order to win this prize participants need to get the Park Place piece and the Boardwalk piece of the Monopoly game, McDonalds may only print 4 Boardwalk pieces. McDonald’s knows that there can NEVER be more than 4 grand prize winners.

This is because the McDonald’s Monopoly game is a FIXED or a FINITE sweepstakes system.

Here’s another example. Let’s play a game. I have a can with 7 marbles in it. Six of the marbles are white and one of them is red. Seven different people each pay $1 to pick one marble. The person that picks the red marble wins $5. In this case we don’t know who will win (that part is random), but we DO know that only ONE person will win and we know exactly how much that person will win ($5). We also know that I will end up keeping $2 every time. This is a FINITE system.

Compare this to a Vegas-style or RANDOM system. In this example 7 people roll a standard six-sided die. Everyone has to pay $1 to play. If any of them roll a SIX, I’ll give them $5. Statistically speaking, one of the seven people should roll a six in each round. However; it is possible, but not likely, that all seven people could roll a six and I’d have to pay out $35. If I played this game a million times, eventually the average payout would be about $5 per round. But since it’s NOT a “finite system” we never know for sure how much I’m going to be paying out every round.

Sweepstakes software that is truly based on a finite system does not involve random number generators (like a Vegas style game). The only luck involved is WHO will win each of the prizes in the computer sweepstakes. The exact total payout for each sweepstakes pool is predetermined and “revealed” by the computer sweepstakes machines.

The number of wins and the amount paid out is completely figured out in advance by the sweepstakes software–hence the term “finite” gaming.