AGA Takes Aim at Sweepstakes Casinos – Calls for State Regulation

The American Gaming Association (AGA), the national trade group for the U.S. casino industry, has raised concerns that sweepstakes casinos are circumventing US gambling laws and evading states taxes on revenues generated via gambling-style games.

In a memo published via Vixio Regulatory Intelligence, the AGA stated:

Sweepstakes casinos claim that because they don’t require real money for their gameplay, they are not offering gambling under the letter of the law. However, functionally, sweepstakes casinos look and play like an online casino while using a dual-currency system to avoid licensing and regulation.

It also noted the presence of sweepstakes sportsbooks:

Sweepstakes Sportsbooks offer “free-to-play sportsbooks” where people can bet on each other’s wagers, or stake bets directly with each other. Many operate with two different types of free “tokens” that can be used to wager, and users can exchange them for real money when won through gameplay.

The AGA identified sweepstake casinos, also referred to as social casinos, as a potential threat to consumers as they fall outside the regulation of many state gambling commissions.

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. These sweepstakes-based operators have weak (if any) responsible gaming protocols and few, if any, self-exclusion processes. There is no independent product testing to ensure basic fairness to players, and although many claim players must be 18+, age verification procedures, if they exist, are often questionable.

The opaque nature of these operations also presents a prime opportunity for illegal activity and enriching bad actors.

Sweepstakes Casinos Legal Standing and Popularity

Sweepstakes casinos fall outside the regulation of state gambling commissions in every state with the exception of Washington and Idaho. Both states have legislation that prohibits sweeps casinos or sportsbooks from operating in local markets.

Michigan has taken action to address the operation of sweepstakes casinos in the state. The Michigan Gaming Control Board sent cease and desist letters to three sweeps operators – PredictionStrike Inc., in Bay Shore, New York; Sweepstakes Limited (Stake.us), in Limassol, Cyprus; and VGW LuckyLand, Inc. (VGW) in San Francisco, California.

The MGCC stated that all three were offering online gaming in Michigan without licenses to do so legally. This was regardless of the fact that the state’s gambling code does not prohibit the operation of sweeps casinos.

In every other state, however, they fall into a grey area where they are considered legal as they do not allow customers to play games with real money. This ease of access has led to a boom in the industry as states take their time over the introduction of regulated US online casinos following the success of legal sports betting in the US.

Industry Growth

• Compound annual growth rate (CAGR) of 85% between 2019 and 2023
• 61% growth in 2023 alone
• $5.6 billion in player purchases in 2023
• $2 billion in net revenue in 2023
• Projected CAGR of 44% for 2024 + 2025
• Projects player purchases of $11.4 billion in 2025

Potential for Tax Gains

At present, sweepstakes casinos and sportsbooks are not taxed by standard gaming tax rates in any state they operate in. While the AGA argues that states could potentially ban sweepstakes casinos or request that they cease operations as did Michigan, the potential tax gains may encourage states to take a regulatory stance.

For example, the state of New Jersey has a 15% tax rate on online gaming revenues. If sweepstakes casinos were regulated across the US with a similar tax rate in force, states would have collected $300 million in 2023 alone.

Sweepstakes Casinos Under Pressure

The AGA’s recent calls for scrutiny and Michigan’s cease and desist letters are not the first time that sweepstakes casinos face pressure – most of which is from former customers.

In June of 2024, a class action lawsuit was filed against online social casino and poker game developer VGW in the state of Georgia. The action alleged that VGW’s sites were in breach of local gambling laws.

The Plaintiff in the suit alleges that she lost around $1,150 when playing games of chance on VGW’s websites that are legally available in the state. The suits claims that presenting the games as games of chance where no money is won or lost is a misrepresentation.

In Washington on June 1, 2023, the U.S. District Court for the Western District of Washington approved a $415 million settlement against DoubleDown Interactive LLC and International Game Technology PLC. The court ruled that both sweeps operators were providing illegal gambling games online.

Earlier that year in March, a class-action lawsuit was filed against Playtika in the U.S. Circuit Court of Franklin County, Alabama. The suit alleged that Playtika’s games constitute “illegal gambling”.

In 2022, a class-action lawsuit was filed against Scientific Games Corp in Kentucky. The lawsuit alleged that the company’s games should be classified as “illegal gambling” but the case was dismissed in October 2022.

2022 saw another class-action lawsuit against VGW LuckyLand in Kentucky. This was settled for over $11 million after it was alleged that sweepstakes activities violated local gambling laws.

Olivia Richardson

Olivia has worked as an editor and writer for major brands across multiple niches. She now focuses on the iGaming and sports betting industries.