Sweepstakes are gaining a number of regulatory consideration throughout the US proper now – however may this find yourself pushing extra gamers onto the black market?
An increasing number of state authorities are stepping in to shut oversight gaps round sweepstakes video games, with Montana being the first state to ban them altogether.
However tightening guidelines doesn’t all the time suppress demand and a few consultants warn that it could as a substitute redirect gamers into much less regulated shadows of the trade.
How do sweepstakes work and what are the considerations?
For readers unfamiliar with how these merchandise work, trendy sweepstakes function underneath a definite construction. They sometimes use a dual-currency mannequin that permits individuals to play with out paying something, which retains them outdoors commonplace playing legal guidelines. Anybody can enter free of charge, and prizes are awarded by probability. This mannequin is what permits sweepstakes to exist in states the place casino-style gaming is in any other case prohibited.
Consequently, there may be an unfolding authorized battle in California, the place Invoice AB 831 is inching nearer to shut them down altogether within the state.
Trade knowledge suggests the sweepstakes market is sizeable sufficient to attract growing consideration from regulators. Round 55 million People enter sweepstakes or contests every year, therefore the backlash.
Regardless of pushback from the Social Gaming Management Alliance (SGLA), help from tribal leaders and state influences as excessive up because the Lawyer Normal imply {that a} ban is turning into increasingly doubtless. California Lawyer Normal Rob Bonta concluded in a 33-page doc that “each day fantasy sports activities video games, together with each decide ’em and draft fashion video games, are prohibited by part 337a as a result of they contain betting on sporting occasions.”
Since @AGRobBonta issued his formal opinion concluding that each day fantasy sports activities contests violate California legislation, two #DFS operators — Underdog (8/26) and Increase Fantasy (8/28) — have been sued in CA federal court docket instances looking for restoration of playing losses on behalf of a category.
— Daniel Wallach (@WALLACHLEGAL) August 29, 2025
DFS and sweepstakes share the identical core vulnerability. They each depend on authorized grey areas to function outdoors playing legal guidelines, and historical past exhibits, via the speedy DFS crackdown, that after regulators resolve a product seems an excessive amount of like playing, these grey areas can vanish rapidly, pushing operators into tighter guidelines and a few customers towards unregulated alternate options.
That actuality has now been mirrored in a transfer from Google, with the tech large eradicating sweepstakes video games ‘social gaming’ classification. Google’s determination raises each the fee and problem of person acquisition by growing CPIs, limiting advert entry, and doubtlessly decreasing app-store visibility. Social gaming differs from playing as a result of gamers can’t win cash or something with real-world worth, but it surely’s sufficient for Google to alter its coverage and flag it for regulatory concern.
Put merely, the regulatory panorama is heating up – and it doesn’t appear like it’s going to get any much less delicate for sweepstakes operators and gamers anytime quickly. In gambling-cautious states like Texas, the place sweepstakes are the one authorized avenue to play casino-style video games, it appears inevitable that state legal guidelines will finally flip to sweepstakes.
Talking to ReadWrite, civil and felony lawyer Everett Lupton, a founding accomplice at Slaughter & Lupton, mentioned: “I’ve seen sufficient regulatory cycles to know that the sweepstakes scene in California is simply turning into extra intricate.
“Operators are sometimes pressured to change their fashions in response to every new set of enforcement actions, which ends up in uncertainty for all events.”
The impression of uncertainty
That uncertainty stems from the velocity at which digital-first industries can evolve. Sweepstakes firms can launch new merchandise and onboard customers far quicker than laws will be drafted. This leaves regulators taking part in catch-up, companies investing in fashions that will quickly grow to be unsustainable, and gamers dropping entry to video games as soon as enforcement finally arrives. It’s an analogous phenomenon to what we’re seeing with prediction markets, with new apps and platforms popping out quicker than regulation can sustain.
“Corporations typically function in a restricted space the place advertising, shopper safety, and gaming laws overlap because the statutes themselves haven’t stored up with the velocity of the promotions sector,” defined Everett. “Authorized points sometimes come up from that stress.”
The potential for the rise of the black market if sweepstakes are banned
The SGLA has pushed again on the varied threats to sweepstakes video games with a transparent emphasis on how vital shopper safety is to each the group and its members.
Hundreds of thousands of Californians discover pleasure, enjoyable, and connection via on-line social video games. Sadly, AB 831 may take that each one away by banning on-line social video games with sweepstakes promotions.
The excellent news is, you possibly can take motion to guard on-line social video games. Inform Governor… pic.twitter.com/FMEZV3n6b1
— Social Gaming Management Alliance (SGLA) (@SGLeadership) September 30, 2025
“SGLA companions have all the time put shopper protections first, and we stay dedicated to advocating for state regulatory and taxation frameworks that can profit gamers, communities and the trade,” wrote Managing Director Sean Ostrow in a weblog put up.
The message seems to be aimed toward critics who argue that sweepstakes lack enough shopper safeguards, but it surely additionally displays a priority broadly shared amongst operators that aggressive restrictions may drive gamers towards underground alternate options reasonably than defend them.
Such alternate options typically function via offshore servers or crypto and prepaid-card fee techniques. These platforms provide little recourse for fraud, no age controls and no contribution to state tax income that might fund dangerous playing prevention applications.
As enforcement tightens, these channels can grow to be extra interesting. Offshore and crypto-based platforms sometimes provide prompt onboarding, restricted id verification and excessive anonymity. These options entice customers when authorized entry shrinks. In different phrases, enforcement doesn’t get rid of demand, but it surely pushes customers towards locations with far fewer protections.
The same sample appeared throughout the DFS crackdown of 2015–2016, when regulators in states reminiscent of Nevada famous an increase in consideration round unlicensed and offshore DFS websites. Researchers and policymakers have repeatedly pointed to this dynamic in on-line playing extra broadly: when regulated choices slender, exercise tends to shift to unregulated ones, not disappear.
“I feel there’s an excellent probability that ongoing enforcement will encourage some companies to undertake much less open procedures,” speculated Everett. “A bit of the market makes an attempt to function outdoors the traces each time regulators increase enforcement or tighten definitions.
“The chance of black market exercise rises when companies consider they’re unable to compete underneath the present rules, however this doesn’t indicate that each one companies are entering into that course. I’ve handled sufficient conflicts to know that ambiguous borders continuously entice harmful individuals.”
In fact, regulators who help a crackdown see issues in a different way. They argue that sweepstakes already sit too near unlicensed playing and that shutting them down helps steer individuals again to obviously regulated decisions like lotteries, tribal casinos or licensed business operators. From this standpoint, tightening the foundations is a strategy to defend shoppers, to not restrict their choices.
Nonetheless, even amongst firms that wish to keep on the proper aspect of the legislation and function a respectable enterprise, the shortage of readability and authorized grey areas can depart them both open to prosecution anyway, or pressured to desert paths they invested closely in earlier than regulation rolled in.
“Even when a mistake is linked to insufficient compliance preparation, it may well seem deliberate, which presents an issue for respectable companies,” famous Everett. “Promotions which are created with out rigorously analyzing prize constructions, consideration points, and probability elements run the chance of rapidly turning into playing.”
For firms at the moment working within the sweepstakes house, it’s clever to regulate all issues finest follow within the meantime. Which means sustaining common critiques of prize mechanics, guaranteeing all phrases and circumstances are stored clear for stakeholders, customers, and regulators alike, and staying on high of inside auditing trails.
“Though I don’t anticipate it anytime quickly, clear steering can be useful,” concluded Everett. “Till then, companies ought to deal with sweepstakes the identical manner they might another space with potential authorized and felony legal responsibility.
“The most secure plan of action will contain thorough documentation, an in depth examination of promotional tips, and a readiness to make adjustments to campaigns previous to launch.”
Featured picture: Midjourney
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