Legality of Sweepstakes Casinos in Doubt

Forbes.com just published an amazing - and lengthy piece - pertaining to the world of sweepstakes casinos and the legal gray area they work in across the U.S.

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Some of the key takeaways:

While these platforms claim to offer "sweepstakes" like those occasionally offered by Publisher's Clearinghouse and McDonald's, they bear no similarity to these promotions.   Rather than a limited-time offer intended to promote a separate, standalone product, these platforms continuously offer real money casino-style games of chance.  The only product offered is casino games - there is no separate line of business being promoted.  The purported "sweepstakes" aspect is no more than a sleight of hand - customers purportedly pay for one type of token to participate in the games and are issued a 'free' allotment of "Sweep Coins", which allow you to participate in the same games for the opportunity to win a prize."

Florida gaming attorney Daniel Wallach is the author of the Forbes article.  He points out that the number of Sweeps Coins a purchaser receives is generally equivalent on a 1:1 basis to the number of dollars they spend to obtain them.

Sweepstakes casinos have mostly operated unimpeded in the US but that could soon be changing, at least in some states. There are vast civil enforcement powers of a state attorneys general with remedies that include injunctive relief, restitution, disgorgement of profits. sequestration of assets, dissolution of the business, and civil penalties.

"Without question, an injunction requiring the operator to shut down the illegal gambling website (or to no longer do business within the state), combined with the forced payment of tens (or even hundreds) of millions of dollars to injured consumers and state treasuries in the form of restitution, disgorgement, and civil penalties - along with the prospect of joint and several liability for payment processors and individual liability for those involved in running the business - can serve as a powerful deterrent to other companies likewise skirting state anti-gambling laws."

Wallach adds that "It can accomplish in just one case what dozens of cease-and-desist order cannot possibly achieve in what is fast becoming an endless game of 'whack-a-mole'."

And it's not just the sweepstakes casinos that should be worried.

Wallach notes that California, Florida and New York have constitutionally-enshrined prohibitions limiting casino gambling and are among the strictest and have some of the most prohibitive anti-gambling statutes in the entire country, with expansive "aiding and abetting" provisions that can reach financial intermediaries such as banks and payment processors.

"California and Florida, in particular, have a strong financial incentive to pursue litigation against sweepstakes casinos.  Both states risk losing billions of dollars in revenue-sharing payments under state-tribal compacts which guarantee Native American tribes either total or substantial exclusivity over casino-style gaming."