Sweepstakes operators are on the run nationwide in light of the passage of new laws, and tribal leaders in the Golden State want to take it a step further by going after the hundreds of millions of dollars in profit operators have reaped.
Last weekend, California Gov. Gavin Newsom signed Assembly Bill 831, aimed at dismantling the sweepstakes industry and holding accountable the entire ecosystem, from operators and payment processors to celebrity endorsers. It takes effect Jan. 1. Backed by the California Nations Indian Gaming Association, the unanimous passage of this bill marks one of strongest stands yet against unregulated gaming.
“The effort by the tribes is like nothing I’ve ever seen in 45 years,” said Howard Glaser, Global Head of Government Affairs and Legislative Counsel, Light & Wonder during a Wednesday webinar hosted by the Indian Gaming Association. “This was a well-thought-out, executed, and funded campaign that brought together all the tribes, associations, suppliers commercial operators, and sports betting and responsible-gaming advocates. It shows you what the industry can do when it stands together. I think it’s a powerful statement.”
Since the nationwide effort against sweepstakes gambling began a year ago at G2E, 17 states have declared sweepstakes gambling illegal under state law, Glaser said. Six states by their existing laws made it difficult for sweepstakes operators to conduct business in the state and most operators stayed out because of the risk. No states have deemed it legal.
“It’s 23-0 and 50% of the population in the U.S.,” Glaser said. “It’s extraordinary to get regulators, legislators, and attorneys general to take on and act on an issue in the same year. The ones that passed bills, like California, were unanimous. There wasn’t any effective opposition because people saw it for what it is. Once you parse through the dual currency and the rest of that nonsense, it’s gambling. It’s paying money for a chance to win money.”
Glaser said while other states may act, it almost doesn’t matter at this point. With the California law covering payment processors, suppliers, investors, and affiliates, the companies are at great legal risk. That’s a risk they didn’t think they faced a year ago.
“They will evolve it a bit, but for the most part it’s been a successful effort. California was the most important piece. It’s the most populous state with 20% of sweepstakes revenue and $100 million in advertising going in there.”
Glaser said it’s important, however, not to be deluded about what’s happening in the illegal-gaming marketplace.
“Sweepstakes gaming is one flavor in the ice-cream shop full of illegal-gambling choices,” Glaser said. “And it’s not even the biggest or most popular one, but a sliver. There’s a reason these products have seen explosive growth. It proved that there’s an immense consumer demand for online gambling. As long as someone is willing to step up and take the legal risk if there is any and have the technology and marketing to do it, those products are going to thrive. There’s scarce legal opportunity to satisfy that consumer demand. That’s the imbalance — strong consumer demand and no legal outlet. The illegal operations will proliferate. It was sweepstakes yesterday. It’s prediction markets today. It’ll be something else tomorrow, unless you address that underlying dynamic.”
Glaser said it’s not a small problem, estimating $40 billion in online sports wagering taking place in the California annually.
“This is a business that exclusively belongs to the tribes. Maybe they decide they don’t want to be in the online gaming business, but until it’s resolved one way or another, that business will go somewhere else, including criminal activity. And online casinos are multiples of sports betting. That’s a lot of money to leave on the table and somebody is going to capture those customers and you’ll keep playing whack-a-mole to tamp down the next thing that they come up with to circumvent the current law until we address the issue.”
Gaming attorney Scott Crowell said the best thing that can be done to make a dent in the illegal market is to provide legal access for players.
Victor Rocha, Conference Chairman of the Indian Gaming Association, said he’s not satisfied with the legislation victory alone and efforts to shut down the operators. He wants the state to take them to court to retrieve the money he said they made by offering illegal gambling.
“That’s when our job will be close to being done,” Rocha said. “We’re not even halfway. Phase one got the bill passed. Phase two is enforcement and disgorgement. Anything less than that’s a failure.”
Michael Hoenig, Vice President, Associate General Counsel of the Yuhaaviatam of San Manuel Nation, hopes Attorney General Rob Bonta will see a “clear green light” to start going after companies and cut off their support through platform providers and financing and payment processors. He said it opens the doors to local district attorneys to do the same.
Crowell said that the bill going through the California Legislature with such speed and overwhelming support compelled the major suppliers and operators to drop out of sweepstakes operations. Enforcement orders from other states, including cease-and-desist letter from Michigan, Arizona, and Massachusetts, also had a positive impact on ending operations, he added.
Crowell said the law provides a wake-up call and political cover for attorneys general around the country to give the issue the priority it deserves for enforcement.
“I want to see more dead bodies and coffins,” Crowell said to the laughter of others on the panel. “The tide has turned and the California legislation will be looked at as maybe the key turning point. It’s a great improvement in the situation, but we still have unfinished business. AG Bonta needs to wake up and make enforcement against sweepstakes, unlawful internet gaming, and all the various forms a priority.”
