Regulated Operators Push For Clarity On Sweepstakes Casinos

May 14, 2024
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As consumer demand continues to grow in the sweepstakes casino market in the United States, top executives from regulated gaming operators warn that the genre is still fraught with legal risk.
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As consumer demand continues to grow in the sweepstakes casino market in the United States, top executives from regulated gaming operators warn that the genre is still fraught with legal risk.

The popular games differ from real-money online casino games by allowing players to either play for free or purchase credits to fund their gameplay and then receive additional free credits, with only the free credits being redeemable for cash or other prizes.

The differentiation is designed to fit into federal laws that permit sweepstakes contests provided that contest operators permit a free method of entry, but the similarity of sweepstakes-based casino games to online slots found on a regulated online casino platform has frustrated some in the regulated gaming industry.

“A casino sweepstakes is essentially running an online casino, similar to what a regulated casino is,” said Richard Schwartz, CEO of Rush Street Interactive, during a panel appearance at the SBC Summit North America held last week in Secaucus, New Jersey.

“Maybe there's a way that little things can kind of differentiate it but ultimately in my experience, whatever law firm you look at that wrote the legal opinion did itv... to give you an opinion, depending on who the client is as opposed to what the law really says.”

Mark Balestra, a U.S.-based attorney for Vancouver-based law firm Segev LLP, said interest in the sweepstakes genre has increased significantly in recent months.

“One of the main things I do is help clients enter the U.S. market, and in the last six months or so, overwhelmingly, the request has been to enter the sweepstakes space,” Balestra said. “From their point, you can make money offering games of chance in the US without being licensed or regulated. 

“A few businesses have had huge success doing it, now we’re seeing a flood of industry entrants.” 

For many, the lines continue to be blurred, and for licensed U.S. gaming operators, the risks associated with sweepstakes casino games have them steering clear of the genre.

“I think there's a lot of challenges and risks with casino sweepstakes, which is why you don't see the regulated operators participating in this market,” Schwartz said. 

“You’ve seen some regulators like Michigan who took a very thorough look at it and decided that it wasn't something that was legal in their state and asked the operators that were operating casino sweepstakes to leave the market. 

“I do recognize there’s a lot of innovation in this area … but I think there’s certainly a lot risk associated with it for legal and compliance reasons.”

Eric Hession, president of Caesars Digital, expressed a similar sentiment about the risks associated with getting into markets such as sweepstakes or unregulated daily fantasy sports games.

Caesars has to consider the risks to its land-based casino empire that generates $4bn in annual EBITDA, as well as a regulated digital business that is also growing fast.

“Our land-based businesses make roughly $4 billion in EBITDA and we're doing our online business where we think there’s a great opportunity to participate in a complimentary way to that land-based business,” Hession said. “We can't take risks that would put our licenses in jeopardy, and so there is a kind of first-mover advantage with somebody who doesn't have to necessarily follow all the regulations, or worry about the ramifications of following the laws,” Hession said. 

The Caesars executive called for more legal and regulatory clarity in the space.

“Our view is we just need rules, tell us what the rules are, and we can then participate,” he said. “There should be some definition as to whether it's legal or not so that we can all be on the same playing field.”

That lack of regulatory clarity has also made it difficult for new operators looking to enter the sweepstakes market to understand what is legal, according to C.J. Fisher, a partner at Fox Rothschild law firm in New Jersey.

“There are certain companies that have reached out and said, 'Oh, we need a legal opinion', and they're doing something unique under the guise of sweepstakes or fantasy or what have you, and they're trying to get this legal opinion,” Fisher said.

“And they're saying, look over here, this other company is doing this similar thing and they think that's dispositive, that that means anything and it doesn't.

“The reality is there's sites operating that may not be legal and then continue to operate and just because they've done it for a while doesn't make it lawful,” Fisher said.

Fisher also added that the continued operation of the unregulated sites may ultimately come down to when they capture the attention of a regulator or state attorney general who may wish to investigate further, citing the crackdown on then-daily fantasy sports operators FanDuel and DraftKings in the mid-2010s as an example of what can happen.

“There are those blurred lines as to what can operate and some of the sites you see out there, it's just the reality they might not be lawful and they might continue to operate until something like that happens and some state AG sends them a letter.”

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