Will Sweepstakes Casinos Have to Pull Out of New York?

Sweepstakes gaming has taken New York State by storm in recent years, accounting for a substantial portion of the gaming market, despite operating in a legally grey area. Throughout the country, but particularly here in New York, sweepstakes casinos have exploded in popularity.

Last year alone, tens of millions of New Yorkers played classic table games such as baccarat, blackjack, and roulette on sites that critics claim are using a clever workaround to circumvent traditional gambling regulations.

The sweepstakes model allows players to wager with virtual currencies, which can be obtained through competitions, as winnings in-game, and sometimes through direct purchase. In only accepting wagers in virtual currencies, sweepstakes casinos avoid being categorized as online casinos.

Whilst this business method has proved popular with consumers – sweepstakes casinos represent almost 20% of New York’s total gaming market – it has drawn ire and criticism from legislators.

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(Sweepstakes casinos explained.)

The Legal Crackdown on Sweepstakes Casinos

New York’s Attorney General Letitia James has taken an increasingly aggressive stance toward sweepstakes casinos, which she has branded as illegal and dangerous. Last month, James sent cease and desist letters to 26 sweepstakes providers in New York, demanding that they put an end to the selling of their virtual currency coins.

An Argument of Semantics

The important aspect of the cease-and-desist letter sent by Letitia James is that she demands the immediate end of virtual currency sales. In other states, sweepstakes casinos stay on the right side of the law by not allowing players to buy their currencies.

To obtain coins, players can write to the provider and request to be sent coins, win them by playing games, or receive them by taking advantage of bonuses and offers. The casinos then make their money from selling advertising space and offering quality of life, paid for upgrades online and in-app to their users. Essentially, they mirror the free-to-play mobile game model of the mid-2010s.

Providers in New York have not been doing this, and instead, they have been actively selling their coins. The Attorney General argues, rather convincingly, that operating in this way constitutes gambling and, as such, should be forced to operate under the same regulations as the wider gambling industry.

Why Semantics are Important

The regulatory environment has become increasingly hostile towards sweepstakes operations in recent years. As we heard from Alexander Korsager, industry analysts point to the growing sophistication of these platforms as a catalyst for regulatory scrutiny. The more that sweepstakes casino platforms resemble real gambling sites, the more likely they are to face legal challenges. That’s a good thing for consumers, though, because it will see sweepstakes casinos held to the same regulatory checks and balances as their licensed gambling counterparts are.

The Duty of Care that gambling providers are legally obliged to provide to their customers is far more robust than it is for sweepstakes casinos. In addition to that, the protections offered to players at licensed gambling venues or sites far outstrip the protections offered to sweepstakes players.

Will Enforcement Happen?

Sending enforcement teams out to close down illegal businesses is difficult and costly. Changing legislation in a way that will cost businesses money to adapt and make them more liable, however, is a great, cost-effective way of getting the markets to bend to your will. And that’s exactly what the New York Attorney General will do. We see companies adapt due to technology all the time, but legislation can be a far trickier one for them.

Changes to legislation are expected to follow James’ recent correspondence with sweepstakes casinos. These changes will officially recognise all sweepstakes casinos that fail to stop the sale of virtual currencies as online gambling companies.

It would be crazy for any sweepstakes casino to continue selling virtual currencies and thus accept this new definition, as they would have to spend a fortune to comply with gambling laws. So, in the coming months, we can expect sweepstakes casinos in New York to climb down from their current position and more closely mirror the operations of suppliers elsewhere in the country.

Suppliers who haven’t so egregiously overstepped the mark, invoking the ire and consternation of the Attorney General along the way. For regular players, this is good news as it means you can enjoy sweepstakes casinos without having to spend a penny.