California’s Journey to Ban Sweepstakes Casinos: AB 831 Awaits the Governor’s Signature

For years, sweepstakes casinos have operated in a legal gray zone, providing their players an alternative form of gaming that’s ‘free-to-play’. Its ‘no-purchase requirement’ promise draws players to play, join the community, and swap coins for potential real-world prizes.

Now, California—the country’s largest state by population and a leader in iGaming—is at the crossroads and ready to disrupt the model. Assembly Bill 831 (AB 831) was filed by Assembly member Avelino Valencia. The bill easily hurdled the Senate vote, and it’s now waiting for Governor Gavin Newsom’s signature.

With a stroke of a pen, the Governor could reshape the gaming industry not only in the state, but across the country.

What Are Sweepstakes Casinos?

Unlike real money casinos, sweepstake casinos don’t require their players to bet real money to participate. They operate using a dual-currency model, offering its users two forms of credits: one designed for free play, the other can be swapped for real-world prizes. 

By adopting a ‘no-purchase requirement’, sweepstakes casinos operate in the legal gray zone and don’t need to apply for a gambling license.

And for some players in states where online casinos are restricted, these sweepstakes casinos act as an alternative. They can register for free accounts, get Gold Coins (GCs) as a no-deposit bonus, and play casino-style games like slots or roulette. 

These sites also tease cash prizes and prizes like vouchers, which are redeemable via Sweeps Coins (SCs). California, with its large population, attracted some of the biggest operators.

Today, the state hosts some of the biggest sweepstakes operators, offering both casino-style games and social sports betting.

Early Concerns and Questions Surround Sweepstakes Casino Operations

As its popularity grows, questions and concerns quickly follow. Early complaints accused sweepstakes casinos of disguising their illegal gambling operations. Some critics targeted popular operators, including Stake, that relied on promotional credits and sweepstakes entries to skirt the state’s gambling laws. 

In short, critics say these sweepstakes sites allowed local players to enjoy casino-style gambling without regulation or oversight. Here are some of the key issues identified by critics:

• The sweepstakes casino’s ‘playthrough requirement’ often forced players to wager their bonus funds multiple times, which, according to critics, put players at a disadvantage.
• Some of these sites are offshore entities, making enforcement and consumer protection difficult.
• The state missed out on potential tax revenues since these platforms are largely unlicensed and unregulated.
• Some critics highlight the operators ‘deceptive marketing practices and the lack of (or poor KYC), leading to problem gambling.

These issues led to inquiries and lawsuits accusing these operators of violating the state’s gambling laws, prompting legislators to pass bills like AB 831 to ban these sites and to protect local players.

Crafting AB 831- Keeping an Eye on Regulation and Players’ Protection

The critics' push to make these sites accountable led to the drafting of AB 831 early this year. Proposed by Assembly member Avelino Valencia, the bill aims to ban sites that use the dual-currency model to circumvent existing state laws.

Based on its original form, here are a few key features of legislation:

• Ban on sites that use the dual-currency model. The bill explicitly bans the conduct, operations, and promotion of online sweepstakes games that use Gold Coins (GCs) and Sweeps Coins (SCs).
• Penalties for operators. Operators found to have violated the law may face misdemeanor charges, serve jail time, or pay fines of up to $25,000 per violation.
• Extended liability. The legal responsibility extends to platform providers, payment processors, markets, and even endorsers of the betting activities.
• Integration of consumer protection and regulatory oversight. The bill aims to address loopholes that allowed offshore sites to target locals, circumventing existing gaming rules.
• Exemption for users. The bill explains that users are exempt from accountability, with enforcement and regulation focused on operators and their affiliates.

Here’s what the bill’s supporters are saying:

Its proponents and supporters say that the bill will help regulate the unlicensed operations of sweepstakes casinos in California. If it becomes a law, it closes loopholes that allowed operators to operate unchecked.

According to Assembly member Valencia, “AB 831 would protect Californians from unregulated online gambling by prohibiting online sweepstakes games that use a 'dual currency' model to mimic casino-style wagering”. Some supporters also argue that the bill will finally establish a player protection program. 

There have been reports about questionable marketing tactics and promotions that target locals. Also, the bill will protect underage players, who are often drawn into these sites due to a lack of strict “Know Your Customer” procedures.

Stakeholders hit back at AB 831:

Sweepstakes casino operators have plenty of supporters, too. The bill, says the Social Gaming Leadership Alliance, creates “a sweeping criminal liability”. Section (b) of AB 831 states that "any person, entity, financial institution, payment processor, geolocation provider, gaming content supplier, platform provider, or media affiliate" that supports the sweeps operations may be held accountable.

Also, representatives of the top sweepstakes casinos argued that their platforms operate above board. They also warned that an outright ban would force these sites to close down and relocate, costing potential revenue and job losses.

What’s Next for AB 831?

Despite the counter-arguments and objections, AB 831 gained majority support. The California Senate approved the bill with a 36-0 vote on September 8th, then another 63-0 vote at the California State Assembly on September 12th.

Its strong bipartisan support highlights the legislators’ consensus in banning these platforms in the state. The bill is now on Governor Gavin Newsom’s desk awaiting his signature. His office has yet to issue an official statement, though some political pundits and observers have cited the governor’s stance on consumer welfare and responsible gaming initiatives in the past.

Stakeholders are on their feet, and some operators are scrambling to calibrate their operations. At least three sweepstakes casino operators have exited the state in recent weeks, and it isn’t surprising if a few more follow suit.

While there are calls and pressures for the governor to veto the bill, we think AB 831 will become law soon. If it happens, we’re looking at a new dawn for sweepstakes gaming. And we can expect plenty of shakeups and marketing recalibrations not just in California, but in the broader US market.

REFERENCES:

• Senate Committee on Public Safety
• Assembly member Avelino Valencia