The U.S. sports betting industry has grown rapidly since the repeal of PASPA in 2018, creating a regulated framework for legal sportsbooks across dozens of states. Yet, alongside these licensed operators, a parallel industry of sweepstakes-based sports gaming companies has emerged. These platforms are technically legal under sweepstakes law, but they operate outside the rigorous oversight, tax burdens, and compliance requirements faced by regulated sportsbooks. As a result, sweepstakes companies enjoy structural advantages that create an uneven playing field undermining both the regulated market and consumer protections.
Understanding Sweepstakes vs. Licensed Sportsbooks
Licensed sportsbooks must secure state approvals, pay substantial licensing fees, follow strict compliance rules (AML/KYC, geolocation, responsible gambling), and share revenues through state and federal taxes.
Sweepstakes operators, by contrast, package sports prediction or casino style games as promotional sweepstakes. Players often buy virtual currency to participate, but because there’s typically a free entry route, companies claim compliance with sweepstakes law rather than gambling law.
This legal distinction creates an enormous regulatory loophole: sweepstakes companies can market and operate nationwide without being treated as gambling operators.
Key Advantages Enjoyed by Sweepstakes Companies enjoy significantly lower regulatory burden when compared to licensed sportsbooks which spend millions on licensing, audits, and compliance staff. Sweepstakes companies skip most of these costs entirely. They don’t need to secure state-by-state approval, report revenue to regulators, implement responsible gaming safeguards. This allows sweepstakes firms to operate with far lower overhead.
There is also a significant tax advantage to being a sweepstakes since licensed sportsbooks pay high state taxes (sometimes over 50% of gross gaming revenue, as in New York). Sweepstakes operators, however, are not classified as gambling businesses and therefore avoid these levies. This results in higher profit margins, the ability to spend more on marketing and promotions, and a structural cost advantage that regulated operators can’t match.
Also, because sweepstakes are treated as promotional contests, operators can function in nearly all U.S. states. Licensed sportsbooks, on the other hand, must navigate a patchwork of state laws and can only operate where sports betting is legal. This gives sweepstakes operators a far larger and less fragmented customer base with the ability to scale and market in ways the regulated operators do not enjoy.
One of the biggest advantages comes in the way the sweepstakes guys can advertise and market. Sweepstakes companies face far fewer restrictions on marketing channels, language, and promotions. Licensed sportsbooks must comply with truth-in-advertising laws specific to gambling. They must also comply with responsible gambling messaging requirements and restrictions on targeting certain demographics.
Sweepstakes companies can market aggressively with fewer disclaimers, making their campaigns appear more fun and less risky while appealing strongly to casual users.
The fewer restrictions mean lower compliance burdens and higher profit margins that allow sweepstakes operators to pour more into customer acquisition. While sportsbooks burn capital on compliance and lobbying, sweepstakes firms focus almost entirely on viral marketing, influencer partnerships, and bonuses. This creates the perception of better deals for players, even though the odds are often worse.
While sweepstakes companies may seem harmless, their advantages raise serious consumer protection concerns such as a lack of responsible gaming protections, ambiguous legal remedies, predatory marketing, and a false sense of legiticy.
The existence of sweepstakes companies undermines the regulated sports betting market in several ways. Revenue Drain as sweepstakes operators capture customers who might otherwise play at licensed sportsbooks, reducing taxable revenue for states.
State regulators and lawmakers have worked hard to build a legal, transparent, and responsible sports betting ecosystem. Allowing sweepstakes companies to skirt these rules jeopardizes that progress. In many states, either legislative or legal challenges are closing legal loopholes that allow sweepstakes gaming to masquerade as contests. This will ensure consistent consumer protections across all forms of sports gaming.
The US sports betting market is still in its infancy compared to Europe. If regulators allow sweepstakes operators to continue unchecked, licensed sportsbooks may find themselves permanently disadvantaged
Sweepstakes companies may claim to be harmless entertainment, but they represent a massive loophole that undermines licensed sportsbooks, shortchanges state revenues, and puts consumers at risk. Licensed operators carry the burden of regulation, taxation, and compliance responsibilities that sweepstakes firms evade. Until policymakers level the playing field, sweepstakes operators will continue to enjoy an unfair advantage, siphoning profits while avoiding accountability.
The sports betting revolution in the U.S. was meant to create a safe, transparent, and profitable market. To achieve that vision, lawmakers must address the sweepstakes loophole before it permanently tilts the industry against the very sportsbooks that chose to play by the rules.
