New Jersey Banning Sweepstakes Casinos?
by: Brian C. Schaller, Sophia Allen, Max Landaw, and Jamie Rubin
Those of us in the online real money gaming world have seen a proliferation of businesses offering sweepstakes casinos and related games. This has triggered push back from lawmakers and regulators, including in New Jersey, whose lawmakers are considering bills to outright ban the games. The New Jersey bills that are currently making their way through the legislature (Assembly Bill 5447 and Bill S4282) would effectively ban these games. Operators currently justify these games as legal because there is an alternate (free) method of entry. In this article we describe the games, the legal bases that they rely on, and what the New Jersey bills would do to the legality of these games in the state.
What are Sweepstakes?
Sweepstakes law developed and statutes were normally enacted to allow for businesses that are not in the gaming/gambling industry to promote their products and services (e.g., receiving a game piece for a chance to win a BMX bike in a cereal box). In these typical sweepstakes scenarios, the sponsor also offers a way to participate without buying the cereal box so that the sweepstakes is not deemed gambling. The three elements of gambling are generally recognized as: (i) consideration (e.g. payment); (ii) chance; and (iii) prize. By offering the free alternate method of entry (“AMOE” or “AMOE Exception”), the sponsor eliminates the consideration element and, thus, the promotion is not viewed as illegal gambling.
What are Sweepstakes Casinos (and related games)?
Social Casinos and related games have been utilizing this AMOE Exception to arguably avoid being deemed illegal gambling and to steer clear of licensing and regulatory requirements.
The games that we have seen generally function with two parallel game plays as follows: (1) The first game has (i) consideration (e.g. buying gold coins to play), (ii) chance, but (iii) no prize (e.g., no payout). (2) The second game has (i) consideration (e.g., getting sweeps coins because of a purchase of gold coins) (but, also, an AMOE), (ii) chance, and (iii) prize (e.g., a payout).
The most prominent type of game that uses this AMOE Exception are sweepstakes/sweeps casinos, where the game of chance for the first and second games are casino games (e.g., slots, table games). However, this AMOE Exception can also be used for other types of games that run the risk of being deemed illegal gambling or requiring licensing, such as sports betting or fantasy sports.
What the New Jersey Law Would Do.
Gambling and gaming are mainly regulated and governed at the state level, so whether any game is legal largely depends on specific state statutes, and court-made legal precedence. In New Jersey, currently, there appears to be no specific statute that permits sweepstakes. Those that provide promotional sweepstakes rely on an AMOE Exception to take the activity outside of various threshold triggers within gambling statutes, such as in the definitions “Gambling” and “Something of Value” (see: N.J. Stat. Ann. tit. 2C, § 37-1).
In simple terms, these new bills remove the ambiguity by defining sweepstakes. To run a legal sweepstakes under the statutory language proposed in these bills, there must be an AMOE, and any paid method of entry to participate in the sweepstakes must be ancillary to the purchase of food, beverages, or merchandise. Apropos to sweeps casinos, the bill notes that such merchandise may not include “coins, tokens, or online credits that have no value other than permitting sweepstakes entry or that are able to be exchanged for money or merchandise from the sweepstakes operator or an affiliated company.” This would explicitly prohibit the sweeps casino model by prohibiting the purchase of “gold coins” to be able to enter into the game of chance.
Additionally, these bills would prohibit determination of the winner of a sweepstakes based on the results of any sports event, contest, or the performance of an individual participating in any such contest. Thus, the lawmakers appear to be banning sweepstakes casinos as these typically rely on virtual coins and any sort of sweepstakes in combination with sports betting and fantasy sports.
Sweepstakes Casinos Under Fire – Stay Informed
The New Jersey bill is just one of the various ways that sweepstakes casinos are under fire across the country, including receiving cease and desist letters from regulators, class action lawsuits, and opposition from industry groups. So, it is important for online gaming operator offering sweepstakes casinos or those doing business with an operators to keep abreast of the latest developments on a state by state basis.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.