In most states, it is illegal to play slot machines online for real money. However, a group of companies known as sweepstakes casinos have found ways to bypass the law that allows users to play classic casino games online.
Their revenue has increased tenfold over the past five years, and is now big enough to feature ads from Ryan Seacrest, Drake and Michael Phelps. It's only recently been that states like New York and Maryland were limiting them and considering billions of taxes at risk. However, the loopholes used at sweepstakes casinos complicate the state's ability and desire to take action.
That loophole? A “no purchase” rule that distinguishes legal prizes from illegal lottery tickets.
This is a rule you may be used to if you've played an exclusive McDonald's promotion. Here's how it worked, just in case you missed it: During the promotion, certain menu items came with a special “Game Piece Label” from the Monopoly game board. These can be exchanged for prizes, such as free burgers and cash amounts. The important thing is that we didn't purchase the token directly. They came to buy your fries. And to fully qualify as a sweepstakes, McDonald's had to have you receive the token in the mail – “No purchase required.”
Instead of selling fries, sweepstakes casinos sell unworthy online currency, often called gold coins. (Coins can be used to play money for the game, but cannot be redeemed for prizes.)
And instead of an exclusive token, your purchase will win you Another Currency is often known as prize cash. This “cash” is usually equivalent to dollars. Therefore, if you spend $100 on a gold coin, you will receive a prize cash worth $100. This can be used for gambling in games like Blackjack and Roulette, and will revert your winnings to dollars.
You can also receive a small amount of Sweepstakes Cash-Free via mail, reflecting the same sweepstakes rules that continue to be promoted by McDonald's. By adding an extra layer to the process, the sweepstakes casino has actually allowed them to gamble online legally in states that ban online gambling.
There is a lot of demand for that. The sweepstakes casino first appeared in 2016 and grew exponentially to an estimated $8 billion in annual revenue.
Keith Miller, Professor at Drake University Law School; We compared the sweepstakes casinos to other companies that grew rapidly while operating in legitimate grey areas. “It's like what Uber did. They said what we're doing is completely legal and there's no need to be regulated.”
There is at least one major sweepstakes casino currently operating in 47 states. While most states have not taken action, since 2024, lawmakers in at least 10 states have introduced legislation to fill in the legal distinctions that casinos use to operate.
In an email, Ryan Bailey of the Social & Promotional Games Association said the misconception that the prize casino is a “rebranding online casinos.” Instead, they use a different model “enables free admission and is built around promotional engagement rather than gambling.”
Play whac-a-mole
In New York, where state law bans online casino games, State Sen. Joseph Adabo Jr. recently introduced a bill banning prize casinos. “We're not talking about burgers,” he said. “We're talking about online gambling.”
However, legislation has its challenges. Addabbo Jr. is a sponsor of the bill, but said the legislative process will be “a tedious and slow way to deal with it.” He said that if the state's Game Commission or the state attorney general intervene on his behalf, it would be “more efficient.”
Regulators don't have a full enforcement option either. Sweepstakes Casino does not have a game license to revoke. And if the state attorney general claimed that they were operating illegally, they could argue that the sweepstakes casino was operated by the same rules as all other legal sweepstakes.
Indiana University professor John Holden wrote extensively about the history of gambling regulations, comparing the current situation to “playing Whac-a-Mole.”
“Suppose you've created a new law targeting these sweepstakes casinos,” he said. “What if someone comes up with something new? I think it's a MP who is hesitant.”
Sweepstakes casinos are not unique when testing the limits of gambling methods.
Most states limit slot machines, but you can win prizes in “games of skills” such as throwing basketball into the hoops at state fairs. In Pennsylvania, many gas stations have games called “skill-based slot machines.” In most respects, they are the same as other slot machines, but they have added “skills” elements, such as clicking on the matching symbol to earn money.
Pot share
Most state lawmakers are not eager to chase sweepstakes casinos.
“If you pass the law, you want to have an impact. To have an impact, you need to enforce it,” Professor Holden said of the calculus facing lawmakers. “New resources have to be involved in enforcement. It's difficult in my mind to see a big return.”
States with strict anti-gambling laws may seem the most offensive about holding back prize casinos. The opposite is true. That is the state Legal Online gambling with an incentive to ban prize casinos.
Sweepstakes casinos don't pay gambling taxes – thanks to loopholes they use to avoid being classified as gambling. For states that ban online gambling, there is no loss of revenue.
New Jersey, Connecticut and Maryland allow online casino gambling. This year, all three introduced laws to ban sweepstakes casinos in state legislators.
When Michigan passed a law that legalized online casino games in 2019, the Michigan Game Control Board also gained the authority to investigate sites offering gambling without a license. In 2023, the state closed the sweepstakes casino, which still accommodated Michigan customers.
Kurt Stankamp, ​​the Michigan State Commission's Chiefs of Staff, says its licensing system will help ensure fairness and compliance with consumer protection regulations. It also guarantees that when residents gamble online in Michigan, the state is looking at the revenue percentage.
“Companies operating in the black or grey markets directly compete for revenues with licensed regulatory entities,” Steinkamp said. “And that certainly affects taxes.”
Online casino gambling in Michigan is a big company. In 2024, the state earned approximately $450 million in tax revenue, compared to $147 million collected from online sports gambling. That relationship is true in almost every state that allows both types of gambling.
Some state lawmakers find it more appealing to legalize and regulate online gambling than trying to eliminate online gambling. Last week, Arkansas lawmakers introduced legislation legalizing online casino games while banning prize casinos.
When it comes to sweepstakes casinos, most states need to stay where they are, rather than following Arkansas or New York to continue growing.
Additional tasks Alicia Parapiano
