Sweepstakes are gaining a lot of regulatory attention across the US right now – but could this end up pushing more players onto the black market?
More and more state authorities are stepping in to close oversight gaps around sweepstakes games, with Montana being the first state to ban them altogether.
But tightening rules does not always suppress demand and some experts warn that it may instead redirect players into less regulated shadows of the industry.
How do sweepstakes work and what are the concerns?
For readers unfamiliar with how these products work, modern sweepstakes operate under a distinct structure. They typically use a dual-currency model that allows people to play without paying anything, which keeps them outside standard gambling laws. Anyone can enter for free, and prizes are awarded by chance. This model is what allows sweepstakes to exist in states where casino-style gaming is otherwise prohibited.
As a result, there is an unfolding legal battle in California, where Bill AB 831 is inching closer to shut them down altogether in the state.
Industry data suggests the sweepstakes market is sizeable enough to draw increasing attention from regulators. Around 55 million Americans enter sweepstakes or contests each year, hence the backlash.
Despite pushback from the Social Gaming Leadership Alliance (SGLA), support from tribal leaders and state influences as high up as the Attorney General mean that a ban is becoming more and more likely. California Attorney General Rob Bonta concluded in a 33-page document that “daily fantasy sports games, including both pick ’em and draft style games, are prohibited by section 337a because they involve betting on sporting events.”
Since @AGRobBonta issued his formal opinion concluding that daily fantasy sports contests violate California law, two #DFS operators — Underdog (8/26) and Boom Fantasy (8/28) — have been sued in CA federal court cases seeking recovery of gambling losses on behalf of a class.
— Daniel Wallach (@WALLACHLEGAL) August 29, 2025
DFS and sweepstakes share the same core vulnerability. They both rely on legal gray areas to operate outside gambling laws, and history shows, through the rapid DFS crackdown, that once regulators decide a product looks too much like gambling, those gray areas can vanish quickly, pushing operators into tighter rules and some users toward unregulated alternatives.
That reality has now been reflected in a move from Google, with the tech giant removing sweepstakes games ‘social gaming’ classification. Google’s decision raises both the cost and difficulty of user acquisition by increasing CPIs, limiting ad access, and potentially reducing app-store visibility. Social gaming differs from gambling because players can’t win money or anything with real-world value, but it’s enough for Google to change its policy and flag it for regulatory concern.
Put simply, the regulatory landscape is heating up – and it doesn’t look like it’s going to get any less delicate for sweepstakes operators and players anytime soon. In gambling-cautious states like Texas, where sweepstakes are the only legal avenue to play casino-style games, it seems inevitable that state laws will eventually turn to sweepstakes.
Speaking to ReadWrite, civil and criminal attorney Everett Lupton, a founding partner at Slaughter & Lupton, said: “I’ve seen enough regulatory cycles to know that the sweepstakes scene in California is just becoming more intricate.
“Operators are often forced to modify their models in response to each new set of enforcement actions, which leads to uncertainty for all parties.”
The impact of uncertainty
That uncertainty stems from the speed at which digital-first industries can evolve. Sweepstakes companies can launch new products and onboard users far faster than legislation can be drafted. This leaves regulators playing catch-up, businesses investing in models that may soon become unsustainable, and players losing access to games once enforcement eventually arrives. It’s a similar phenomenon to what we’re seeing with prediction markets, with new apps and platforms coming out faster than regulation can keep up.
“Companies sometimes operate in a limited area where marketing, consumer protection, and gaming legislation overlap since the statutes themselves have not kept up with the speed of the promotions sector,” explained Everett. “Legal issues typically arise from that tension.”
The potential for the rise of the black market if sweepstakes are banned
The SGLA has pushed back on the various threats to sweepstakes games with a clear emphasis on how important consumer protection is to both the organization and its members.
Millions of Californians find joy, fun, and connection through online social games. Unfortunately, AB 831 could take that all away by banning online social games with sweepstakes promotions.
The good news is, you can take action to protect online social games. Tell Governor… pic.twitter.com/FMEZV3n6b1
— Social Gaming Leadership Alliance (SGLA) (@SGLeadership) September 30, 2025
“SGLA partners have always put consumer protections first, and we remain committed to advocating for state regulatory and taxation frameworks that will benefit players, communities and the industry,” wrote Managing Director Sean Ostrow in a blog post.
The message appears to be aimed at critics who argue that sweepstakes lack adequate consumer safeguards, but it also reflects a concern widely shared among operators that aggressive restrictions could drive players toward underground alternatives rather than protect them.
Such alternatives often operate through offshore servers or crypto and prepaid-card payment systems. These platforms offer little recourse for fraud, no age controls and no contribution to state tax revenue that could fund harmful gambling prevention programs.
As enforcement tightens, these channels can become more appealing. Offshore and crypto-based platforms typically offer instant onboarding, limited identity verification and high anonymity. These features attract users when legal access shrinks. In other words, enforcement does not eliminate demand, but it pushes users toward places with far fewer protections.
A similar pattern appeared during the DFS crackdown of 2015–2016, when regulators in states such as Nevada noted a rise in attention around unlicensed and offshore DFS sites. Researchers and policymakers have repeatedly pointed to this dynamic in online gambling more broadly: when regulated options narrow, activity tends to shift to unregulated ones, not disappear.
“I think there’s a good chance that ongoing enforcement will encourage some businesses to adopt less open procedures,” speculated Everett. “A section of the market attempts to operate outside the lines whenever regulators expand enforcement or tighten definitions.
“The likelihood of black market activity rises when businesses believe they are unable to compete under the current regulations, but this does not imply that all businesses are going in that direction. I’ve dealt with enough conflicts to understand that ambiguous borders frequently attract dangerous people.”
Of course, regulators who support a crackdown see things differently. They argue that sweepstakes already sit too close to unlicensed gambling and that shutting them down helps steer people back to clearly regulated choices like lotteries, tribal casinos or licensed commercial operators. From this point of view, tightening the rules is a way to protect consumers, not to limit their options.
However, even among companies that want to stay on the right side of the law and operate a legitimate business, the lack of clarity and legal gray areas can leave them either open to prosecution anyway, or forced to abandon paths they invested heavily in before regulation rolled in.
“Even when a mistake is linked to inadequate compliance preparation, it can appear deliberate, which presents a problem for legitimate businesses,” noted Everett. “Promotions that are created without carefully examining prize structures, consideration issues, and chance components run the risk of quickly turning into gambling.”
For companies currently operating in the sweepstakes space, it’s wise to keep an eye on all things best practice in the meantime. That means maintaining regular reviews of prize mechanics, ensuring all terms and conditions are kept transparent for stakeholders, users, and regulators alike, and staying on top of internal auditing trails.
“Although I don’t anticipate it anytime soon, clear guidance would be helpful,” concluded Everett. “Until then, businesses should handle sweepstakes the same way they would any other area with potential legal and criminal liability.
“The safest course of action will involve thorough documentation, a close examination of promotional guidelines, and a readiness to make changes to campaigns prior to launch.”
Featured image: Midjourney
The post Black market risk: will banning sweepstakes push players offshore? appeared first on ReadWrite.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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