Sweepstakes Casino Operators Ponder Strategy Amid California Difficulties

The phrase “circling back” may be one of the most loathed terms when it comes to office lingo, but it could very well be the most accurate one for the upcoming Global Gaming Expo (G2E) this week in Las Vegas.

Online sweepstakes casinos, which emerged to dominate the 2024 proceedings, will again be a major talking point among industry convention-goers on the strip. There have been widespread legislative and legal skirmishes throughout the year, with operators and lobbying groups for the multi-billion-dollar industry beating back some challenges and losing others across the country.

Though some of the biggest online sweeps operators will make their way to the Strip, the industry itself will not have a formal presence at G2E in terms of speaking on panels. To that end, Social Gaming Leadership Alliance (SGLA) Executive Director Jeff Duncan held a roundtable Thursday — dubbing it the Online Social Games Expo — with representatives of some of the biggest operators in the industry. The video conference served as a sort of preemptive first strike to get the message out ahead of what is expected to be a chilly reception to their presence.

Busy year on the legislative front

The first talking point Duncan brought up was how sweeps operators performed in relation to legislative outcomes. It can be argued there was some rose-colored optimism from the SGLA’s executive director beyond favorable outcomes of legislation that would ban sweepstakes failing to progress in Florida, Maryland, and Mississippi.

Duncan also claimed successes in Louisiana and Illinois but, while legislation in the former was vetoed, the state’s attorney general declared sweeps illegal via opinion in Louisiana. In Illinois, legislation has not moved forward, but the General Assembly in Springfield is in the first year of its two-year session.

On the flip side, bills have been enacted to ban sweeps in New Jersey, Connecticut, Montana, and Nevada. Similar legislature in the country’s two largest markets — California and New York — are governors’ signatures away from following suit.

The California conundrum

The bill awaiting California Gov. Gavin Newsom’s signature, AB 831, was front and center during the discussion given the hundreds of millions of dollars at stake both for operators and the state in terms of tax revenue. It is also expected to be a talking point in Las Vegas since Newsom has until Saturday to sign or veto the bill. If the bill goes unsigned, Assemblymember Avelino Valencia’s legislation becomes law.

Duncan and fellow operators were rebuffed in their efforts to convince state lawmakers to regulate the industry, gaining few votes in their bid to stop Valencia’s “gut-and-amend” legislation from advancing through multiple committees in both chambers of government in Sacramento. General Counsel Bryan Wright of the social gaming firm ARB Interactive again pointed out the Golden State could be missing out on as much as $300 million in annual tax revenue by banning sweeps.

“As states’ revenues are shrinking and the federal government is cutting spending and money to those states, they’re having to do more with less,” Wright explained. “States are really not in a position to be leaving hundreds of millions or even tens of millions of dollars on the table in potential revenue when we provide this opportunity, and are looking for regulatory oversight and a jurisdictional partner to work with us.”

Duncan reminded the panel of the bill’s “gut-and-amend” status before pivoting to Eric Wright, the tribal administrator of Kletsel Dehe Wintun Nation and CEO of the Kletsel Economic Development Authority (KEDA). The tribe was arguably the biggest among the four limited Northern California gaming tribes in opposition to AB 831.

Wright claimed the bill is “effectively repeating inequities of the past,” a reference to the Yuhaaviatam of San Manuel Nation serving as one of the primary sponsors of the bill. He noted sweeps has the potential to serve as an economic equalizer for tribes in less favorable geographic areas.

“These collaborations allow remote tribes to participate in modern legal industry without needing massive infrastructure highways or metro access,” Wright said. “Online social games with sweepstakes are not just entertainment; they are a viable economic development tool that finally gives rural tribes a seat at the table in a sector that transform the futures of others.”

Splitting the gambling hairs

Beyond the hundreds of millions and potentially billions of dollars at stake for operators and states is the actual definition of what sweepstakes casinos are in relation to gambling. Duncan’s panel aggressively sought out its ground in a bid to “clear up some mistruths that we anticipate we’ll be hearing next week at G2E.”

The argument for sweeps not being a form of gambling is nuanced based on the mechanics of social gaming. Operators believe they are offering social casino legally under sweepstakes law because the “dual currency” model prevents players from directly paying for real-money on-site funds. Derek Brinkman, general manager of VGW, argued the key difference between social casino play and gambling is that the gold coins players use, be it free or via purchase, cannot be redeemed for a prize.

“You can always get more sweepstakes entries for free,” Brinkman offered as the crux of his argument for social casinos not being gambling. “Sweepstakes entries are not a thing of value, even though there is a game of chance, and then a prize. That’s how they operate everywhere.”

The group also talked about enhanced gaming protocols such as age verification and responsible gambling, but they also made the effort in circling back to labeling sweeps as a form of entertainment since the “primary driver of our players is, let’s have some fun, let’s play a video game,” as Brinkman put it.