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The significant growth in popularity of sweepstakes-based casino games in the United States has caught the attention of the leading trade association that represents the regulated gaming industry, which is calling for state regulators to investigate whether the offerings violate local laws.
In a memo, the American Gaming Association (AGA) argues that consumers are being deprived of protections and states are forgoing significant tax and revenue opportunities due to sweepstakes gambling products replacing regulated gaming offerings.
Sweepstakes-based games differ from real-money online casino games or sports betting by allowing players to either play for free or purchase credits to fund their game play and then receive additional free credits. Only the free credits awarded to players are redeemable for cash or other prizes.
By structuring the games this way, sweepstakes operators have typically been able to operate in most U.S. states except for Michigan, Washington and Idaho, because the purchases can be considered as entries rather than wagers.
Still, the AGA argues that sweepstakes-based casino games and sportsbooks should come under greater enforcement scrutiny, given their resemblance to real-money online games that generate meaningful tax revenues.
“The lack of regulatory oversight presents many risks for consumers as well as the integrity and economic benefits of the legal gaming market through investment and tax contributions,” the AGA wrote in a two-page memo obtained on Friday (August 16) by Vixio GamblingCompliance.
“These sweepstakes-based operators have weak, if any, responsible gaming protocols and few, if any, self-exclusion processes,” the memo adds. “There is no independent product testing to ensure basic fairness to players, and although many claim players must be 18-plus, age verification procedures, if they exist, are often questionable.”
The AGA stressed that sweepstakes-based casino games and social casinos were distinct since they are fundamentally different offerings that are underpinned by different legal structures.
The AGA’s call for a crackdown follows Michigan’s recent disciplinary action against sweepstakes companies operating in the state.
In late 2023, PredictionStrike, Stake.us and VGW LuckyLand Inc., whose parent company is VGW Holdings Ltd., a leading social gaming company based in Australia, blocked Michigan residents from using their websites after receiving a cease-and-desist letter from the Michigan Gaming Control Board (MGCB).
The MGCB accused PredictionStrike of operating unlicensed internet gaming and sports betting, while Stake.us was alleged to be promoting an unlicensed online lottery and raffle for customers that buy its products through its website.
The state’s gaming regulator also accused VGW of conducting illegal gambling by offering an internet game in which a player wagers something of monetary value for the opportunity to win something of monetary value.
The companies were alleged to have violated the Michigan Gaming Control and Revenue Act, which prohibits a party from conducting a gambling operation without a license issued by the MGCB, and the Michigan Penal Code, which broadly prohibits any form of unauthorized gambling involving consideration, prize and chance.
In its memo, the AGA urged other gaming regulators and state attorneys general to investigate companies or platforms that offer casino games or a form of sports betting under the sweepstakes model “to determine whether or not these operators are in compliance with their respective laws and regulations and take appropriate action if not”.
“Where state laws and regulations are not clear, legislatures should consider enacting legislation to prevent unlicensed operators from exploiting loopholes in sweepstakes regulations to offer online real money gambling,” the association added.
