News writer; Opinion columnist
As of 2025, only ten states allow some form of online lottery play. So, while it can be convenient to buy Mega Millions or Powerball tickets from the convenience of your phone, most Americans still have to drive to their local gas station or liquor store to play the lottery.
However, there is a type of online lottery that is available in almost every state. Social casinos, such as Chumba Casino and Luckly and Slots, offer sweepstakes-style lottery games in which players can enter drawings and win real money.
While they're legal to play for now, some critics demand that state gaming boards regulate these so-called “free” casinos.”
Is a crackdown imminent?
Funny money
Social casinos are ostensibly “free” online, app-based gaming platforms that allow you to play lotteries and casino-style games for virtual money with no cash value. However, they also offer players the opportunity to win real money.
Generally, games with real-money stakes must be approved and regulated by state gaming boards, but social casinos utilize the sweepstakes loophole to offer real-money lottery games with almost no legal oversight.
The key to this loophole is that social casinos operate with two different types of virtual currencies, which are typically known as gold coins and sweep coins.
Gold coins have no redeemable cash value. They are usually cheap to buy, and it's not unusual to see 10,000 gold coins on sale for $1. They can be used to play games, but no matter how many you win, they have no value outside of the game.
However, when you buy gold coins, the social casinos will give you what is commonly known as “sweep coins” for free. Sweep coins are different from gold coins because while they can also be used to play games, they have a redeemable cash value.
Generally, social casinos will give you one sweep coin for every dollar you spend on gold coins, and sweep coins can usually be redeemed for $1 per coin. So if you win 100 sweep coins playing a game, most social casinos will let you cash those in for $100 in real money.
The way that social casinos can get around regulators is that they do not sell sweep coins directly. You can only get them as a bonus when you buy gold coins.
Social casinos argue that, technically, they are running sweepstakes, which are regulated differently than lotteries. The operators compare their practices to the popular McDonald's Monopoly Game, in which players receive game pieces in exchange for buying menu items.
Critics and operators of real casinos argue that sweepstakes casinos operate just like real ones and should be forced to comply with the same regulations and state gaming taxes they must contend with.
Sweepstakes vs Lottery
For an activity to be legally defined as gambling, it must meet three conditions: the game must offer a prize, a chance, and consideration, which is an industry term for the cost of playing a game.
Any activity that is considered gambling faces heavy regulations and taxation by state gaming boards, and they must fulfill numerous conditions to comply with state laws.
Lotteries are obviously considered gambling because they meet all three conditions. You must buy a ticket (the consideration) to play the game (chance) and potentially win a jackpot (the prize).
While the games in social casinos may look exactly like lotteries, the operators say they have one key distinction: there is a chance and prize, but there is no consideration because players do not need to pay money to play the game. After all, technically, you cannot buy sweep coins, which are required to play.
While critics say forcing players to buy worthless gold coins to access valuable sweep coins is just a legal trick, social casino operators claim that they meet every requirement to claim they are running a sweepstake, which is governed by different and less challenging rules than a lottery.
For example, because state gaming boards do not regulate social casinos, they do not need to offer player protection tools, such as responsible gaming programs to identify problem players or anti-money laundering safeguards to prevent organized crime groups from exploiting their platforms.
And while the minimum age for iGaming casinos is 21, most social casinos allow players as young as 18 to play.
Additionally, while one should never lose money playing sweepstakes since that would count as consideration, some social casino players have claimed losses of hundreds of thousands of dollars as they repeatedly purchase more “sweep coins” to continue playing games.
The growth of social casinos and lotteries
Social casinos have only existed in America for a few years but have experienced rapid growth as the apps have proliferated across the market. Recent reports estimate that millions of Americans play them every year, and they have an annual betting handle of $6 billion.
Most observers point to Virtual Gaming World (VGW) as the prime driver of the industry's growth. VGW was created by entrepreneur Laurence Escalante, one of the wealthiest people in Australia. In 2017, he launched Chumba Casino in America, one of the first online casinos to use the sweep coin business model.
Ironically, while all these apps are available in the United States, social casinos are banned in Australia.
Social casinos saw massive growth during the coronavirus pandemic when VGW reported a 60% increase in players from 2020 to 2021.
Since then, VGW has launched other popular social gaming apps, including Global Poker and Luckyland slots. At the end of its fiscal year on June 30, 2024, VGW reported gross revenues of $4 billion, almost one billion dollars more than it made in the previous year.
However, as VGW's revenue grows, so does its competition as more operators enter the field. Despite remaining the industry leader, VGW's market share continues to fall as competitors engage in expensive marketing campaigns to attract new players.
As we mentioned previously, social casinos are largely unregulated, which has helped fuel their explosive growth. While iGaming is only legally available in a few states, social casinos are free to operate in almost the entire country and don't have to pay the same higher taxes on their revenue as traditional iGaming apps.
Crackdown
As social casinos and lotteries have grown more popular, so has the movement to shut them down or force them to comply with the same rules as regular online casinos.
Critics argue that the legal framework to ban social casinos already exists. In the 2010s, America saw a rise in internet cafes, typically located in suburban strip malls and operated on a business model similar to social casinos.
Players would walk into the cafes and purchase phone cards or internet time and, as a promotion, receive a currency that could be used to play online lotteries and casino-style games and win real money. Some of the cafes even had “gaming kiosks” that looked, played, and sounded precisely like casino slot machines.
While the cafes were popular for a few years, states launched a crackdown against them. The courts or state regulators shut down the vast majority after explicitly rejecting their argument that they were running sweepstakes rather than casinos.
An Ohio Court of Appeals ruling against Internet Cafe owners stated that the dual currency system was an obvious facade intended to circumvent state laws.
The justices wrote:
The justice system is not some lumbering oaf who must ignore the patently obvious gambling scheme apparent here simply because of a contrived separation between consideration and the scheme of chance. There is no justification for ignoring the nature of the transaction simply because the system is designed in such a way as to artificially isolate one part of the illegal transaction from another. The justice system is not so blinded by chicanery.
In May 2024, the American Gaming Association, a trade group representing traditional casinos and some lotteries, sent a memo to all fifty state attorneys general and gaming commissions stating that the same legal rulings that shut down internet cafes should also apply to social casinos.
In the memo, the AGA states:
Consumers are being deprived of protections, and states are forgoing significant tax and revenue opportunities as this gambling replaces that conducted through regulated channels.
The AGA also argues that social casinos do not meet the legal definition of a sweepstakes. According to most state laws, a sweepstakes should be run on a limited basis and not perpetually. The McDonald's Monopoly game is only available for a couple of months a year, but the social casino games are available 24/7/365.
Additionally, sweepstakes traditionally have low payouts and high odds, so even though millions of people might play the McDonald's game, only one will win the million-dollar prize. However, social casinos can pay out up to 80% of the revenue they bring in through gold coin sales, similar to a regular casino's payout rate.
Sweep coins also come with a playthrough requirement. This means that social casinos will require you to play games several times before permitting you to cash out your sweep coins. Typically, this number is 2X the number of sweep coins you received, which means if you have 100 sweep coins, you'll need to play games two hundred times before you're permitted to withdraw your coins for real money.
Daniel Wallach, a Florida-based gaming attorney, told reporters that social casino games and lotteries met the entire legal definition of gambling, and it wasn't close. He said:
It's a stretch to even call it subterfuge because it's so easy to pierce. It not only skirts the edges of the legality but is so far over the cliff that I'm surprised that state attorneys general and federal prosecutors haven't seized upon this yet.
However, social casino operators believe that they are being unfairly persecuted.
Tim Moore-Barton, VGW's chief operating officer, said in an interview:
We've got full confidence in our compliance with all laws and regulations where we operate. We don't view this as gray at all.
State of play
Despite pressure from the AGA, there does not seem to be any significant regulatory or legal pressure on social casinos, and no federal agency has taken up the matter.
While a class action lawsuit was filed in California against social casino operator Pulze.com, extensive legal maneuverings mean that it could take years to reach any definitive result.
The operators themselves continue to invest heavily in marketing and new games. According to their own reporting, VGW has an annual marketing budget of $275 million and is a major sponsor of mainstream sporting events, including UFC matches and Formula 1 racing. Ryan Seacrest, Michael Phelps, and DJ Khaled are also paid sponsors of VGW.
While the operators continue to function as if they have done nothing wrong, the precedent of internet cafes shows that if state lawmakers and regulators ever decided to apply serious pressure to the social casinos, the legal framework for shutting them down already exists whenever they choose to use it.
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