States are banning sweepstakes casinos and only 7 offer online casinos

In the last few weeks several states have introduced legislation or passed bills to ban Sweepstakes Casinos, the latest being Connecticut. In a 22-0 vote Connecticut’s Senate passed a bill introduced in February that makes operating a sweepstakes casino a class D felony in the state and punishable with a jail sentence up to five years and a $5,000 fine. Previously, Mississippi and Maryland introduced legislation to ban sweepstakes casinos, while New York and New Jersey all have indicated plans to make them illegal as well. The only two states where Sweepstakes Casinos are specifically illegal are Idaho and Washington, which have laws on the books that make any form of online gambling illegal.

For those not familiar with Sweepstakes Casinos, these are websites or apps that offer slots and table games similar to anything one would normally see at a land-based or online casino except they technically have no monetary incentive. . . or at least that’s what the websites want you to believe. Once someone signs up, they will be given Gold Coins which is a virtual currency and any winnings are strictly in the form of credits that have no intrinsic value.If it was just left there then it would not be an issue, but these sites also offer Sweeps Coins which can be exchanged for cash or rewards. They are obtained upon registration with the casino, daily bonuses, social media promotions, mail in offers, referrals, and bonuses often tied in with gold coin purchases. For example, for a deposit of $50 a player may be given 500 Gold coins and say 50 Sweeps coins. Once enough Sweeps coins are won, they can be exchanged for money or gift cards, which is why many states say it is illegal. While Sweeps coins can’t be purchased directly, it’s clear that most players use other methods solely to obtain Sweeps Coins to bet on the casino and the gold coins are irrelevant. This shouldn’t be surprising to online casino bettors who play in demo mode and after winning a huge jackpot they lament that they weren’t playing for actual cash.

Sweepstakes Casinos argue they are doing nothing wrong because the casino does not have a purchase requirement and the majority of players only use Gold Coins and never pay a cent to the sites to obtain Sweeps Coins. They say most players just play for the enjoyment of the activity and the graphics and money is not even on their minds.  More importantly they say that because no purchase is necessary, under the rules of almost every state, a contest is legal as long as there is a method to win prizes without buying anything. Some point to contests like the McDonald’s Monopoly contest where a person can get Monopoly pieces either with the purchase of food or a drink, or they can mail a type of ballot to McDonald’s and get pieces sent in the mail without the need of buying anything.

Obviously, the amounts that can be won from Sweepstakes Casinos is small but one of the reasons they have grown in popularity is that currently only seven states have licensed and regulated online casinos. These include New Jersey and Delaware which legalized online casinos in 2013, Pennsylvania which legalized iGaming in 2017, West Virginia and Michigan which legalized online casino betting in 2019, Connecticut which legalized iGaming in 2021 and Rhode Island which just legalized online casino wagering this month. 

Only 7 States have Online Casinos 

The question that has to be asked is why that is the case?

Until  2011 all forms of online gambling were deemed illegal under the 1961 Wire Act when a court indicated in the early 2000s that the Wire Act applied to all forms of  communication and included every form of betting. But in 2011, the DOJ under Barack Obama issued a statement that, in their view, the Wire Act only applied to sports betting and contests, which made every other form of online gambling legal. That statement can be viewed here - State Lotteries Opinion. The opinion also indicated that the UIGEA passed in 2006 was inconsequential to the legality of online gambling since the UIGEA did not disallow any wagering that took place exclusively within a state.  Nevertheless, only New Jersey and Delaware made the effort to legalize online casinos in the aftermath of that decision and Governor Chris Christie signed the bill to legalize it reluctantly, only after legislators in the state agreed to concessions which mandated that all online operators had to be physically located in Atlantic City or  with websites that partnered with Atlantic City casinos.

It was only after SCOTUS struck down PASPA in 2017 that other states even considered looking at legalizing online casino wagering along with sports betting. Yet, over seven years after PASPA was repealed, only 7 states bother to offer online casino wagering, although 32 states are offering online sports betting.  Ironically, Delaware is not one of those states, since they require sports bets to be made in person at racetracks.

I spoke to a gambling consultant based in New Jersey about why he suspects that more states have not legalized online casinos and he responded that it’s all due to "ignorance, greed and stubbornness."

"States have always seen casinos as both a cash cow and a tourist attraction, particularly resort style casinos. So, when online casinos came along they were certain the product would cannibalize land-based revenue and have fought hard to ensure that never happens. The first test of that was in New Jersey when Christie fought with other lawmakers in New Jersey about legalizing the online product. Christie was certain that online casinos would stop people visiting Atlantic City but arguments by the other state Assemblymen won out and in the end it was legalized with stipulations. And Christie was quick to admit he was wrong. Not only did Atlantic City tourism not take a hit from the online product, but instead many people started going back to the casinos there because they got the gambling bug by  playing at places like BetCaesars or Borgata Online. Also, during the covid pandemic, New Jersey was saved from the devastation that other states which did not have online gambling faced, because while all states were forced to close casinos for up to a year and had no revenue, New Jersey revenues stayed almost constant since bored citizens flocked to online casinos to play games and enjoy playing games without a real hitch. Online gambling revenue for New Jersey in 2020 and 2021 was at unheard of levels. This was also the case in Pennsylvania which saw a major new interest in online casino wagering when it was launched just prior to the pandemic, yet land-based casinos never really took a hit aside from the pandemic years when they were forced to close.

So, it was obvious that land-based casinos and online casinos were a different kettle of fish and the two were not competitors but instead complemented each other. Michigan and Connecticut figured this out but many of the red states refused to budge because they still believed  that online casinos not only cannibalized land-based revenue including racetracks, but that online casinos was somehow a social evil that made it easier for underage and problem gamblers to get their fix, since it provided a platform to play which would go unnoticed since in their view internet sleuths weren’t as good as the guards at the entrance checking ID and the cameras that could spot problem gamblers on the self-exclusion list. Of course, that has proven not to be the case but most legislators in red states bought into Sheldon Adelson’s rant and ridiculous RAWA initiative that online casinos were going to destroy the morals of America and they didn’t want to upset the late casino mogul who they deemed was somehow the person that would get the GOP back in power. What they failed to comprehend was that Adelson’s only objection to online casinos was that he couldn’t sell hotel rooms, expensive meals and overpriced entertainment online.

That brings us to their stubbornness. Legislators, particularly in red states, now see that their concerns are unwarranted. Many of their issues with online betting are not occurring with online sports bets and in the states that have legalized online casinos that there is no cannibalization of revenue from physical casinos or extra danger of addiction or underage gambling from betting online. Nevertheless, they are still holding on to the fear that some day it will all come crashing down or hope that federal legislation will be passed to make all forms of online gambling completely legal across the United States rather than state by state, at which point they will jump on board. In the meantime, these states are losing money in droves while those with online casinos flourish."

Aside from Mississippi, the one red state that seems to be wavering is Arkansas which is looking at passing a double motion which would make online casino wagering legal while simultaneously banning sweepstakes casinos. And New York is looking at online casinos as a potential bargaining chip to keep the sportsbooks happy with being ripped off paying a 51% tax. Senator Joseph Addabbo has fought hard to justify why sportsbooks should remain paying a ridiculous tax on sports winnings and with no real appetite for new sportsbooks to enter New York which would lower the rate based on the tax matrix, Addabbo has more or less told sportsbooks that he will fight tooth and nail to legalize online casinos which will provide the sportsbooks a new low-risk opportunity that will have a far lower tax rate than sports betting. Addabbo and other legislators say this is viable because the state only has Resorts World in New York City, some racetrack casinos and a few Indian casinos throughout the state that would not take a major hit from online betting. Moreover, the state is still fighting with the Seneca Nation over payments from the casinos in Western New York, so this could be an opportunity to make both sides happy by providing the Senecas the chance to have an online casino site either on its own or in partnership with a company like MGM or DraftKings.

So, Sweepstakes Casinos are everywhere in the news nowadays as states want them banned, since they do provide a way to make some money playing casino games. The reasons states want them banned are different. For Mississippi, New Jersey and Connecticut and most likely soon other states, like Michigan, that have legal casino gambling, want Sweepstakes Casinos banned because they are viewed as competition to the legal online casino offerings, and those states feel Sweepstakes Casinos should apply for a license and pay tax like all the other sites. And the reason for the call  for bans from the remaining states is they are sticking to the belief that online casino gambling is immoral and that gamblers should stick to more ethical forms of betting such as lotteries, horse racing, sports betting and land-based casinos. Of course, that reasoning is illogical, but it wasn’t that long ago I was at  a conference that had sessions on responsible gambling and one of the speakers actually repeated the famous old Jon Kyl line that a child could steal a parent’s credit card, click the mouse and lose the house. As long as that mentality still persists, it will be a long time before more states get on board with licensed and regulated online casino betting.

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