Sweepstakes are gaining plenty of regulatory consideration throughout the US proper now – however might 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 at all times suppress demand and a few consultants warn that it might as an alternative 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, fashionable sweepstakes function below a definite construction. They usually use a dual-currency mannequin that permits individuals to play with out paying something, which retains them exterior normal playing legal guidelines. Anybody can enter without spending a dime, 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’s an unfolding authorized battle in California, the place Invoice AB 831 is inching nearer to shut them down altogether within the state.
Business information 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 Legal professional Common imply {that a} ban is turning into increasingly more probably. California Legal professional Common Rob Bonta concluded in a 33-page doc that “every day fantasy sports activities video games, together with each choose ’em and draft type 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 every day fantasy sports activities contests violate California regulation, two #DFS operators — Underdog (8/26) and Growth Fantasy (8/28) — have been sued in CA federal courtroom instances searching 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 exterior playing legal guidelines, and historical past exhibits, by means of the fast DFS crackdown, that after regulators resolve a product seems to be 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 big eradicating sweepstakes video games ‘social gaming’ classification. Google’s choice raises each the associated fee and problem of consumer acquisition by growing CPIs, limiting advert entry, and probably 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 vary its coverage and flag it for regulatory concern.
Put merely, the regulatory panorama is heating up – and it doesn’t appear to be 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 ultimately flip to sweepstakes.
Talking to ReadWrite, civil and prison legal professional Everett Lupton, a founding accomplice at Slaughter & Lupton, stated: “I’ve seen sufficient regulatory cycles to know that the sweepstakes scene in California is simply turning into extra intricate.
“Operators are sometimes compelled to change their fashions in response to every new set of enforcement actions, which ends up in uncertainty for all events.”
The affect 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 sooner than laws might be drafted. This leaves regulators taking part in catch-up, companies investing in fashions that will quickly develop into unsustainable, and gamers shedding entry to video games as soon as enforcement ultimately arrives. It’s an identical phenomenon to what we’re seeing with prediction markets, with new apps and platforms popping out sooner than regulation can sustain.
“Corporations typically function in a restricted space the place advertising, client safety, and gaming laws overlap for the reason that statutes themselves haven’t stored up with the velocity of the promotions sector,” defined Everett. “Authorized points usually come up from that pressure.”
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 client safety is to each the group and its members.
Hundreds of thousands of Californians discover pleasure, enjoyable, and connection by means of on-line social video games. Sadly, AB 831 might take that every 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 at all times put client 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 publish.
The message seems to be aimed toward critics who argue that sweepstakes lack sufficient client safeguards, but it surely additionally displays a priority broadly shared amongst operators that aggressive restrictions might drive gamers towards underground alternate options relatively than shield them.
Such alternate options typically function by means of offshore servers or crypto and prepaid-card fee methods. These platforms supply little recourse for fraud, no age controls and no contribution to state tax income that would fund dangerous playing prevention applications.
As enforcement tightens, these channels can develop into extra interesting. Offshore and crypto-based platforms usually supply immediate onboarding, restricted id verification and excessive anonymity. These options entice customers when authorized entry shrinks. In different phrases, enforcement doesn’t remove demand, but it surely pushes customers towards locations with far fewer protections.
An identical sample appeared through the DFS crackdown of 2015–2016, when regulators in states corresponding to 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 slim, exercise tends to shift to unregulated ones, not disappear.
“I feel there’s a very good 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 exterior the strains each time regulators increase enforcement or tighten definitions.
“The probability of black market exercise rises when companies consider they’re unable to compete below the present rules, however this doesn’t indicate that every one companies are moving into that course. I’ve handled sufficient conflicts to know that ambiguous borders incessantly entice harmful individuals.”
In fact, regulators who help a crackdown see issues otherwise. They argue that sweepstakes already sit too near unlicensed playing and that shutting them down helps steer individuals again to obviously regulated selections like lotteries, tribal casinos or licensed business operators. From this standpoint, tightening the foundations is a approach to shield shoppers, to not restrict their choices.
Nonetheless, even amongst firms that need to keep on the appropriate facet of the regulation and function a reputable enterprise, the shortage of readability and authorized grey areas can go away them both open to prosecution anyway, or compelled to desert paths they invested closely in earlier than regulation rolled in.
“Even when a mistake is linked to insufficient compliance preparation, it might seem deliberate, which presents an issue for reputable companies,” famous Everett. “Promotions which can be created with out fastidiously inspecting prize buildings, consideration points, and probability elements run the danger of rapidly turning into playing.”
For firms at present working within the sweepstakes house, it’s clever to regulate all issues finest follow within the meantime. Which means sustaining common evaluations 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 steerage could be useful,” concluded Everett. “Till then, companies ought to deal with sweepstakes the identical means they’d every other space with potential authorized and prison legal responsibility.
“The most secure plan of action will contain thorough documentation, an in depth examination of promotional pointers, and a readiness to make modifications to campaigns previous to launch.”
Featured picture: Midjourney
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