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Suppliers of gaming services remain split on whether to fully embrace the fast-rising yet controversial sweepstakes vertical, particularly as various U.S. state regulators and lawmakers begin to take closer notice of the genre.
Many of the largest payment processors and geolocation vendors have contracted with sweepstakes operations but uptake has been slower among suppliers of more iGaming-specific content and services.
The most recognizable platform and game content providers for U.S. iGaming customers have had a more cautious approach so far to the nascent market.
One recent exception was High 5 Games, which provided game content to legal iGaming platforms in Connecticut and other regulated U.S. markets. Connecticut gaming regulators suspended the company’s supplier license last week due to its simultaneous operation of a sweepstakes-based casino platform.
High 5 Games, a majority owner of High 5 Casino, also faces 1,065 criminal counts of conducting illegal gaming activity, according to the Connecticut Department of Consumer Protection Gaming Division.
Connecticut regulators say there are only two legal iGaming platforms DraftKings and FanDuel, which are run in tandem with the Mashantucket Pequot and Mohegan Sun tribes, respectively.
“High 5 Games has always upheld the highest regulatory standards and remains committed to compliance across all jurisdictions in which we operate,” the company said in a statement on Monday (March 17).
“We are committed to cooperating with Connecticut regulators to resolve this matter and maintain the integrity of our gaming licenses.”
State Lawmakers Looking To Ban Sweepstakes
As lawmakers in several states show support for bills that would explicitly ban online sweepstakes casino games and sports betting, are suppliers worried about the risk of getting involved?
That is how Howard Glaser, global head of government affairs and legislative counsel at Light & Wonder, sees it.
“Any vendor in the space, whether it’s a game content supplier, a payment processor or an affiliate, wants clarity,” Glaser said.
“They want clear rules. And for those entities that are in the regulated space, they have to carefully weigh the risks of entering into a product line that’s unregulated. It’s really a question of due diligence.”
Last month, leading international online gambling supplier Evolution made its games available for play on High 5 Casino, and a spokesperson for the Social and Promotional Gaming Association (SPGA), a trade association that incudes High 5 Games' parent company and other sweepstakes operators, said there is no reason other suppliers should be afraid to follow suit.
“Properly operated sweepstakes games are legal in nearly every state, and reputable iGaming suppliers, both established and emerging, already partner with responsible operators like SPGA members.
“Social sweepstakes sites work with many of the same regulation-grade payment processors, geolocation providers, and KYC services that power the regulated real-money sites. We are unaware of any risks for iGaming suppliers working with legally operated social sweepstakes sites,” the SPGA spokesperson said.
But the specter of non-specific risks could soon be replaced by much more specific consequences.
As states attempt to figure out the status of online sweepstakes casinos, some are looking to ban the vertical by legislation.
Several pending bills threaten consequences not just for sweepstakes operators, but for suppliers and vendors too.
In Maryland, a bill that would ban sweepstakes unanimously passed the state's Senate by a 47-0 vote last week and was referred to the House Ways and Means Committee.
In addition to prohibiting sweepstakes, Senate Bill 860, introduced by Republican Senator Paul Corderman, also would target any licensed payment processors, geolocation providers, affiliate and platform providers that continue to offer services to sweepstakes casinos operating within Maryland.
Corderman not only proposes to revoke the licenses of companies doing business with sweepstakes sites but also to charge them with a misdemeanor and a fine of between $10,000 and $100,000, with the potential of a three-year prison sentence.
New York Senator Joseph Addabbo Jr., a Democrat, introduced a bill in the New York Senate with similar provisions. That bill was passed Tuesday (March 18) by the Senate Racing, Gaming and Wagering Committee, which Addabbo chairs.
“We cast a wide net,” Addabbo said. “It’s not just the operator, it’s the suppliers, payment providers, affiliates. I didn’t want a narrow bill. I wanted a wide-ranging bill.”
Whether the bill ever takes effect will depend on whether it can win the support of other New York lawmakers, who, Addabbo concedes, are largely unaware of the issue.
"Right now, few representatives and senators have much awareness of sweepstakes at all," Addabbo explained. “They don’t understand [sweepstakes] and they don’t realize it’s a problem.”
Addabbo's measure, S.5935, specifically singles out any “financial institution, payment processor, geolocation provider, gaming content supplier, platform provider, or media affiliate” that supports sweepstakes in New York, with potential punishments including fines and ineligibility for a gaming license.
That could be a major difference maker if New York, as Addabbo hopes, one day legalizes real-money online casino games.
Both he and Glaser see a lack of legal iGaming as a major explanation for the growth of sweepstakes.
Currently, there are seven states considering legislation to ban online sweepstakes companies. They are Florida, Mississippi, Nevada and New Jersey, as well as Connecticut, Maryland and New York.
For Stephen Crystal, founder of consultancy SCCG Management, which works with sweepstakes businesses, the debate about suppliers should be viewed within the context of stalled legalization of traditional iGaming.
As the first states legalized online casino games, businesses invested heavily in the U.S. market, in anticipation that soon iGaming would be legal across much of the country.
Instead, the market's expansion has been slow to develop, and some companies may be looking for an alternative way to get a return on their U.S. investment.
“If you’re a company that’s invested millions and millions into the U.S., it’s pretty hard to say, ‘We’re going to stay out of a line of business that hasn’t been ruled to be illegal,’” Crystal said.
“Some people have said they’re going to be pure about it, and some are taking a calculated risk.”
But if regulated online casino gaming does spread across the US, do businesses involved in sweeps face a risk of being locked out?
History suggests they may not.
“If we look at fantasy sports and we go back 15 years, there’s two companies that are right now at the center of regulated iGaming but were considered by some markets to be a form of illegal gambling,” Crystal said.
Still, in Glaser’s view, having a toe in both markets is a position that is unlikely to hold.
“The industry is watching carefully what’s happening in the regulatory space,” he said. “The regulatory system is moving to a place where participants who are licensed have to choose between licensed and unlicensed markets.”
