Gambling
Sweepstakes platforms provoke debate about gambling, legal issues
Every year at the Global Gaming Expo, there’s a topic that creates a buzz throughout the conference. Be it sports betting, cashless payments, artificial intelligence or some other facet of the gaming industry, one issue tends to filter through conversations in the halls and meeting areas of the Venetian Expo in Las Vegas.
This year, sweepstakes gaming chatter was omnipresent at G2E, notably during an informative education session, “The Growth & Challenges of Sweepstakes Operators,” where panelists debated the legality of sweepstakes.
Not bad for an issue that Light & Wonder Global Head of Government Affairs and Legislative Counsel Howard Glaser only became aware at the end of 2023.
During an interview with CDC Gaming, Glaser said Light & Wonder is now monitoring the sweepstakes industry “because the regulated gaming industry is going to be concerned anytime that unregulated entities offering similar products without taxation, without customer protections, without licensing, without AML requirements, without regulatory. The regulated gaming industry invests heavily in all of these areas, and pursuing growth in gaming is very important, but doing it in a responsible fashion has to come along with that.”
Jonathan Michaels, the founder and principal of consulting firm Michaels Strategies, says sweepstakes gaming has been under the radar for a simple reason.
“It wasn’t an issue because no one was paying attention,” Michaels says. “They were there, they were operating, they were making money.”
For the last six years, former daily fantasy sites such as DraftKings and FanDuel capitalized on the repeal of the Professional and Amateur Sports Protection Act in 2018 to become leading sports betting sites. But now, as sports betting has become an intrinsic part of the gaming industry, the next big development is uncertain.
It might be sweepstakes.
After the rise of sports betting, “you had a lot of people saying, well, what’s next?” says Michaels. “And they heard about these sweepstakes, social sweepstakes, and casino games, and said, why don’t we investigate that?”
According to SCCG Management, sweepstakes gaming is offered in 48 states except Michigan and Washington. Most sites offer free-to-play options, with patrons being able to purchase coins to play a variety of games with prizes awarded – in some instances, cash.
The increased interest by operators seems to stem from one factor: money. Matt Kaufman, Eilers & Krejcik Gaming Managing Director of Digital & Interactive Gaming, says sweepstakes becoming the “topic du jour” results from increased attention by investors and companies from the regulated real money gambling or social casino spaces.
“I think there’s been an increase in interest from both of those directions to take advantage of the sweepstakes model,” says Kaufman, who has studied sweepstakes platform for the last decade. “And so, by extension, the spotlight has certainly turned toward this model and these operators.”
But is sweepstakes gambling legal? The American Gaming Association decries that sweepstakes have no guardrails or consumer protections.
“The American Gaming Association is dedicated to supporting the legal, regulated gaming industry by addressing the threats posed by illegal and unregulated markets,” said AGA SVP of Government Relations Chris Cylke. “There is no regulatory oversight to ensure that sweepstakes casinos adhere to essential responsible gaming protocols and consumer protection measures, creating an unsafe environment for players. That is why it is so critical for state gaming regulators and attorneys general to scrutinize the legality of sweepstakes casinos and take decisive action against any violations.”
The National Council on Problem Gambling also considers sweepstakes to be a problematic source of gambling, where players are vulnerable to problem gambling issues. There’s no question in NPCG Executive Director Keith Whyte’s mind that players are at risk of developing gambling problems.
“Yet these unregulated sites have little if any responsible gambling features to protect users,” Whyte says. “Players experience all the psychological effects of gambling when they risk something of value on an uncertain outcome for the chance of a prize on a sweepstakes site. We believe an increasing number of people are seeking help for gambling problems related to these sites.”
Even as the AGA and the NPCG voice their opposition to such sites, social gaming sites have become increasingly popular. Kaufman calls it a “rapidly growing space,” and does not think sweepstakes threaten igaming sites.
He points to Michigan, where the state sent sweepstakes operators cease-and-desist orders. Sweepstakes operators shut down the platforms, but igaming sites didn’t benefit.
“You would anticipate them leaving the online market would be a tailwind for the online casino’s performance there,” Kaufman says. “…But that is not what the numbers suggest at all. If anything, it suggests that there is very little, if any, crossover in terms of the demand for real money casinos and sweepstakes operators.”
Kaufman thinks sweepstakes operators have a “strong legal model” and the idea that they are not a product is a “very strange” considering the billions of dollars spent yearly on sweepstakes.
“Some critics are critical of the space because obviously there is a similarity in the mechanics of the games,” Kaufman says. “The opportunity to give away prizes is certainly a step towards real money, in some sense. But I think a lot of the arguments from some of the critics don’t necessarily hold water. If you were to actually get a view internally at some of these operators, there’s no real reason why this type of business doesn’t have the ability, or shouldn’t have the ability, or wouldn’t have the ability, to run sweepstakes contests just like any other retailer or online business in the country.
“When some of the critics refer to it as unregulated, yes, it is unregulated. It’s just like other social gaming is unregulated. But that doesn’t mean it’s wholly unregulated, either. You still are responsible for paying taxes and operating the gaming business in the same way that the operator of any other social gaming business would.”
Glaser thinks sweepstakes operators have not discussed legalization because they believe it is already legal.
“The sweepstakes companies believe they have found a legal path, murky or otherwise, to operate within the law,” Glaser says.
But Glaser feels that approach is disingenuous. Sweepstakes sites and legal online gaming sites look similar. The marketing for them is similar. And players are often confused about the legality of sweepstakes.
“There’s not a little warning on the bottom that says, caution this product is illegal, or maybe illegal in your state,” Glaser says. “It’s presented just like it’s been approved by a state regulator. And I think it’s as much as anything, it raises the ire of the regulators that the products look like they’ve been approved, and they haven’t been.
“This is also a legal vulnerability from a consumer practices point of view, whether there are deceptive consumer practices going on, which some of the states have mentioned. You’re saying to the players you’re promoting the product with gambling language. If you win, you can be one of our latest millionaires, you can bet on these games. … But then, out of the other side of their mouths, the operators are saying to the regulators, but we’re not gambling. It’s hard to reconcile those two things.”