Three elements
Many American states' anti-gambling laws define an illegal lottery as the combination of three elements: consideration, chance and a prize. California's Penal Code is typical, defining a lottery as the distribution of property by chance among persons who have paid "any valuable consideration" for the chance. Remove any one and the activity is not gambling. A free-to-enter contest with a prize decided by chance is a sweepstakes. A paid contest decided by skill is a tournament. A paid game of chance with no prize is entertainment. Gambling law is, at bottom, a set of arguments about whether each element is present.
The sweepstakes casino model attacks the first element. Chance is present, the games are slots. A prize is present, the cash redemption. Consideration, the model argues, is not, because the sweeps coins that win the prize are free: given away with a purchase of something else, given away daily, given away by post. The purchase of gold coins is consideration for gold coins, a product with entertainment value, and not for the sweepstakes entry that accompanies it.
That is the whole theory. Everything a state does in response is an attempt to show that consideration is present after all, or to change the law so that the question does not arise.
The promotional sweepstakes exemption
The theory borrows from a body of law that predates it. Companies have run prize promotions for generations, and state law generally allows them provided that entry is free, meaning that a purchase cannot be required, that a no-purchase route is available and disclosed, and, as promotions lawyers put it, that free entrants get the same opportunity to win as paying ones. The fast-food peel-off game, the drinks-cap code and the "no purchase necessary" line on every entry form are that law in operation.
The sweepstakes casino argument is that it is doing the same thing: the industry association likens its members' promotions to the sweepstakes that Fortune 500 companies use to sell "coffee, magazines, or french fries". The product is gold coins. The promotion is sweeps coins. The no-purchase route is the post and the daily bonus. The prize is decided by chance, as prize promotions always are. The only difference, on this view, is that the promotion happens to look like the product it promotes.
The argument's weakness is the one courts and legislatures keep returning to: in a fast-food promotion, people buy the food because they want the food. In a sweepstakes casino, the evidence that people buy gold coins because they want gold coins is thin, and the evidence that they buy them to get sweeps coins is the operators' own marketing, which sells the cash prizes rather than the gold coin play. When the promotion is the reason for the purchase, the purchase is consideration for the promotion, and the exemption falls away. California's Supreme Court made the point in 2015, in a case about sweepstakes internet cafés: once chance and prizes are added to a purchase, people "are no longer paying just for the product". One gambling lawyer counted at least 15 decisions on casino-style sweepstakes games that award entries in proportion to money spent, every one finding illegal gambling although free entries were available. Whether it falls away in law depends on the state's statute and the court's willingness to look through the structure.
What the states have done
Responses fall into four categories, and a state may be in more than one.
Explicit prohibition. A statute that defines the dual-currency model and bans it, usually by prohibiting online games that use a virtual currency redeemable for cash prizes and simulate casino gaming. In 2025 five states, California, Connecticut, Montana, New Jersey and New York, passed laws explicitly prohibiting sweepstakes platforms that mimic online casinos or sportsbooks. Connecticut's was signed in June 2025; California's was signed on 11 October 2025 and, under the state's constitution, took effect on 1 January 2026. In the first five months of 2026 six more states, Indiana, Iowa, Louisiana, Maine, Oklahoma and Tennessee, enacted bans or measures close to bans, and bills remain pending elsewhere. Prohibition statutes often reach suppliers, payment processors, affiliates and media as well as operators. California's makes it unlawful for any financial institution, payment processor, geolocation provider, gaming content supplier, platform provider or media affiliate to knowingly and willfully support an online sweepstakes game, and Oklahoma's, in force from 1 November 2026, makes it a felony for a geolocation provider, gaming supplier, platform provider, promoter or media affiliate to provide support.
Enforcement under existing law. Attorneys general and gaming regulators in a number of states have concluded that the model is illegal gambling under the statute they already have and have sent cease-and-desist letters, sued, or both: in June 2026 Kentucky's attorney general sued VGW, the operator of Chumba Casino, LuckyLand Slots and Global Poker. This route does not need the legislature; it needs a court to agree that consideration is present. Several operators have withdrawn from states on receipt of a letter rather than test the question: after New York's attorney general wrote to them in 2025, all 26 platforms she identified were ending the sale of sweeps coins in the state.
Private litigation. Class actions on behalf of players allege that the operators ran illegal gambling and that players are entitled to recover their losses under state statutes that allow the recovery of gambling losses, some of them nineteenth-century laws that let a third party sue for a gambler's losses, with at least one plaintiff seeking treble damages. Some also plead federal racketeering claims, as in the class action against Stake.us and its celebrity promoters under the RICO Act. The Washington social casino cases described in lesson one are the model, and the settlements there, $155 million in the Big Fish Casino case alone, were large enough that the sweepstakes cases are being taken seriously by defendants and their insurers.
Licensing. The industry association argues for clear regulations that allow social sweepstakes games to flourish rather than bans, which in practice means a regulated sweepstakes regime: registration, age verification, responsible gambling tools, a tax and enforcement against those who do not register. None of the sweepstakes laws passed in 2025 and the first half of 2026 created such a regime: they were prohibitions or new enforcement powers, and the licensed gambling industry, which regards the model as unlicensed gambling, has pressed for bans and enforcement, claiming credit for pushing sweepstakes casinos out of many key markets.
The legal design under pressure
The model was designed to survive the three-element test, and its defence depends on the operator following its own rules, although the courts that have examined casino-style sweepstakes have not so far accepted it. It fails in three ways.
The free route is not real. If postal entries are not honoured, are honoured with a token number of coins, or represent a negligible share of sweeps coins in circulation, a court can find that the free route is nominal and the purchase is the true consideration. Operators' own data on the proportion of free coins is the evidence that matters, and it is discoverable.
The marketing sells the prize. Advertising that promotes cash winnings, a lobby that defaults to sweeps play, a currency toggle that treats gold coins as an inconvenience, and affiliates who describe the product as a casino, are all evidence that the purchase is for the promotion. The promotional sweepstakes exemption protects a promotion; it does not protect a casino that has a promotion attached.
The product stretches the exemption. A slot spin is decided by chance, which is what a sweepstakes is. A sports contest is decided by a real game, and a poker hand is decided against other players; describing either as a promotional sweepstakes for the sale of gold coins asks a court to accept a fiction with no consumer-product parallel. Sweepstakes sportsbooks have drawn specific enforcement: in August 2025 Arizona's Department of Gaming ordered Fliff and Thrillzz, which it called event wagering sportsbooks, to stop operating in the state.
Federal law
Federal gambling statutes have played little role, because they mostly criminalise conduct that is illegal under state law and therefore inherit the state-by-state answer: the Illegal Gambling Business Act, for example, applies only to a gambling business that is a violation of the law of the state in which it is conducted. The Unlawful Internet Gambling Enforcement Act of 2006, which requires payment systems to have policies and procedures to identify and block restricted transactions and defines unlawful internet gambling as a bet that is unlawful under the law of the state where it is made, matters in practice: once a state has declared the model unlawful, a processor that continues to serve operators there is exposed, which gives processors a reason to move before the courts do. Federal consumer-protection and advertising law applies to sweepstakes as it does to any promotion, and the disclosure rules for no-purchase routes are federal as well as state: a sweepstakes promoted by post must state that no purchase is necessary to enter and that a purchase will not improve the chances of winning.
Age
The model's age floor is a contractual term set by each operator, and its enforcement is whatever the operator's verification achieves. The gambling age in most commercial casino states is 21. The gap has been the licensed industry's most effective argument and the one the public understands without a lawyer: a product that is indistinguishable from a casino is available to eighteen-year-olds, and in the absence of verification at sign-up, to people younger than that. The industry association's code of conduct, introduced in December 2024, uses age verification to limit purchases to users 18 and older; a check tied to purchases or redemptions leaves free play unverified. Some operators have closed the gap themselves: Chumba Casino's current sweeps rules restrict promotional play to people aged at least 21.
The state of play
At the time of writing, in September 2026, the position is unstable in the way that matters most to an operator: the same model is lawful in one state, banned in the next, under enforcement in a third and in litigation in a fourth. The largest operators publish lists of excluded states that grow as each ban takes effect: Chumba Casino's rules of July 2026 exclude 16 states. Suppliers, processors and affiliates must each draw their own lines, and prohibition statutes that reach them directly give them reason to be more cautious than the operators. And the direction of travel is clear: more states are prohibiting than licensing, and the model's legal design is being tested in courts that have so far been unpersuaded that a casino becomes a promotion by giving its chips away.
What to take from this lesson
The model survives on the absence of consideration, established through a free entry route and the claim that the purchase is for gold coins. It fails where the free route is nominal, the marketing sells the prize, or the product cannot be described as a promotion. States have prohibited, enforced, been sued on behalf of players, and considered licensing; prohibition is winning. Federal law inherits the state answer, and the age gap is the argument that carries with the public. A professional assessing an operator should ask for the free-route data, read the advertising and check the product scope; the answers predict where that operator will still be operating in two years.