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I have a network game licensed under the AGPL that I modified to suit my needs. Theoretically, I want to charge people to play this game over a local area network that is set up in a private establishment of which I own all the local network infrastructure including the server and the game stations. would I still be required to make the source code available to these people?

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It's hard to say for certain.

Based upon the AGPL text, it could be argued that you're propagating the code. As such, you would be obligated to then provide the source.

OTOH, it appears that they explicitly exempt what you're describing in part of their definition for conveyance: Mere interaction with a user through a computer network, with no transfer of a copy, is not conveying. In which case, you would not need to provide the source.

(Update, hat tip to K.Steff!) Section 13 muddies the waters even further. Notwithstanding any other provision of this License, if you modify the Program, your modified version must prominently offer all users interacting with it remotely through a computer network (if your version supports such interaction) an opportunity to receive the Corresponding Source of your version by providing access to the Corresponding Source. On the one hand, this section appears to be directly related to what you suggest. But on the other hand, you're not providing remote access, you're providing local access to the to the application. It's a fine line, but court cases have been settled over less.

I would recommend dropping the FSF an email and just ask them. It's the only way you can get a definitive answer. Obviously they have a bias towards saying "yes" in distributing the source, but I think they'll be fair in how they assess your question. It sounds like you're halfway ready to provide the source anyway. Getting a "ruling" from FSF in this case is about as good of a scenario as you can get.

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I think you're wrong here: you don't need to 'convey' a copy in order to be obligated to provide the source of the program. Take a look at article 13 of the AGPL. –  K.Steff Dec 17 '12 at 0:41
@K.Steff - excellent point that you bring up, and I have edited my answer accordingly. I almost completely agree with your conclusion, but I don't believe the OP's scenario matches that section exactly since he's providing local access not remote. I think that my end conclusion of contacting the FSF is the only way to get a definitive answer on this. –  GlenH7 Dec 17 '12 at 2:59
Thank you everyone for your input. @GlenH7, your reasoning is parallel to mine. I have taken your advice and have contacted the FSF regarding this post. I should have an answer withing a few days. I will share the answer once I receive it. –  Larry Dec 18 '12 at 1:25
@Larry - good move, please let us know what they say. –  GlenH7 Dec 18 '12 at 12:31
Well, I never did receive a reply from the FSF on this matter. Perhaps this is telling from their non action. I do believe that considering the scenario that I laid out and using the key words private establishment and local network and coupled with a thorough comprehension of the various GPL's, specifically, section 13 and their answers to FAQ's; the answer should be "No". –  Larry Jan 6 '13 at 16:02
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I'm not a lawyer (and I'm not giving you legal advice, please consult a lawyer).

However, it's my current understanding that GPL-style licenses don't care so much about costs and monetary exchange, or public vs private, or ownership of the distribution medium, but more distribution of source and binaries.

The spirit of the GPL is that if you take code from a GPL source, you must make your derivative works and modifications public you must make available the source of derivative works and original (or modified) GPL source to those that use your binaries.

The AGPL was created to address a perceived shortcoming in the letter of the GPL where hosting some code on an external server that a client connected to was used to shield the source from being released. Ergo, the spirit of this license is that network distribution falls under the GPL constraints.

I personally believe the answer to your question is clear cut based on this information, but again, I'm not a lawyer and there are myriad intricacies that I may not be privy to.

Edited based on comments that responded to my original answer.

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"The spirit of the GPL is that if you take code from a GPL source, you must make your derivative works and modifications public." I'm not sure this is correct, Joel. My understanding of the GPL is that you only must make your derivative works public only if you release those works. So, as an example, if I take sipml5, a GPL project, and modify it, I don't have to redistribute it, but if I do, I must make both the binaries and source publicly available. You may want to update your post to correct that statement. Hope this helps! :) –  jmort253 Dec 17 '12 at 0:14
@Joel, jmort253, in fact there is no need whatsoever to make any GPLd code publicly available. The only obligation is to those who receive (or in case of the AGPL, use) the binaries. The obligation is to at least provide a written offer to receive the source code, possibly at a reasonable cost that covers the effort of distribution. –  miraculixx Dec 17 '12 at 0:24
@miraculixx If I were you, I'd make this into an answer, as it is the most correct explanation –  K.Steff Dec 17 '12 at 0:42
Interesting. I'll modify my answer, but I'm still not a lawyer. –  Joel Dec 18 '12 at 22:51
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