The Social and Promotional Games Association on Wednesday posted a nearly half-hour video breaking down the mechanics of social casinos that utilize sweepstakes to incentivize buying its product. The video focuses on the importance of knowing exactly how these games function to see that they are following sweepstakes laws, which have been in use for years.
Chris Grove, a co-founding partner of Acies Investment and partner emeritus at Eilers & Krejcik Gaming, moderated the discussion. (Note: Grove is a founder of Legal Sports Report.) Matt Kaufman, the managing director of digital and interactive gaming at EKG, and Jon Kaplowitz, co-founder of Clubs Poker and former head of interactive gaming at Penn Entertainment, provided their insights on the industry.
In August, the American Gaming Association published a memo that asked gaming regulators to “investigate” companies offering sweepstakes casinos.
Sweepstakes: no purchase necessary
The well-known phrase “no purchase necessary,” typically ubiquitous in contest advertisements, is the biggest difference between operating an illegal casino and a legal sweepstakes casino, Kaufman said.
Gambling requires a prize, that chance be involved in winning that prize, and consideration. That consideration is typically money, or the wager one makes at a slot machine or table game.
But sweepstakes do not require consideration, Kaufman contends. By law, sweepstakes are required to provide free entries if requested, removing the consideration aspect.
Social casinos utilizing sweepstakes typically will have two types of currency. The first currency the game gives for free, while the second is currency is given away as an incentive to buy more of the free-to-play currency and can lead to real prizes with value.
I’m lovin’ sweepstakes prizes
Kaufman then broke out a comparison to the Monopoly game run for decades by McDonald’s.
Incentivizing a social casino customer to buy coins with a currency that can be used to win real prizes is similar to McDonald’s incentivizing consumers to buy its food with the chance to win cash and other prizes, Kaufman said. Trying to distinguish otherwise is “arbitrary,” he said.
“Similarly, we don’t fully understand, I don’t fully understand, why it would be OK for a social casino to run a sweepstakes contest where a user is winning a vacation and suddenly there are opponents if the prize goes up in value,” Kaufman said.
“It’s a very arbitrary distinction that I think is an attempt by certain actors to divide, to draw a line between what is gambling and what is social play that is advantageous to their specific business rather than looking at the definition of gambling, which we all know is the presence of prize, chance and consideration.”
Small percentage of players pay
Kaplowitz noted a well-known fact of free-to-play games: the vast majority of players will remain free players.
Anywhere from 1% to 5% of a player base typically is paying to play on these games, Kaplowitz said. A subset of those payers will be the players that spend a lot on the game because it is “extremely engaging,” Kaufman said.
These companies are built to “drive users along” a purchase funnel, Kaplowitz explained, which is why there is the incentive of a sweepstakes currency to spend money. Trying to grow a company’s percentage of paying customers is “consistent” across all social casinos regardless of whether they utilize sweepstakes or not, he added.
Responsible gaming a focus
Kaplowitz took issue with the AGA suggesting a lack of oversight and protections on sweepstakes casinos.
He noted that Clubs Poker works with some of the same know your customer (KYC), responsible gaming, anti-money laundering (AML) and geolocation companies he partnered with at Penn. The website has a pop-up that suggests a break when a player passes an hour on the platform and offers self-exclusion and limits.
The AGA memo also says there is a difference in play pattern for social casinos compared to sweepstakes casinos, which Kaplowitz disputes.
“I don’t know where that data came from,” Kaplowitz said. “I would be curious to see where the memo actually got that data. … Based on what I know about social casino and what we’re doing, which is a social casino, it’s pretty much the same type of behavior.”
Sweepstakes casinos recent timeline
Since 2023, regulators from multiple states have issued cease-and-desists to multiple sweepstakes operators. VGW, which is not part of the SPGA, recently agreed to pull its games out of Connecticut while “respectfully disagreeing” with the regulator’s position.
VGW also exited Michigan after a similar request made in January. But VGW has also not responded to a similar cease-and-desist sent by Delaware in February 2023.