A major model for online gaming in the US markets is under threat lately through legal action. The Sweepstakes model, employed by poker operators like Global Poker, is an attempt to skirt USA online gaming laws designed to prevent real money gambling online.
The model uses a free-to-play model mixed with real-money options that focus on “free coins” or tokens that players use to play games like slots, table games, poker, etc. Players can take part in the gaming with no real money component or purchase “sweeps coins” which give access to games where real money is at stake.
Designed as a carve-out to the online gambling laws to exempt companies like McDonald’s from running afoul, the sweepstakes model has been adopted by online gambling companies in force in the US as a way to offer gaming services in the US within the law.
That is under attack with the latest salvo coming from a lawsuit in Massachusetts against the parent company of Global Poker. The action, filed in the Superior Court of Suffolk County by an anonymous plaintiff going by “M.M.”, accuses VGW Holdings US (which includes Global Poker as one of its holdings) of using the sweepstakes model as a front for real-money gambling.
Sweepstakes Model Comes to Life After Black Friday
After Black Friday, gaming laws in the US got quite a bit stricter, and online gambling largely shut down across the country while state regulators worked out how to administer online systems. Slowly, online gaming and poker reemerged in a few select states like Nevada and New Jersey.
Later, more states like Michigan and Pennsylvania joined in with fully legalized online gambling, but across much of the country, the activity remained illegal with the exception of sweepstakes models. The systems provide free tokens to players at sign-up and with regular drops that allow to play all the games with no financial input.
Players mostly compete for more tokens that allow them to play more and bigger games. Real money and prizes with value can be won here, but with a less direct relationship than in real-money gaming. Tokens can’t be exchanged for cash in either direction though prizes can be awarded through things like monthly leaderboards.
The model was designed as a carve-out for companies that run promotional games. McDonald’s popular Monopoly promotion is an example where players get random cards that can be exchanged for prizes. Intended as an occasional thing for those sorts of time-limited offers, the model was seized on by online gaming companies as a way to offer their product within local gaming laws.
Legal Pushback
Predictably, there has been legal pushback. The most recent example comes from a class action suit filed against VGW Holdings US, which operates US online gaming sites Chumba Casino, Luckyland Slots, and Global Poker.
While Global Poker is not named in the lawsuit, the class-action nature of the suit allows for more claims to be attached, including potential similar claims against the poker operator. The latest suit hinges, at least in part, on a leaked company prospectus that the plaintiffs assert details knowledge by company officials that the model actually does offer a form of online gambling.
“Although Defendants deny that their websites involve gambling (despite the obvious purpose of the websites), they admitted to investors that the websites are intended to target the ‘real-money gaming market’ in the United States. Defendants also admitted to investors that the websites are modeled on ‘Internet cafe sweepstakes’, which was a widespread practice during the early 2000s that criminals tried to use to evade state gambling laws.
Cover sheet from lawsuit filed in the Superior Court of Suffolk County by Joel D. Smith of Smith Krivoshey PC
“The Massachusetts Attorney General and courts across the US consistently determined that Internet cafe sweepstakes are a form of unlawful gambling, and Massachusetts law directly prohibits the use of fake ‘sweepstakes’ as a pretext for gambling.”
This is only the latest in a series of setbacks for the company and the model in general. The company is the subject of as many as a dozen lawsuits in 10 different states as well as legal action from the American Gaming Association (AGA) and it has pulled operations from six states completely.
The US isn’t the only market where the model is coming under legal fire. In Europe, other companies are attempting similar models with the EU regulatory environment at least as complex as the US but with many more restrictive jurisdictions.
At the same time, moves are happening in many jurisdictions, including Massachusetts where the VGW suit is ongoing, to make online gambling legal under local law. Massachusetts is in the process of updating its gaming regulations to permit online gambling and poker outright, a move that may render the sweepstakes model obsolete, at least for that state.
While US gaming laws are easing in many places, with a multi-state gaming pact going into effect in the emerging eastern US markets, the sweepstakes model adopted to skirt those regulations is under attack. It remains to be seen if it can withstand the legal onslaughts it faces on multiple fronts.
Special thanks to Haley Hintze at Poker.org
