New Jersey has a comprehensive gaming regulatory scheme that is often viewed as an exemplary model. 

On January 16, 2025, New Jersey Assemblyman Clinton Calabrese introduced Bill A5196, which was referred to the Assembly’s Tourism, Gaming and the Arts Committee. The bill is significant because it is the first legislation filed in the nation addressing the regulation of internet casino sweepstakes operators.

Background

Sweepstakes are contests in which a participant may win a prize based on chance. Most states authorize businesses to sponsor sweepstakes to promote a bona fide good or service sold by the business. Often, businesses will include a bonus sweepstakes entry to customers with purchase. Although offering a contest where the elements of (i) prize, (ii) chance and (iii) consideration are present typically meets the definition of criminal gambling in most states, sweepstakes are generally exempt from constituting gambling when they offer a “no purchase necessary” option for entry. State-to-state, there are other miscellaneous requirements governing the operation of a promotional sweepstakes, but the common denominator among them is requiring a mechanism for participants to enter the sweepstakes and win without charge. This is usually accomplished by an operator providing an option for the public to mail a request for entry.

Unrelated to state authorizations for promotional sweepstakes, in the years just prior to 2010, online “social casino” sites began offering “freemium” style games mimicking traditional casino games, including slot machine-styled games and poker. Social casino games generally consist of games of chance that do not award prizes of cash or property and are free to play, but also allow customers to make a purchase to increase the balance of virtual currency (often termed “gold coins”) used in the games for the purpose of enhancing the customer’s entertainment experience.

Today, the freemium games industry is well-established in the United States. Operators are typically not regulated by state gaming agencies because freemium games do not constitute gambling as there are no prizes awarded in the games.[1] Within the last decade, however, social casino operators began promoting their businesses by adding a sweepstakes component to their platforms. The new “freemium-plus-sweepstakes” industry has increased in popularity, expanding to include new game types (e.g., social sportsbook and social esports). The increase in popularity correlates with increased scrutiny from gaming regulators, civil ligation and arbitration claims, media attention and now legislative focus.

New Jersey’s Legislation

In New Jersey, the newly introduced bill appears to be an attempt to incorporate “internet sweepstakes operator” into New Jersey’s regulated gaming industry. New Jersey has a comprehensive gaming regulatory scheme that is often viewed as an exemplary model. The state already regulates brick-and-mortar casinos, sports wagering and internet gaming operations under the New Jersey Casino Control Act, N.J.S.A. 5:12-1, et seq, and its corresponding regulations.

Key Provisions

In its present form, A5196’s key provisions include:

• Defining “online sweepstakes casino” to mean:

[A]ny platform available via an [i]nternet website or mobile application that (1) provides participants with an opportunity to play authorized gambling games or provides an experience equivalent to, or with similar statistical odds of winning as an authorized gambling game, except that the game does not require any initial monetary investment on behalf of the participants to play and instead is played primarily with free currency; and (2) awards to participants at random, as a bundle with the purchase of free currency, or upon the completion of certain specified tasks, currency or promotional gaming credits which can be wagered on games and are redeemable for cash, prizes, or other things of value. An online sweepstakes casino may additionally offer tokens, coins, chips, credits, or other forms of currency for purchase or exchange that are directly redeemable for cash, prizes, or other things of value.

• Defining “free currency” to mean:

[T]okens or coins of a physical or virtual nature that are used in a sweepstakes casino to play a game, which cannot be redeemed for cash, prizes, or other things of value on their own, and which may be purchased but has no intrinsic value apart from its use for specified games or in specified applications, or until combined with other forms of currency or promotional gaming credits offered by a sweepstakes casino.

• Revising the definition of a “Casino Service Industry Enterprise” to include operators of online sweepstakes casinos, thereby requiring an operator to partner with an existing casino licensee to offer its service and for certain vendors providing services to online sweepstakes casinos to be licensed.
• Requiring an online sweepstakes casino operator to become licensed by the New Jersey Gaming Commission.
• Including all sums actually received by online sweepstakes casinos in the calculation of “internet gross revenue.”
• Requiring online sweepstakes casinos to conduct and submit to the New Jersey Division of Gaming Enforcement, the results of an audit conducted by an independent third-party to verify the integrity of their operations and their financial standing prior to receiving a license and imposing a biannual audit requirement once a license is awarded.
• Requiring the New Jersey Division of Gaming Enforcement to collaborate with federal, state and local law enforcement agencies to investigate online sweepstakes casinos, organizations and commercial enterprises that conduct internet gaming without meeting the requirements established by law.

All operators that could be affected by Bill A5196 are encouraged to monitor its progress through the New Jersey Assembly, as will the Duane Morris Gaming Industry Group.

For More Information

If you have any questions about this Alert, please contact Frank A. DiGiacomo, James A. Lewis, any of the attorneys in our Gaming Industry Group or the attorney in the firm with whom you are regularly in contact.

Notes

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.