What exactly are sweepstake casinos?

For over two decades, gambling has been a constant topic in the debate of policy across the UK.

Since the milestone of the Gambling Act of 2005 all the way to the more recent affordability check proposals, the discussions have been ongoing for a good while now.

All the supplementary measures put in place shift the ways operators go about their business and, in turn, how London players then interact with their betting products.

Running parallel to these reforms, new formats have emerged across the world.

An example of this can be seen in models of play that exist outside the more traditional gambling framework but still serve a similar consumer desire.

One of these surging examples is the humble sweepstake casino.

Recently, North America has seen a boom in sweepstakes casinos.

Their marketing has coined a sweepstake casino as a legal alternative to real-money iGaming.

Because they are bracketed under the laws of sweepstakes and not gambling legislation, they can provide online casino games for hundreds of thousands of players in jurisdictions where regulated online casinos are still prohibited.

Many think this loophole undermines the services of consumer protection and puts pressure on the reputation of regulated operators. 

In this article, we’ll explore exactly what a sweepstakes casino is, why indeed they exist, how it is they work, and what their place in the industry could ultimately mean for the iGaming industry as a whole.

We’ll also shed light on whether or not these newer models could ever permeate throughout the UK’s well-regulated gambling market.

Why sweepstake casinos exist

The sweepstake casino materialised as a response to the growing trend of tighter gambling regulations, specifically in the United States.

Even though iGaming with real money has seen growth in some states of the US, like Michigan, New Jersey, and Pennsylvania, most of the country still has an active ban on online casinos.

Despite this, player demand for online gambling spans nationwide.

Operators have begun using the sweepstakes framework to fix this hole (originally designed for raffles and promotional contests) to effectively provide a gamified casino-centric experience without necessarily being classed as gambling.¹

This new format has demonstrated itself as commercially viable as it serves people who are not satiated by the existing regulations and what they have to offer—or don’t have to offer in this case.

For players in states where regulated casino gameplay is restricted, sweepstakes sites are a credible alternative for most players, and they give operators accessibility to a previously closed-off market.

The only reason sweepstakes exist as a platform is because of the tense dynamic between player demand and the restrictive legislation put in place.

Despite the caution of the government, operators have branched into more innovative avenues of delivering gambling adjacent experiences, while still avoiding complete prohibition.

How they work

The key idiosyncrasy of sweepstakes casinos is easily the dual-currency format they use.

This is split up between more casual gameplay and redeemable prizes.

Dual-currency Systems

The majority of the sweepstakes platforms are run using only two currencies, the first usually being known as Gold Coins.

Gold Coins are purely for entertainment purposes; they carry no monetary value.

Players can purchase “bundles” of this currency, akin to purchasing tokens in a socially driven gaming app.

“Sweep Coins” are the second currency that is used.

Usually, this currency can only be acquired for free as a complimentary offering when buying Gold Coins, or through no-purchase entry routes like a postal request, for example.

Sweeps Coins can be used on the same games.

The most important value of them, however, is that any winnings accumulated through their use can be redeemed for real cash prizes.²

Essentially, this non-tangible/tangible format allows operators to always be able to argue the case that they are not overtly selling gambling products, but instead, promotional tokens into sweepstake contests.

This stance has allowed them to stay within the compliance of U.S. federal and state sweepstake laws all the while.

Legal loopholes and compliance

Since players do not technically need to pay any real money to receive Sweeps Coins, sweepstakes casinos are therefore not legally considered as real-money gambling.

However, the fact remains that this situation and distinct placement can still be debated heavily.

Several states have seen regulators beginning to examine whether or not the model justifiably protects consumers.

There are, of course, critics of this platform, for example, BetMGM CEO, Adam Greenblatt, only last year scrutinised their operations and the “grey area” they function within.

This effectively undermines operators who do their due diligence to comply with licensing, taxation, and responsible gambling requirements.³

Sweeping statements similar to this are shedding light on the great divide between the more established operators and sweepstake providers, questioning fairness and future sustainability.

The impact on operators

For operators in particular, sweepstakes casinos are liable to both opportunity and risk.

On the more opportunistic side, this format has given audiences in otherwise fenced-off jurisdictions a platform they can now use.

The offering of casino-style games using this model enables companies to expand their player bases and further increase their revenue, by extension.

Of course, investors have noticed this trend.

Sweepstakes have been seen to raise significant funding from their operators to gain more traction nationwide.

The riskier side lies in uncertainty.

Their heavy deviation to lean on legal loopholes leaves them vulnerable to the constant change of policy.

As soon as the state or federal lawmakers tighten the grip on the definitions of gambling, even slightly, the entire model could implode overnight.

Licensed operators also argue that this casino model benefits more so from less stringent compliance duties, creating an unfair advantage.

This tension is comparable to past disputes in the UK.

Offshore operators previously competed at an aggressive rate with licensed firms prior to the introduction of the point-of-consumption tax in 2014.⁴

As was the case for that period in time, the main question is whether or not regulatory frameworks can be reframed in time to ensure a constantly fair and sustainable market.

Consumer implications

Now, to turn to the consumer and how they fit into this narrative.

From the perspective of London players, sweepstakes are a real mix of benefits and challenges all at once.

The more positive viewpoint suggests that they supply a decent amount of entertainment that mirrors the journey of a real online casino, without the need to be accessible in a strictly regulated market.

Games like slots, table games, and poker can still be enjoyed across the board this way, sometimes for free or even with a chance to redeem prizes.

This makes the format appealing, particularly in states where other avenues do not exist.

On the other hand, the duality of the currency system can definitely lead to some confusion, with many players struggling to differentiate between Gold Coins and Sweeps Coins.

The promotional jargon used by operators can also blur the line between what is free play and what is pay-to-play.

Arguments are ongoing that the lack of clarity can potentially misguide some players, obscuring the true cost and reality of the value of participation.

Because sweepstakes casinos are not open to the same responsible gambling requirements as other licensed operators, questions remain about whether safeguards are up to scratch or not.

The protection of consumers, similar to the UK’s whistle-to-whistle ban of sports advertising in 2019, has become an integral and deep-rooted issue.⁵

Without an overseer, there will always be a lingering danger that consumers could potentially be exposed to unsafe practices, in ways regulators could not foresee.

Lessons from other jurisdictions

Whilst sweepstakes casinos can sometimes feel unique to just North America, other “grey area” instances of gambling models being used further afield can also provide insights into the field in which sweepstakes operates.

Worldwide, regulators have already been met with challenges similar to this, with hybrid or “unconventional” gaming formats.

Social Gaming and Loot Box Precedents

Across Europe, there have been yearly debates about how loot boxes are regulated in video games.

These are mechanics that, similar to sweepstakes, obscure the line between what is inherently entertaining and what is quintessentially gambling.

Both Belgium and the Netherlands have observed a strict viewpoint on this form of gaming, outright banning or heavily restricting loot boxes on the grounds that they are effectively a form of unlicensed gambling.

This direction change shows that when digital products float around in a grey zone, regulators are more than prepared to step in.

Even the United States has set an insightful precedent.

Preceding the legalisation of real-money sports betting in 2018, “daily fantasy sports” formatted platforms made a killing from similar loophole strategies, claiming their contests were “skill-based” as opposed to anything that is remotely adjacent to gambling.

Some states gave the nod to this reasoning, whilst others imposed harsher regulations in response, and soon after, the inevitable rollout of regulated sports betting made the market far more structured.

Sweepstakes casinos are faced with clear lessons from these instances.

For one, consumer demand for “grey-area” products can lead to consequentially rapid and immediate growth.

Secondly, when regulators make the decision that these models are threatening to consumer protection or the integrity of reputable licensing operators, regulations will follow.

Could sweepstake casinos grow in the UK?

The chances seem slim.

The gambling market in the UK is mature and appropriately regulated, with some of the top licensed operators being overseen by the robust practices of the UK Gambling Commission.

This, in some ways, completely voids the possibility of sweepstakes casinos.

There is still potential for the increase in strict regulations to lead to consumers seeking alternatives that reside outside the regulated sector, likely then opening the floodgates up to sweepstake-style platforms.

Even with the UKGC having a notorious streak of taking immeasurably swift action against unlicensed operators, the growing popularity of sweepstakes casinos online alludes to the prospect that demand can trump regulatory hurdles.

The slim possibility of its establishment in the UK is pinned on the dynamic between regulatory stringency and consumer needs for the likes of London players.

Conclusion

This development is intrinsically novel, there’s no doubt about it.

The collision of social gaming and real-money wagering to circumvent restrictions and legalities is unique in and of itself.

Operators have seen this as a chance to garner attraction from underserved markets, with regulators and established brands fretting over fairness and oversight.

Even though less relevant in the UK, because of the well-regulated markets, it seems as though the trajectory is heading towards a probing end for sweepstake casinos, as global regulation follows suit.

Essentially, sweepstake casinos emblematise the consistent demand from players for accessible gambling, meaning innovation is always a top priority for operators.

Legitimacy hinges on how lawmakers, businesses, and players can juggle innovation with protection.

1. American Gaming Association: U.S. Sports Betting and Online Casino Regulation Overview, 2023.
2. Global Poker: How Sweepstakes Casinos Work, Published by Global Poker, 2023.
3. “Sweepstake casinos should be illegal”: BetMGM CEO, Written by Kevin Flynn, Published by CasinoTopsOnline.
4. UK Gambling Commission: Point-of-Consumption Regulation Introduced, 2014.
5. BBC Sport: Gambling Firms Agree to Whistle-to-Whistle Advertising Ban, Written by Richard Conway, 2018.

Feature image: Free to use from Unsplash