There are calls for stricter sweepstakes regulations in the United States as the ease of access to this type of game-of-chance gaming is booming.

There are many similarities between the business models of sweepstakes casinos and real-money options. They offer the same type of games, and the style of the products and services is nearly identical. They differ in that sweepstakes sites allow customers to play games with virtual currencies, which are then used to redeem cash prizes. In this setup, real money is not explicitly used when playing and winning, a loophole now criticized as it circumvents current laws in the United States.

Other aspects where business practices are different is that sweepstakes sites are available for 18-year-olds, and they often take inadequate responsibility relating to how customers spend their time and money on gaming platforms. Because of this, iGaming organizations are calling for stricter regulations for businesses using the sweepstakes model. These calls are seemingly already heard as the leading sweepstakes operator in America recently changed their legal age to 21, matching that of real money online casinos, possibly in a step to better align their business practices with current gambling laws in the US.

Sweepstakes Online Gaming is Big Business

According to a report by Eilers & Krejcik Gaming, the sweepstakes industry experienced a compound annual growth rate (CAGR) of 85% between 2019 and 2023. The growth rate in 2023 alone was 61%, reaching $5.6 billion in purchases and generating $2 billion in net revenue. Eilers & Krejcik projects that player purchases can amount to $11.4 billion in 2025.

This impressive growth only highlights the issues surrounding the current legal status of the sweepstakes business model. This model is allegedly too similar to real-money gaming, where sweepstakes sites are allowed to operate freely without appropriate legal oversight.

Critical Differences in Business Models Between Traditional and Sweepstakes Casinos

One key difference in the business model between traditional online casinos and sweepstake sites is that players do not have to pay money to play. This means that the play is not regarded as online gambling, and operators benefit from a legal loophole, which means their sites don’t follow regular online casino regulations. There are only two states that outright ban sweepstakes casinos from operating: Washington and Idaho; in all other states, U.S. residents can legally enjoy casino gaming through sweepstakes sites.

In sweepstakes casinos, players use virtual currencies, which usually include two types of coins. Gold coins are the most common currency and are used for playing games. They are sometimes branded and known by other names and often given to players as part of promotions and competitions. Gold coins can be purchased as a package using payment methods such as Skrill, PayPal, Mastercard, Visa, and wire transfer.

Sweepstakes coins (SCs) are the other virtual currency. Like gold coins, they are sometimes referred to by different names depending on the brand. These coins can also be had for free through promotions and competitions but are mainly collected through gameplay, typically when a player hits the jackpot in a game. Sweepstakes coins can’t be purchased, but they’re often rewarded as part of gold coin packages, where the player receives SC for free.

When players collect enough sweepstakes coins, they can redeem them for prizes, such as cash, a gift card, cryptocurrencies, or other services and objects with real money value. Players can only win cash gifts in this way and cannot win money directly from playing the games. This fact allows sweepstakes casinos to escape the regulation that applies to traditional online casinos.

Calls for Stricter Sweepstakes Regulations to Crack Down on Businesses

Companies and organizations from the regulated online gambling industry are unhappy with this situation, leading to their call to regulate sweepstakes casinos. Current laws are bad for consumers due to the lack of responsible gambling measures on some sweepstakes casino sites, such as self-exclusion, and nearly all sites are available for 18 year olds. Furthermore, many sweepstakes sites don’t participate in independent testing programs to certify that the sites and the games offered are fair, which increases the risk of fraudulent activities. States also lose millions of dollars in tax revenues due to a lack of sweepstakes casino regulations. To address this, lawmakers are urged to investigate sweepstakes operators and their current business practices.

Only Two States Have Banned Sweepstakes Sites Through Regulations

The lack of regulation in the sweepstakes casino market means most states have no laws against these sites. The exceptions are Washington state and Michigan, where they are illegal. Idaho has also created an unfavourable legal framework, allowing sweepstakes casinos while sweepstakes redemptions are illegal, making it impossible for players to convert their winnings into prizes. 

Sweepstakes casinos are not specifically illegal in Nevada, but most brands choose not to operate there. There are also restrictions in Florida and New York state, where prizes are limited to $5,000.

All other states have no regulatory compliance requirements, enabling sweepstakes casinos to operate successfully.

Sweepstakes Casinos Are Not Subject to Standard U.S. Gambling Company Tax Rates

The current tax situation regarding sweepstakes casinos is one key reason traditional online casino operators are pushing for stricter sweepstakes regulations. Sweepstakes casino operators typically have their business overseas, subject to lower tax rates than in the United States. Most companies operate from countries like Curaçao, Gibraltar, and Malta, where taxes can be as low as 0%.

Meanwhile, in the U.S., states are pushing for increased gambling tax rates. States like Illinois have recently increased online gambling tax rates significantly. New York and Massachusetts have also considered tax rises up to 50% on gross gaming revenue from online casino games. 

This is a massive discrepancy in tax rates where millions of U.S. dollars are taxed abroad to benefit foreign companies and jurisdictions.

Increased Likelihood of Stricter Sweepstakes Regulations

The sweepstakes industry has also been the subject of lawsuits from former players. For example, in June 2024, a plaintiff in Georgia claimed the sites misrepresent themselves and are breaking gambling laws. Other class action suits have been filed in Washington, Alabama, and Kentucky.

The combination of sweepstakes casino popularity, gambling industry protestations, and player lawsuits makes for a challenging future for the industry. However, it’s unlikely that all states will follow Washington and Michigan and outright ban sweepstakes sites, considering these sites are less harmful than regular online casinos. Sweepstakes casinos also present a lucrative area for additional tax revenues if states appropriately tax operators.

When regulating sweepstakes, lawmakers would want to find a balance between regulation and innovation while enhancing player protection. How states decide to progress with sweepstakes casinos will influence the future of the overall gambling industry in the U.S.

Until then, the sweepstakes casino industry will likely continue growing due to its popularity and availability in states where online casinos are prohibited. This ongoing popularity will enable the industry to use its substantial revenues to prepare for regulatory changes and the challenges they may bring. Meanwhile, the online gambling industry will continue to lobby for stricter regulations. Unless something changes, U.S. players will continue to file claims and lawsuits, increasing the pressure on lawmakers to speed up the process of regulating sweepstakes casinos.