Sweepstakes are gaining plenty of regulatory consideration throughout the US proper now – however may this find yourself pushing extra gamers onto the black market?
Increasingly more 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 specialists warn that it could as a substitute redirect gamers into much less regulated shadows of the business.
How do sweepstakes work and what are the issues?
For readers unfamiliar with how these merchandise work, trendy sweepstakes function below a definite construction. They usually use a dual-currency mannequin that permits folks to play with out paying something, which retains them outdoors normal playing legal guidelines. Anybody can enter without cost, 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.
Because of this, there’s an unfolding authorized battle in California, the place Invoice AB 831 is inching nearer to shut them down altogether within the state.
Trade information suggests the sweepstakes market is sizeable sufficient to attract rising 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 Basic imply {that a} ban is turning into increasingly seemingly. California Legal professional Basic Rob Bonta concluded in a 33-page doc that “each day fantasy sports activities video games, together with each choose ’em and draft model 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 regulation, two #DFS operators — Underdog (8/26) and Growth Fantasy (8/28) — have been sued in CA federal court docket instances in search of 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 reveals, by way of the speedy DFS crackdown, that when regulators determine 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 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 resolution raises each the fee and problem of person acquisition by rising 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, however it’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 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 finally flip to sweepstakes.
Chatting with ReadWrite, civil and prison lawyer 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 pressured to change their fashions in response to every new set of enforcement actions, which results in uncertainty for all events.”
The influence of uncertainty
That uncertainty stems from the pace at which digital-first industries can evolve. Sweepstakes corporations can launch new merchandise and onboard customers far quicker than laws may be drafted. This leaves regulators enjoying catch-up, companies investing in fashions which will quickly turn into unsustainable, and gamers shedding entry to video games as soon as enforcement finally arrives. It’s the same phenomenon to what we’re seeing with prediction markets, with new apps and platforms popping out quicker than regulation can sustain.
“Corporations generally function in a restricted space the place advertising and marketing, shopper safety, and gaming laws overlap for the reason that statutes themselves haven’t saved up with the pace of the promotions sector,” defined Everett. “Authorized points usually 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 essential shopper safety is to each the group and its members.
Tens of millions of Californians discover pleasure, enjoyable, and connection by way of on-line social video games. Sadly, AB 831 may 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 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 business,” 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, however it additionally displays a priority broadly shared amongst operators that aggressive restrictions may drive gamers towards underground options somewhat than defend them.
Such options usually function by way of offshore servers or crypto and prepaid-card cost programs. These platforms supply little recourse for fraud, no age controls and no contribution to state tax income that might fund dangerous playing prevention packages.
As enforcement tightens, these channels can turn into extra interesting. Offshore and crypto-based platforms usually supply immediate onboarding, restricted identification verification and excessive anonymity. These options appeal to customers when authorized entry shrinks. In different phrases, enforcement doesn’t get rid of demand, however it pushes customers towards locations with far fewer protections.
The same sample appeared through the DFS crackdown of 2015–2016, when regulators in states equivalent 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 believe there’s a superb probability that ongoing enforcement will encourage some companies to undertake much less open procedures,” speculated Everett. “A piece of the market makes an attempt to function outdoors the strains every time regulators develop enforcement or tighten definitions.
“The probability of black market exercise rises when companies imagine they’re unable to compete below the present laws, however this doesn’t indicate that every one companies are moving into that course. I’ve handled sufficient conflicts to grasp that ambiguous borders incessantly appeal to harmful folks.”
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 folks again to obviously regulated selections like lotteries, tribal casinos or licensed business operators. From this perspective, tightening the principles is a option to defend shoppers, to not restrict their choices.
Nonetheless, even amongst corporations that wish to keep on the fitting aspect of the regulation and function a respectable enterprise, the dearth 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 possibly seem deliberate, which presents an issue for respectable companies,” famous Everett. “Promotions which might be created with out rigorously inspecting prize constructions, consideration points, and probability elements run the chance of rapidly turning into playing.”
For corporations presently working within the sweepstakes house, it’s smart to control all issues greatest follow within the meantime. Which means sustaining common evaluations of prize mechanics, making certain all phrases and circumstances are saved clear for stakeholders, customers, and regulators alike, and staying on prime of inside auditing trails.
“Though I don’t anticipate it anytime quickly, clear steerage can be useful,” concluded Everett. “Till then, companies ought to deal with sweepstakes the identical approach they’d another 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 adjustments to campaigns previous to launch.”
Featured picture: Midjourney
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