New Jersey’s bold move to regulate sweepstakes gaming

David Gravel January 29, 2025
New Jersey’s bold move to regulate sweepstakes gaming

New Jersey Assemblyman Clinton Calabrese has introduced bill A5196 to regulate the sweepstake casino industry. This bill marks a shift in how these platforms will operate within the state.

In a move that will bring sweeping changes to this sector, this move aims to integrate sweepstakes into the wider legal and regulatory framework for online gaming in New Jersey. This approach will affect the operators and has broader implications for consumer protection, revenue generation and the overall economy.

To understand the impact, looking at the bill’s proposals, comparing them to other states’ approaches, and considering the broader economic consequences is essential. SiGMA News recently presented a five-part series on U.S. sweepstakes based on a Vixio Regulatory Intelligence guide.

The rise of sweepstakes gaming

Sweepstakes casinos are an increasingly popular form of online gaming, offering players a chance to win prizes through games that mimic traditional casino slots. Traditional casinos rely on real money wagers, but sweepstakes casinos use virtual currency. This can be exchanged for prizes and often resembles a lottery-style format.

This unique business model allows these platforms to operate in a grey area of the law, with many jurisdictions either banning or loosely regulating their activities. Historically, sweepstakes casinos have operated in a space between regulated online gaming and illegal gambling.

As online gaming gained popularity, states, including New Jersey, took steps to designate effective regulations for these platforms. Jurisdictions like Michigan imposed outright bans on sweepstakes casinos, while others, like New Jersey, are working to regulate and integrate them into the formal gaming sector.

Taking steps towards regulation

Presenting bill A5196 illustrates New Jersey’s attempt to introduce more oversight and transparency to the sweepstakes casino industry. The bill proposes that sweepstakes casinos obtain a casino service industry enterprise license and an internet gaming permit.

The bill defines an ‘online sweepstakes casino’ as any platform available via an internet website or mobile application that allows participants to play authorised gambling games without requiring any initial monetary investment. Players instead use free currency to play these games, which they can exchange for prizes.

These requirements mirror those already in place for other online gaming operators in the state. One of the bill’s key requirements is for operators to partner with a licensed brick-and-mortar casino. This ensures sweepstakes platforms are linked to New Jersey’s established and heavily regulated gaming industry.

The Social and Promotional Games Association (SPGA) has welcomed the bill, stating, “The SPGA and its members are advocates for clear regulations that enable transparent, innovative, and responsible social and promotional gaming experiences.

“The bill aligns with our core objective of reinforcing the well-established legality and legitimacy of social sweepstakes games, which millions of American adults enjoy.”

The New Jersey Division of Gaming Enforcement (DGE) would take responsibility for overseeing these operations and enforce compliance with the state’s gaming laws. They will also ensure that operators meet strict standards. This includes the introduction of third-party audits both upon initial licensing and every two years thereafter. The overall aim is that sweepstakes casinos must operate with integrity and provide a fair, transparent environment for players.

New Jersey’s Assemblyman Brian Bergen recently introduced a new bill aimed at banning online advertisements for sports betting within the state. The proposed legislation seeks to prevent sports betting operators, including their employees, agents, and contracted partners, from advertising on the internet or via mobile applications. 

Consumer protection and taxation

New Jersey’s regulatory framework is designed to focus on consumer protection. Bill A5196 mandates that only individuals aged 21 and over can enter sweepstakes. This is consistent with the state’s approach to online gaming, which already implements rigid measures around player age and responsible gambling.

Sweepstakes casinos would be subject to the same tax rates as online casinos in the state, with a 15 percent tax on gross revenue. This puts sweepstakes casinos on a level playing field with other online gaming operators, helping to ensure fair competition within the industry. It also provides New Jersey with a regular revenue stream that will be reinvested into public services, infrastructure, and responsible gambling programs.

Comparison with other states

New Jersey’s approach differs from that of other states. Michigan, for example, has taken a more restrictive stance and has banned sweepstakes casinos outright. The Michigan Gaming Control Board sees these types of platforms as illegal gambling. They have served cease-and-desist orders to operators like Chumba Casino and Luckyland Slots. The state has pursued legal action against operators, claiming that sweepstakes casinos resemble illegal lotteries, which are heavily regulated under state law.

New Jersey takes a more inclusive approach. They incorporate sweepstakes casinos into their existing regulatory framework. This gives operators a chance to become legitimate players in the state’s gaming industry and also helps protect consumers, ensuring the state can collect tax revenue. Other states, such as New York, are also in the process of regulating online gaming.

New Jersey focuses mainly on traditional online casinos and sports betting rather than sweepstakes casinos. Other states take a more middle-ground approach, though. New York is working on legalising online gambling but has yet to fully address sweepstake casino issues.

Florida and California do not yet have a clear regulatory viewpoint, creating a grey area many operators can exploit. Florida has faced legal challenges with sweepstakes casinos, such as the case Knapp v. VGW Holdings Ltd., which highlights concerns about these platforms using legal loopholes to evade regulation.

Economic impacts of regulation

The economic impacts of regulating sweepstakes casinos are far-reaching. New Jersey can generate considerable revenue through licensing fees and taxes by bringing these platforms under a formal regulatory framework. Compliance with New Jersey’s licencing requirements and subsequent audits will raise operational costs. But on the other hand, it will also boost operators’ reputations, increasing customer trust and loyalty.

Regulation has the potential to legitimise sweepstakes casinos in the eyes of both consumers and investors. When platforms are regulated and audited, consumers feel more confident in their fairness and transparency, which could increase participation and revenue. This would also result in more jobs and stimulate the local economy.

Regulation has its challenges

Although regulation has many benefits, potential challenges loom. Smaller operators could find compliance costs burdensome, especially the cost of licencing and auditing. These costs could drive smaller players out of the market, reducing competition and innovation.

If regulations are too strict, this could limit the flexibility of sweepstakes operators. This may cause them to forfeit essential features that attract users to their platforms. However, consumer protection measures in the bill are a positive step forward. Mandatory age verification and employee background checks ensure these platforms are safe and fair.

By balancing regulations correctly, New Jersey could set a precedent for other states looking to regulate this emerging sector.

The future of sweepstakes gaming in New Jersey

The proposal from New Jersey is a brave and necessary move toward effectively regulating sweepstakes casinos. It will also set a precedent for responsible gaming practices. By adopting a comprehensive regulatory framework, New Jersey is positioning itself as a leader in the emerging field of regulated sweepstakes gaming. The state’s commitment to consumer protection, taxation, and industry legitimacy sets a definitive model for other states.

New Jersey’s approach will probably serve as a valuable reference point as other states consider how to regulate sweepstakes casinos. New Jersey can establish a thriving and responsible sweepstakes gaming industry by enforcing strong oversight and transparent regulations. Their proposed regulation of sweepstakes is a step forward. As more states struggle to regulate these platforms, New Jersey’s model could serve as a guiding example.

New Jersey’s commitment to transparency and fairness in sweepstakes casinos creates a safer, more profitable gaming environment that could be a model for other states.

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