HAYWARD -- The city was dealt a setback in its fight to close Internet cafes that operate casino-style "sweepstakes" games when a federal court ruled its moratorium could not be enforced because it was overly broad.

Hayward city staff members are drafting a new ordinance that will be presented to the City Council this fall, said Michael Lawson, city attorney. In the meantime, the current three Internet cafes in Hayward can remain open.

The City Council passed an ordinance in February shutting down the cafes, maintaining that their computer terminals featuring the sweepstakes games are a form of illegal gambling, and extended that moratorium in April. Owners of two Hayward cafes filed suit against the city in federal court.

According to the July ruling by U.S. District Judge Samuel Conti, the ordinance could apply to any business that offered computer access and other activities protected under the First Amendment.

Lawson said the city's ordinance focused on the sweepstakes components of the Internet cafes. "If they have legitimate business services they offer, such as faxing or Internet access, that's not a problem," he said. "But sweepstakes activity simulates gambling, and that is a problem."

The revised ordinance will be presented in September to the Planning Commission, and then likely go before the City Council in October, he said.

When the city started cracking down on the Internet cafes, there were three in Hayward: Worldnet Business Center on Vermont Street, Net Connection on B Street near City Hall and I Biz on Maple Court.

While Worldnet has since closed, another Internet cafe has opened on Main Street, this one called Chances Are.

Alameda County banned the sweepstakes games at Internet cafes earlier this year. In December, the California Bureau of Gambling Control issued an advisory that the sweepstakes games offered at the Internet cafes are illegal under state law.

Neighbors of the Internet cafes have complained to the city, saying the businesses are nuisances that attract unsavory people who loiter, smoke and litter.

Elie Goldstein, who owns Kraski's Nutrition Food Shop next door to I Biz, told the council last week that problems have increased in the nearby parking lot, including public drinking and illegal drug use, since the Internet cafe opened.

"We have been having quite a few vagrants hanging out due to, I believe, I Biz Internet cafe," he said. "Every week something's going on."

Contact Rebecca Parr at 510-293-2473 or follow her at Twitter.com/rdparr1.