Companies have been using sweeps to generate business for decades; it just hasn’t always been called that in the advertisements. Take the McDonald’s Monopoly game, where you can win anything from a free milkshake to a car, and all you have to do is purchase a meal. This has long been considered a harmless marketing tactic, so concerns about sweepstakes’ legality hadn’t entered the conversation.
Fast-forward to 2005 and the birth of sweepstakes casinos, and the narrative begins to change. In this article, we look at the growing popularity of sweepstakes in the US and why they are still legal in so many states. We’ll also cover how sweepstakes work and examine the causes of the explosive growth over the last 20 years.
How do sweepstakes work?
A business must adhere to several guidelines if it wants to run a sweepstakes, but the fundamentals are that no purchase is necessary to win a prize and that there must be an alternative method of entry (AMOE).
You might wonder how McDonald’s Monopoly is considered legal—it’s a technicality. The consumer purchases the food, and the tickets for the prizes are free. There is also an alternative method of entry: You can send a letter to McDonald’s to request a free game piece without a purchase.
The same rules apply to sweepstake casinos, so they typically have two currencies: sweeps coins and gold coins. How a sweep coin works can be a little confusing. Sweep coins cannot be purchased and are only earned through giveaways and special promotions. You can exchange them for cash or gift cards when you’ve earned enough. On the other hand, gold coins are the currency needed to play and can be purchased, but hold no value.
When did sweepstakes become popular?
The first instances of sweepstakes can be dated back to the 1940s, when businesses held competitions to increase revenue post-World War 2. The popularity of giveaways and prizes has increased every year, but the exponential growth can be credited to the invention of TV and the Internet.
As audiences increased significantly, revenue followed, which led to even bigger prizes, and the cycle repeated itself. Businesses began to see the benefit of obtaining consumer information for marketing purposes, and consumers loved the idea of winning cash prizes without spending a penny.
Because of this, sweepstakes became part of American culture, and laws had to be established to regulate the industry. The Federal Trade Commission (FTC) established the first sweepstakes guidelines in 1974, and they have been adjusted several times since because of their growing popularity across multiple channels. For example, the Deceptive Mail Prevention and Enforcement Act of 1999 was created to further regulate sweepstakes sent via the mail.
Where are sweepstakes legal?
Text-to-win sweepstakes are legal in every US state as long as they comply with the stringent laws, including those mentioned above. However, the rules differ for sweepstake casinos, which are illegal in Idaho, Michigan, Nevada, and Washington.
The laws surrounding real-money online casinos are vastly different. You can only play online casinos for real money in Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, West Virginia, and Rhode Island.
Why are sweepstakes legal in states where gambling isn’t?
The differences in these laws cause huge debate, with many asking why sweepstakes are legal in so many states but real gambling isn’t. Lobbyists feel that sweepstakes casinos bypass gambling laws by calling their currency coins despite still needing to be purchased with cash. Because of this, they argue that sweepstakes casinos are making substantial gambling revenues without needing to comply with the same legislation and licensing laws as real-money casinos. Similar concerns about in-app purchases and loot boxes and their similarity to gambling have been raised, with Call of Duty getting a lot of flak throughout.
In the eyes of the law, sweepstakes differ from real-money gambling platforms, which is why they are legal across the United States. However, many businesses have been accused of blurring the lines and have faced legal consequences.
The conversation is ongoing about whether sweepstakes need to be regulated like real-money casinos or sports betting. This would require a significant change in sweepstakes legislation but would lead to a vast increase in state taxes, which the American Gaming Association (AGA) has called for.
What’s next for sweepstakes in the US?
We expect sweepstake prizes to become bigger and better as the industry grows. The revenue possibilities for businesses mean more money will be invested into advertisements. We expect to see social media play a key part in the growth of sweepstakes, as platforms like TikTok and celebrity endorsements are likely to be utilized to attract a younger audience. This is already seen in real-money gambling, with BetMGM using Jamie Foxx and DraftKings using LeBron James to advertise their platforms. The conversation about sweepstakes and their similarities to gambling activities is ongoing and could lead to a change in the law. For many, sweepstakes will be a fun recreational activity, but addiction charities warn that they can cause the same psychological harm as real-money gambling and call for further protection for players. More state-level regulations and restrictions may be applied for sweepstakes, and they could become subject to similar licensing laws as their real-money counterparts.