iGaming Daily

Jessica Welman (00:02.108)
It's the debate that is sweeping the US gaming industry, but have you ever actually read up on how sweepstakes laws work? Never fear, iGamingDaily has a holiday gift for you. We're gonna give a rundown of how sweepstakes works from a legal expert so you can get caught up on the debate that is going to rage well into 2025. So get ready to go for today's episode of iGamingDaily.

iGaming Daily is brought to you by OptiMove, the number one CRM marketing solution for the iGaming market. I am Jessica Wellman, editor of SBC Americas, and I am joined today by a great guest, Bill Gantz, who is a partner at Duane Morris, as well as the co-lead of their gaming practice. Bill, thank you so much for taking the time to discuss this rather hot topic with us today.

Bill Gantz (00:49.826)
Thank you very much, Jessica. It is a delight to be here and to join the narrative.

Jessica Welman (00:55.216)
Yeah, I mean, I think the narrative you've mentioned that we've heard so far seems to largely be states or stakeholders saying, this is clearly an online casino, please go away. I think is a lot of what you're hearing. But what I would love to do is just kind of take a step back and establish why these groups feel that they have a legal ability to operate and enter the market.

Let's put aside whether they're competing or trying to be something else. And can we just start with, you know, how do kind of sweepstakes sites fit within the current legal landscape and why has this vertical kind of grown?

Bill Gantz (01:37.23)
Sure. Sure. I do think it is important to understand a lot of the remarks that I'll have during this.

session that the narrative really is led in terms of social media on X and LinkedIn or whatnot by people who are involved directly in the freemium space, which we'll be talking about today. So I think a lot of the things that are said, it has been very one-sided. So I do, I'm very happy for the opportunity to be here and discuss things that are being really a one-way narrative.

in my mind on social media. But the question being what is the basic framework for operating sweepstakes in the United States, it's really the same regardless of product. These sites are freemium operators and they have added a sweepstakes component to it.

But basically in the United States, it's lawful in virtually every state to use a sweepstakes to promote a product, a service or a brand with a sweepstakes giveaway. Here, the bona fide product for the sweepstakes operator is indeed a freemium or gold coins social casino.

So we know that that's a bonafide product because that exists out there and the people who are harping about sweepstakes are in fact operating those sites. So I don't hear them saying that freemium alone or the gold coin games is not a bonafide product. So that means in the U.S. it could be supported and marketed via a sweepstakes. Now the general rationale for all sweepstakes in the United States is

Bill Gantz (03:27.136)
simply that although there is a chance and there is prize, there is no consideration for the sweepstakes because no purchase is necessary to enter or win. People in the US have heard these words a million times in all types of different contexts, but it's no less true with respect to this product or service than any other. And I think that's one of the big misperceptions about the sweepstakes category is that it is not necessary to play

to make a purchase to play either the gold coin games or the sweeps coins games. So there is no purchase necessary to enter or win.

people want to they can collect and use the free sweepstakes coins as a bonus that they receive with a purchase. That's the basic tenet of why this is lawful and that really for any sweepstakes just like the one here there are really a couple things that are really important. One that you have a bonafide product.

So here it's freemium or the gold coin games. And second, that free entry and free entry is the basic premise of legality for every sweepstakes in the United States, including the ones that are being offered by what is being called sweepstakes operators. Although they are really freemium plus sweepstakes operators.

Jessica Welman (04:49.606)
So when you say freemium, just to kind of clarify for people at home, a lot of times I get this question from people when they come to me about understanding sweeps. They're like, well, why do they say that they're social casinos if they're sweepstakes casinos? And I'm like, well, it's because they are technically a social casino. So can you just kind of clarify what you mean by when you say a freemium product, the gold coin product?

Bill Gantz (04:52.728)
Mm-hmm.

Bill Gantz (05:13.634)
Sure, mean, freemium is a term that's been around for a long time. It's really a mashup or a portmanteau of free and premium. The gold coin games are ones where many users don't pay anything and never make a purchase. They can just play indefinitely. My mom's on Double Down and she's never made a purchase in 10 years. You know, that's what she tells me.

That's the type of game it is. Could we stop for a second? I don't want to mention that part about my mom.

Jessica Welman (05:51.386)
We can take that up. That's fun. That's sweet that she listens.

Bill Gantz (05:52.428)
Because she'll call me. She will. All right, so you asked me to talk about the gold coin game. All right.

Jessica Welman (06:01.988)
Yeah, just clarifying what the GoldCoin's product is.

Bill Gantz (06:06.542)
All right. So again, the gold coins product is called freemium in the industry. It's that term has been around for a long time. It's a mash up or pork monto of free and premium. Many players and users never make a purchase. They could have the app for 10 years and never make a purchase. And then those that do all they're buying are additional gold coins. And people do that for a variety of reasons. Some sites turn off ads. If you make a purchase, you can get

on a leaderboard. Some people just like the excitement of playing with more gold coins and both the freemium or gold coin operators and the freemium plus sweepstakes operators are operating those games as their core product and that that product's been around you know since at least 2012 and it's clearly to scale as sweepstakes now is as well. I hope that answers your question.

Jessica Welman (07:02.296)
No, it does. Just clarifying that there's kind of another business to this, which doesn't seem to get talked about as much. So much is placed on

the huge numbers of revenue that comes from what is perceived as like the sweeps coin side of the business and that they think that's what's driving the growth of the business. Obviously you aren't in charge of any of these businesses, but as an industry, do we have a sense of how big the social freemium casino component of these companies are? Is it something that impacts bottom line?

in terms of the company that if they were to take sweepstakes away they could still make money.

Bill Gantz (07:47.734)
Well, all of the sweepstakes operators are already also freemium operators. So that is their core product. if they and many do offer freemium only in certain states, so they're already in the same business category. So yes, it is entirely possible that a freemium plus sweepstakes operator can exclude sweepstakes from one particular state or globally and continue on as a freemium operator only. There's obvious

Jessica Welman (07:52.784)
Yeah.

Bill Gantz (08:17.64)
great demand for both products. Freemium only is, you know, I've seen different statistics or charts, but let's say it's at least $12 billion a year in revenue. know, companies like Light and Wonder posted in their 10Q that they did $700 million in Freemium. That's their product. So it's a large established business category. There are also many operators who are not publicly traded. There are 200 plus apps on

you know, Apple, Google and other and web apps that are just social casino. So measuring it is kind of difficult, but it's it's it's large and it's to scale sweepstakes. I've seen statistics from, you know, different consulting groups that put sweepstakes at 11 billion, 12 billion dollars in the last year. So they're both in my mind, they're both in the same business category, which is social casino. And they're both about the same.

at this point in size. But again, it's an imperfect measurement because there a lot of participants who are not publicly traded.

Jessica Welman (09:27.64)
We've reached the point of if you listen to iGaming Daily, you know that usually once an episode I have to clarify I am not a lawyer. So I hope I'm asking this kind of in a way that makes sense and I'm not inferring too much into the law. But I know a lot of the debate has been critics of sweeps say that these gold coins have no value and that you're buying them purely to get sweeps coins and go play sweeps.

Bill Gantz (09:36.622)
Mm.

Jessica Welman (09:56.557)
One, do you really think that that's true? think based on our conversation so far, you've established there's value there. And kind of two, why is that legally important for the argument of a sweepstakes property?

Bill Gantz (10:11.694)
Okay, I think there's a lot of conflation on this particular subject and a lot of misperception. So as I said earlier, the bona fide product is the sale of gold coins. And that's got to be true whether you're a freemium only site or a freemium plus sweepstakes site. I think that it's just a misperception on a lot of people's part, including regulators that have sent out cease and desist letters.

you know, without really any explanation or examination of the sites. They just assume that no one is using the gold coin part of the platform and they're just rushing and using the sweepstakes coins only. That's not what I'm advocating for. That's not what I advocate for. What my understanding is, is that the

freemium coin side of both platforms must be bona fide. It must be used. It must be something that is actually has utility. The gold coins are actually used. And in my experience from most of the operators that I've worked with or I know, we stress that and that is in fact the case. There's a high degree of utility or utilization of the freemium product on a sweepstakes site, which is

vastly different from the characterizations that I've seen, like this is like an internet phone card where somebody's paying too much for a product they don't even use. Again, that's not accurate.

Add tabs. I've seen that comparison add tabs or something people never used and threw in a garbage and They bought them in a bar and it was a pick a pull tab out of a pull tab machine In my mind part of the freemium and sweepstakes Operation is to have a bona fide product, which is the gold coins. So it's a really good question You know and one of one if you don't mind me continuing

Jessica Welman (12:13.03)
Go for it!

Bill Gantz (12:14.782)
One thing we didn't cover too is people often ask, well, okay, I get freemium. I get that you can have sweepstakes, but why can you use a game method such as a social...

casino or casino theme to run your sweepstakes. So in other words, why do sweepstakes fit into the current framework of US law? This is something that no one talks about and I think it's really important. So separate from the issue of whether something is gambling or not, there's also in some states

have some form of authorization for sweepstakes or they have some requirements for sweepstakes. But the vast majority of states do not place any requirements or really have minimal requirements for administration of sweepstakes. Virtually none of them tell you that the only way to do a sweepstakes is to collect a bunch of entries

have an end date and pull a winner out of a pile of entries. Now, maybe that's how things were done before the internet, right? But there's a lot of different gamified types of sweepstakes out there that, you know, Fortune 500 companies use. That's not just collecting a bunch of tickets in a hat and pulling an entry out. in my view, there's not one state

that actually limits the format for sweepstakes to this old fashioned method of selecting a winner by random drawing from some pool of entrants. It doesn't exist. So that gives innovators and all kinds of people the ability to come up with new ways to do things. And only a couple of states have actually limited the manner in which a sweepstakes winner can be revealed.

Jessica Welman (13:51.64)
Mm-hmm. Yeah.

Bill Gantz (14:11.776)
And those laws are really almost all directed at the cabinet machines that everyone's talking about, the gray games. It was an effort to combat those because people tried to do those too.

Jessica Welman (14:19.132)
Mm-hmm.

interesting. I was going to say there are some states we've seen nobody really goes into.

Bill Gantz (14:29.357)
Mm-hmm.

Jessica Welman (14:30.402)
both for, I mean, I've seen even with social casinos without a sweeps element. Why are there some states like Washington, like Michigan, that tend to be ones that people stay away from? Is it because Michigan is so, the MGCB is so active in kind of policing this, or is it because the state laws are different in some way than other states generally are?

Bill Gantz (14:43.992)
See you.

Bill Gantz (14:55.448)
Yeah, so, okay, well, Michigan, think the MGBC, put out a press release, they had a cease and desist process, they've licensed, the state has licensed iGaming, so they've probably been the most serious state.

And you know, actually the interesting thing about Michigan law is that there's an express exception for games which award free play. So there is an express exception for freemium. And there's, and actually the law too, other than the proclamation of the gaming commission, I think that there are good arguments for why you could do sweepstakes in Michigan. But I think that was kind of a flash point state and VGW with

Jessica Welman (15:37.872)
Mm-hmm. Yeah.

Bill Gantz (15:42.014)
drew so I think a lot of operators have done so. Washington, actually, you know, we have the catered decision. We have a United States District Court approving billions of dollars worth of settlements in order that gold coins could continue to be sold. No operator, including the two that are located in Seattle, Washington, ever pulled out, ever stopped selling gold coins. Their settlements were approved in those cases and the industry

has adopted those measures. Always free game, responsible gaming, self-exclusion. We call those the perspective measures. Those have been widely adopted by both freemium and freemium plus sweepstakes. So I don't think Washington is a state that you must exclude from a legal perspective, but I understand

Jessica Welman (16:26.03)
Okay.

Bill Gantz (16:29.422)
why people do it because it was the first state where there was really a lot of social casino litigation starting in 2015. There are a few other states that I think the law doesn't support in general. And then I think another reason why states are avoided is simply there are these gambling loss recovery act statutes and some of them allow people who aren't even players to bring lawsuits.

Jessica Welman (16:55.898)
I've seen this in Massachusetts, yeah.

Bill Gantz (16:58.37)
So yeah, and there are some lawsuits here and there in Massachusetts and hopefully we can spend a minute or two talking about all the litigation, but the litigation is against freemium companies only, as well as sweepstakes companies. I have cases in Alabama where we're alongside one another as defendants. So there's actually more litigation filed and pending against freemium operators than sweepstakes operators, but somehow the people talking about litigation

and don't mention that in their tweets.

Jessica Welman (17:31.93)
Yeah, I think in the back half of the podcast, what would be really helpful is I work with Brits. So having to explain anything about the US regulatory and legal system is always just hard to begin with. I think even if you're an American, it's hard to things would get conflated that aren't necessarily the same thing. So just to answer a very simple question.

Bill Gantz (17:36.494)
Mm.

Jessica Welman (17:57.904)
Has any state actually, the state itself, pursued legal action against a sweepstakes site?

Bill Gantz (18:04.726)
No.

Jessica Welman (18:06.382)
And so when people are like, there are cease and desist letters and regulators have taken action, why doesn't that qualify?

Bill Gantz (18:14.146)
Well, mean, a cease and desist isn't nothing. I mean, don't get me wrong, but you asked me if it's a legal proceeding. So legal. Yeah, it's not a legal proceeding.

Jessica Welman (18:17.541)
Yeah.

Yeah, no, I'm kind of clarifying this is, it's something, it's just not, we're prosecuting you, you know?

Bill Gantz (18:26.262)
Right, it's not a legal proceeding. And in fact, if a company gets a cease and desist and it doesn't agree,

It has mechanisms by which it can go to administrative hearing or it can actually challenge it in court. And that's the same right that any company has if they wish to do that. If the state isn't, if you don't have a lot of revenue in a state or it's not an important state to your business, you may choose to just walk away, which is what I think has happened so far in the industry. But.

there has been no legal proceedings. And the cease and desist actually comes from, I've seen them, they come from the gaming commissions. And in most states in the US, I'll try to help the Brits who are listening out here, in most states in the US, the gaming commissions are not the police force.

They don't have the authority to bring legal actions to stop people from doing something. They don't have the authority to charge someone with a crime. That would have to go to the Attorney General's office of that state. And I think that's the case in almost every state.

And you know, I think the Washington State Gaming Commission has legal enforcement powers, but they've they never used them with respect to freemium and they haven't used them with respect to any other product that I'm aware of so You know the the number I think the overriding goal here is that the state's

Bill Gantz (20:02.508)
The commissions that have decided they don't like a particular product, and it's not limited to sweepstakes. We've seen that with Pickum and other products. The issue is cease and distance letter. And then a dialogue starts with a company. And in some situations, they want a modification of a product. In some states, in some situations, they want you to leave. But there have been no legal proceedings per se. Charges are civil enforcement cases brought by states on this subject.

Jessica Welman (20:08.931)
yeah.

Jessica Welman (20:33.148)
But you have mentioned there are several civil cases pending where individuals have brought legal action against various sites. saw last week a new one with RICO charges and Google and Apple. can you kind of give us the, you mentioned you want to discuss these. Where do you want to start with this? The lay of the land of what's going on? As someone who tries to follow them all, I struggle to keep on top of all of them.

Bill Gantz (20:44.247)
Right.

Bill Gantz (20:53.014)
Yeah, so.

Bill Gantz (21:01.942)
Yes, and that is a struggle. I've been involved in the litigation, starting with the social casino litigation in the state of Washington. So I've followed every case, whether it's a class action or injunction case or a civil RICO or a mass arbitration or an individual arbitration. I followed every one of them. you know, the most recent, let's go most recent headlines in the narrative first.

Publishing the complaint in the Bargo case, which was just filed in New Jersey or publishing the complaint in the Prater case, which was just filed in New York. These are class actions brought by users, which means they're subject to arbitration. Okay, that means.

Jessica Welman (21:44.572)
I can't tell you how many times I've told the Brits about binding arbitration, so...

Bill Gantz (21:49.602)
All right, so that's a starting point. And then on RICO, I mean, it is black letter law that an individual consumer who suffers an alleged gambling loss does not have standing under federal law to bring a civil RICO case. I mean, we don't have time, but I could cite 20 cases on this subject and it goes back to...

It goes back to the first one in 1999 against the Chase It case. You have more recent case, McClode versus Valve. You have Taylor versus Apple. You have Coffee versus Google. I mean, the cases are legion, including cases, a very recent case by the Ninth Circuit where it's the Supercell Oik case, where the Ninth Circuit Court of Appeals, which is the same court that decided Cater.

determined that an individual claiming a gambling loss in California for opening an alleged loot box in a video game did not have standing to bring a claim under the uniform consumer law. I'm sorry, the unfair, the UCL, the unfair competition law and the CLRA. So it's not just Rico. This is a thing. So I know that there are lawyers who are, you know, jumping and filing lawsuits because they got excited and they're opportunist.

opportunistic plaintiff lawyers, but I hope that when the cases are dismissed that the people who like to post these complaints will give the same air time to the dismissal orders.

Jessica Welman (23:28.496)
Yeah, mean, again, correct me if I'm wrong. Covering the space, I know we've seen several. And primarily the reason they get dismissed is that when these customers sign up for this site, they say, if there is an issue, you agree that this is going to go to arbitration in order to settle that issue. Is that the predominant reason these get tossed?

Bill Gantz (23:52.11)
It's just really common for consumer facing companies, not just to just say like we're going to have an arbitration instead of a class action. And that's U S that's been the case under U S law for the last, I don't know my entire practice. So 150 years, sorry. But yeah, it's common.

Jessica Welman (23:55.576)
any consumer facing company. Yeah.

Jessica Welman (24:09.156)
Yeah. So we're seeing these kind of get dismissed for various reasons. Arbitration is a common one. So as this issue continues to be something that's debated so much, just for you personally, where do you think it gets hashed out or does it get hashed out anywhere in the coming months or years?

Bill Gantz (24:36.972)
Yeah, so, look, litigation, the civil litigation isn't going to hash it out for purposes of the regulators. It may affect the, it may affect the market, the marketplace. And the biggest case of all, which we didn't mention is the simulated casino style games litigation, which is an MDL in the Northern district of California in which the

same lawyers who started the social casino litigation in Washington are suing platforms such as Apple, Google, and Facebook on the same gambling loss recovery acts. Now, ultimately, I personally don't think they're going to be successful, but those are all based on freemium apps. Not freemium plus sweepstakes, those are just based on freemium apps. And that case is in progress.

Jessica Welman (25:24.186)
Mm-hmm.

Bill Gantz (25:32.288)
Obviously the platforms themselves have nothing to do with the operation of the social casino apps. And, you know, they have, have in my mind raised very good defenses under the section 230 of the communications decency act, which would probably take up a whole other podcast, but that one is the biggest one. And that is not being mentioned by all of the platforms who are opposing sweepstakes. So, all right. So back to your question, how does this hash out?

Jessica Welman (25:49.36)
Yeah.

Bill Gantz (26:01.74)
Look, the litigation won't settle it. The regulators, you know, they can issue cease and desist, but I think as they've seen with, you know, in general is they still have to have a basis to do it. They have to have a basis under the sweepstakes laws or the gambling laws to write a letter and then try to take it to the next level. And I think, you know, that's just lacking in a lot of states.

for either, this isn't just, this is not just about sweepstakes, this is also about freemium. Because all of the things that have been said about sweepstakes are true also about freemium. It's unlicensed, it's unregulated, it's been accused of irresponsible gaming, it's been accused of underage access. People spend hundreds of thousands of dollars on these sites to play freemium games and they only win gold coins.

All those allegations are in the litigation that is, you know, more recently we get snippets from the ones from the sweepstakes case, but all those same issues in litigation have been raised as to freemium only. So that's really important to understand if you really want to know what's happening in the litigation. I don't know where it gets sorted out except for if you want to authorize it, both freemium only and freemium plus sweepstakes.

then you have to change the laws and authorize it. If you want to prohibit, you have to change the laws to prohibit it. Now we have seen a recent, I think the most, maybe the most significant thing is the, the Nickel G's or the National Conference of Legislators from Gaming States. I think I said that right. They just proposed, all right, well, I'll see you there. I'll be.

Jessica Welman (27:49.702)
I get it wrong every time, but I think you did get it right. I think we'll both be in New Orleans this week to see the fallout of this too. Yeah.

Bill Gantz (27:56.554)
speaking on a panel there and it's going to be exciting, I'm sure. But they put out the MIGA, which is the Model Internet Gaming Act. Now, its ostensible purpose is to serve as a model act for states which might authorize iGaming. I think we don't need to talk about it. That has been stymied in the US for a whole bunch of different reasons. And I'm not sure that most states really need a model act.

They probably already authorized sports wagering. They authorized DFS in many cases. The rubric for how to do it is not that complicated and they've done it before. The more significant, I guess, newsworthy item is that Chapter 20 of MIGA, it looks like the lobby against sweepstakes has been able to put in something about dual currencies, sweepstakes sites. I mean, I...

I think the most interesting thing, and this is not the proper way to go about regulating sweepstakes, you're have to change the sweepstakes law of the state rather than just prohibit something and call it illegal. The interesting thing about MIGA to me is that it leaves freemium untouched. Like, freemium only is still an unlicensed, unregulated game and it's not prohibited, so its legal status completely is unchanged.

Jessica Welman (29:02.043)
Mm-hmm.

Bill Gantz (29:22.284)
Well, it's still a giant category. I think if you're, if you're going to think about regulating any form of a social casino, you should be regulating all of it. I think that's a glaring, kind of a glaring hole in, in, in Miga personally, but maybe they'll sort that out. And I don't think I'm reading it wrong. but I think that's something, you know, that needs to be addressed. It's also a large industry. and

Jessica Welman (29:33.5)
Mm-hmm.

Jessica Welman (29:50.618)
Yeah, and in that model legislation, it's two sentences, I think, addressing the whole thing that's like, by the way, outlaw this category when you put something together. So there's a lot more that probably needs to be unpacked in how a state specifically does that.

Bill Gantz (30:03.254)
Yeah, there's yeah, and Jessica, there's also a bad actor clause, which, know, proponents, sports book, US-based sports book proponents tried to do the same thing in the litigation when they tried to exclude poker stars from coming to the market through bad actor clauses. And that wasn't accepted anywhere. Maybe one state, I mean, okay, one state.

Jessica Welman (30:26.821)
Nevada.

Bill Gantz (30:30.958)
But that wasn't really accepted either. look, I think there's a more rational way to do this. And if a legislator wants to regulate it and license it and tax it for the revenue in that state, then that's completely within their power to do so. And I think that's what the entire industry would prefer. And that would, that would,

pretty much get rid of the civil litigation, which, you know, at this point, it's not stopped. The civil litigation isn't stopping anything. And I don't think it will.

Jessica Welman (31:08.944)
Yeah. You mentioned the tax piece too. A lot of the comments are that these sites don't pay taxes and we can't speak for every freemium, freemium sweeps combo app out there. But most of them do pay sales tax, right? Internet sales tax on...

Bill Gantz (31:26.71)
Yeah, I'm not a tax expert, but what I've learned by osmosis is that, you know, if a state taxes digital goods, then a lot of the operators, and this isn't just, this is for all social casino, freemium or freemium plus sweepstakes, they're selling the same thing, gold coins. If that's a digital good, then that may give rise to a liability for paying sales tax. I think when people are talking about it being untaxed, they're saying like,

Jessica Welman (31:36.134)
They'll pay the...

Jessica Welman (31:41.532)
Yeah.

Bill Gantz (31:56.588)
the revenue, the profit, the handle, whatever you want to call it, is untaxed. And I think that whether a company pays taxes for its operations in every state is a matter for income tax. But again, we have offshore operators operating apps that only provide gold coins.

They're no more taxed or regulated than a sweepstakes operator, regardless of location. So, you know, I think that that's something if you regulate it, then you can say, all of this form of gaming that is conducted in our state will be subject to the following tax. And if you do business with users who are located in our state, then you will need to pay tax on that revenue. That's generally what I think a regulated model looks at.

but you know, mass, you know, one state can't tax what happens in another state and vice versa, but they can tax, the activity in its own state, particularly if it becomes a regulated product. Otherwise it's treated just like every other form of commerce. And I don't think that every form of commerce has to pay income tax in every state simply because they sell something into a state.

Jessica Welman (33:16.9)
Yeah, totally makes sense. Well, I will certainly be at your panel at Nickeljuice this week. I think we'll see the conversation continue there and into 2025. But thanks for giving us just the lay of the land so that people who have maybe just heard the headlines and don't really understand the context have a better sense of just what this vertical is and and more to what is happening there. So thanks so much for your time, Bill. We appreciate you joining us today.

Bill Gantz (33:44.846)
All well thank you very much Jessica for having me and I'll see you in New Orleans.

Jessica Welman (33:51.088)
Sounds good.