Managing Editor
If California legislators are going to ban sweepstakes gambling this year, they’ll have to do so by the end of the week. Assembly Bill 831 passed unanimously in the Senate on September 8, but still needs to return to the Assembly. The catch is that this year’s legislative session ends tomorrow, September 12.
The bill narrowly targets sites offering simulated gambling and that use a dual-currency business model to offer cash prizes through their games. That includes dozens of sweepstakes casinos, sports predictions sites like Fliff, and several US online poker rooms: Global Poker, Clubs Poker, ClubWPT Gold, and Stake Poker.
These sites operate as social gaming sites with play money currency. However, purchases of the play money come with a “free” bonus of Sweeps Coins, which players can use to try to win cash. Many players ignore the play money entirely and treat the sweepstakes as if it was a gambling product.
Because sweepstakes are a matter of federal law, that makes the sites legal by default, even in states that haven’t regulated real-money gambling. However, many states, including California, have been trying to change that, either by issuing cease-and-desists or by updating their gambling laws.
AB 831 originated in the Assembly, but began its life as a minor technical update to gambling laws. It was only after it crossed over to the Senate that lawmakers amended it to transform it into a sweepstakes gambling ban. That’s why it will need to go back to the Assembly for approval, although the fact that it technically already passed once there may streamline the process to get it to a floor vote before the session adjourns.
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California’s Political Complexities for Gambling
California’s importance to sweepstakes sites can’t be overstated. These businesses have flourished primarily in states with few other legal options for online gambling. California isn’t only the richest and most populous state in the union — it’s also a political quagmire when it comes to gambling expansion.
That means that the sweeps would be safe from regulated competition, so long as they can avoid being banished themselves.
Existing gambling in California is split three ways between racetracks, cardrooms, and tribal casinos. Each has its own restrictions on the types of gambling it can offer, sometimes leading to bizarre workarounds. As the sweepstakes ban works its way through the legislature, the tribes are engaged in a simultaneous lawsuit against the cardrooms, trying to ban their approach to offering card-based casino games.
These competing interests — plus lobbying by out-of-state online operators and neighboring Las Vegas commercial casinos — have tended to gridlock most proposals for new gambling verticals. The spectacular failure of FanDuel and DraftKings to legalize sports betting without the tribes’ support is only the most recent example. Similar efforts to legalize online poker in the wake of Black Friday likewise ran into a brick wall as the cardrooms and tribes sparred over who would get market access.
Further complicating the sweepstakes issue is that the tribes are split amongst themselves. There are over 100 federally recognized tribes within California’s borders, only about two-thirds of which have gaming rights. Some smaller tribes without gaming revenue have come out against the ban, sparking a disappointed reaction from their peers who support it.
Suppliers Pull Out as Operators Stay to Fight
In other parts of the U.S., sweepstakes operators have pre-emptively pulled out of states that were close to passing a ban. Not so in California, where it appears most are determined to fight to the bitter end.
That’s perhaps unsurprising, given the size of the market and the diminishing opportunities for sweeps nationally. Losing access to California could well force some sweepstakes operators out of business.
Many sweeps operators are now facing class action lawsuits in California, including Global Poker owner VGW. In recent years, sweepstakes and social casinos have added compelled arbitration clauses to their terms and conditions to guard against such legal actions. These clauses force users to agree that any disputes will be resolved individually and through arbitration, not courts. However, those on the other side have found ways to fight back.
At least one operator, High 5 Casino, will have to face its class action after a California court deemed its compelled arbitration clause “unconscionable.” Meanwhile, some law firms have begun organizing disgruntled users into mass arbitration actions, whereby they all file similar complaints simultaneously.
Finally, there is the recent lawsuit against Stake.us, which took the novel approach of naming game suppliers and an affiliated game streaming site as co-defendants. That has provoked an immediate response from the suppliers, most of whom also serve regulated real-money gaming sites and don’t wish to jeopardize that business. Many have broken their deals with Stake or with the sweepstakes industry as a whole. Others have geoblocked their games so that they aren’t accessible from California.
So, even if the ban fails to pass and some operators escape their lawsuits, the sweeps casinos that remain in the state will have a smaller variety of content to offer their players.
