Q&A: Sweepstakes operator trade body on legality and growth

Sweepstakes operators have hit the headlines in recent months, and that might be an understatement. The vertical has caught the attention of just about everyone in the industry, with the topic the talk of the town in Las Vegas at G2E last month, crystalising a movement that had been ramping up in the months prior.

But with attention comes pushback. The American Gaming Association released a memo in August warning state regulators to be wary of “unlicensed” operators that are “exploiting loopholes.” Meanwhile, LinkedIn has become a battleground as industry execs lay out their camp on the debate.

Flutter CEO Peter Jackson implored sweepstakes operators to “cross the Rubicon” into the regulated field while the tribes, spearheaded by Indian Gaming Association conference chair Victor Rocha, have expressed serious concerns. Sports Betting Alliance chief Jeremy Kudon labelled the sector as a “pandemic”.

In retort, the Social and Promotional Games Association was founded as a trade body for the sector, with its membership including leading sweepstakes sportsbook operator Fliff and High 5 Games.

But as lawsuits continue to ramp up, it remains to be seen how the vertical will look this this next year. Eilers & Krejcik Gaming said the vertical was worth $5.6bn in 2023, with an $11bn valuation in the offing for 2025.

Here, EGR North America speaks to the Social and Promotional Games Association and Duane Morris partner Bill Gantz to gauge their thoughts.

EGR North America: Fundamentally, do you believe that sweepstakes operators are legal and if so, why?

Bill Gantz (BG): The first question in the analysis of legality is whether it is gambling. The answer is no. Any bona fide product, service or brand may be promoted via a sweepstakes giveaway, including entries awarded in connection with a purchase. Here, it is incontestable that social casino (or freemium-only) is a bona fide product. 

On a freemium with sweepstakes platform, users pay to play gold coin games just like on a freemium-only site, but they may also choose to receive sweepstakes entries (“sweepstakes coins”) as a free bonus in connection with a purchase of gold coins. 

Users may also request free sweepstakes coins by writing in to the company, just like any other sweepstakes. Accordingly, sweepstakes coins are free, and there is no consideration for the entry. Free entry is the basic premise of legality for all sweepstakes, irrespective of sponsor or method.

The second question, separate from the issue of gambling, is whether the state has statutes or regulations prescribing the manner in which a sweepstakes may be conducted. 

The vast majority of states have minimal or no requirements, and not a single state limits the format to the old-fashioned method of selecting a winner by random drawing from a pool of entrants. 

Operators which have a bona fide freemium product, offer and honor an alternative method of entry (AMOE), and use an online casino-themed game reveal method, may comply with the sweepstakes regulations in nearly all states. 

Notably, opponents of sweepstakes have conflated the issue of compliance with sweepstakes laws and gambling. Retail companies such as drug stores have been fined for failing to offer an AMOE, for example, but they were not accused of gambling.

EGR North America: What are the core differences between sweepstakes operators and sports betting and casino operators in the US?

SPGA spokesperson: No purchase is required to play at social casinos with sweepstakes prizes. Consumers never have to pay for an opportunity to win prizes. In fact, the majority of players at SPGA member sites never make a purchase. That lack of a purchase requirement — or “consideration” — is a crucial distinction between social sweeps and traditional online gambling sites.

For most players, social sweeps are a free-to-play entertainment experience like any other casual mobile game. It is a fundamentally different customer experience than traditional online gambling, so it shouldn’t be surprising there’s a separate discussion around compliance and regulation when it comes to social casino, sports, and poker games.  

EGR North America: What concerns, if any, do you have around the several lawsuits that are building up in the US aimed at sweepstakes operators such as VGW?

BG: I have been involved in defending gambling loss recovery claims dating back to the original Washington social casino litigation. It is a misleading narrative to suggest these types of lawsuits are ‘focused’ on sweepstakes operators or that they are a recent phenomenon. 

The vast majority of these suits are, in fact, aimed at freemium-only operators. There is a massive series of class actions, combined as an MDL (multi-district litigation) since 2021, against Apple, Google, and Facebook in California seeking to recover billions based solely on the operation of 200 freemium-only social casino apps. There are 27 lawsuits in Kentucky, Alabama, and Tennessee filed by a single law firm, and 21 of these suits are against freemium-only operators. 

No gambling loss recovery lawsuit has ever gone to trial. Since 2015, all of these types of cases have either been rejected by the courts or settled favorably by the operators. The settlements have been approved by federal and state courts, and not a single operator has been required to stop operating in a single state. 

So overall, civil lawsuits make for good clickbait on X, but they are not impactful.

EGR North America: What would your response be to the likes of Flutter CEO Peter Jackson who has called on sweepstakes operators to “cross the Rubicon” into the regulated field?

SPGA spokesperson: Regulation and licensure are not magic lines where everyone stands firmly on one side or the other. There is no Rubicon. 

Several regulated sports betting and casino operators, including Flutter, offer gambling-like or gambling-adjacent products that are not licensed or regulated in every jurisdiction where they operate. 

For example, FanDuel’s DFS business is not licensed or regulated in numerous states. Similarly, the company’s skill-based FaceOff product is not licensed or regulated anywhere in the US to the best of our knowledge. 

EGR North America: Additionally, what are your thoughts on comments from trade bodies such as the American Gaming Association (AGA) and Sports Betting Alliance (SBA) in regard to pushing back against the vertical?

SPGA spokesperson: It’s important to put the pushback from gambling trade organizations like the AGA and SBA into the proper context. The AGA pushback has been driven mainly by members who operate traditional social casinos and view social sweeps as a competitive threat. 

It’s no coincidence that Light & Wonder is among the loudest critics of social sweeps, as social casino accounted for more than a quarter of its total revenue in the last reported quarter. The fact that a leading social casino operator is the most vocal critic of social sweeps tells you everything you need to know about what products social sweeps actually competes with.

Recent pushback from the SBA is similarly self-interested. The SBA believes that criticizing social sweeps will help its members repair relationships with California gaming tribes — tribes that SBA members alienated with an ill-fated attempt to legalize sports betting via a ballot measure in 2022.    

Social sweeps have been a visible part of the American gaming landscape for nearly a decade. Traditional online casino and sports betting have thrived in the US during that period. Neither the AGA nor the SBA recently discovered social sweeps — they’ve been aware of it all along. Their recent pushback is best understood as selective and opportunistic. 

EGR North America: Do you expect sweepstakes operators to start receiving cease-and-desist orders from states as we have seen with offshore operators?

SPGA spokesperson: It is a mistake to conflate social casino sweepstakes operators who are not required to be licensed with illegal real money gambling operations. Policymakers decided long ago that not everything adjacent to gambling requires licensure or regulation. There’s a long list of products that share elements with gambling games but aren’t licensed or overseen by gaming regulators.

Regarding cease-and-desist orders, our understanding is that a few states have issued notices to operators asking for further clarification on their offerings. Operators have explained the free play/sweeps model and have provided substantial support in the states’ statutes and case law. A good part of state correspondence is interfacing with regulators and explaining the model.

BG: States will continue to be concerned about offshore real money gambling, but most regulators view this activity differently from social casino or social casino with sweepstakes. Different laws and facts apply. As we have already seen, in states which have defined and authorized real money igaming, more active involvement may be expected from the relevant agency.

EGR North America: What does the next 12 to 24 months look like for the sweepstakes sector?

SPGA spokesperson: American consumers have embraced the social sweeps product because it provides a fun and engaging experience that doesn’t come with the same pressure or risk as traditional gambling games. We expect social sweeps operators to continue to innovate at the intersection of free-to-play games and prizes.

We also expect growth in the sector thanks to increasing organic interest in these games from American adults. However, it’s important to remember that the social sweeps category is a small fraction of the size of traditional online gambling in the US, generating less than a tenth of the revenue annually, and is likely to always remain a relatively niche market when compared to those products.