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Earlier this month, Governor Newsom signed AB 831 titled "Gambling: operation of a contest or sweepstakes" into law, effective January 1, 2026. It amends Section 17539.1 of California's Business and Professions Code, and adds Section 337o to the Penal Code, relating to gambling. The bill makes it unlawful for entities to "operate, conduct, offer, or promote an online sweepstakes game" within California that uses a "dual-currency" model (e.g., virtual coins plus "sweepstakes" coins redeemable for cash/prizes). The law imposes criminal penalties, including fines and even jail time, and applies to "any entity, financial institution, payment processor, geolocation provider, gaming content supplier, platform provider, or media affiliate to knowingly and willfully support directly or indirectly the operation, conduct, or promotion of an online sweepstakes game" within California.
An "online sweepstakes game" is defined by the law as a game, contest or promotion that meets all of the following conditions:
- Accessible via the internet or a mobile phone;
- Utilizes a dual-currency system of payment that allows people to play with "direct consideration or indirect consideration and for which the person playing or participating may become eligible for a prize, award, cash, or cash equivalents or a chance to win a prize, award, cash, or cash equivalents";
- Simulates casino-style gambling, including, slot machines, "table" games (like poker), sports wagering, bingo and lotteries; and
- Awards cash or cash equivalents.
While the bill "does not make unlawful game promotions or sweepstakes conducted by for-profit commercial entities on a limited and occasional basis as an advertising and marketing tool that are incidental to substantial bona fide sales of consumer products or services," it still presents risk to advertisers who incorporate dual-currency systems in their chance-based promotions.
For example, advertisers with point-based loyalty programs who regularly offer program members a chance to win cash prizes or more points through casino-style games, like a slot machine or a virtual scratch card, could potentially be subject to the new law if loyalty points are deemed "indirect consideration." The law defines indirect consideration broadly as including coins, tokens and other "representation of value" that may be exchanged for a prize, award, cash or cash equivalents or a chance to win same. It can be "provided for free through a promotion, bonus, or with the purchase of a related product, service, or activity." Therefore, advertisers should review any chance-based promotions they offer to their loyalty members to determine whether those promotions are offered infrequently enough to be limited and occasional and incidental to substantial bona fide sales of consumer products or services and don't otherwise meet the conditions stated for it to be considered an online sweepstakes game.
Like California, both New York (SB 5935) and New Jersey (AB 5447) are also addressing online sweepstakes casinos. New Jersey has recently enacted a law that prohibits dual currency sweepstakes but specifically excludes promotions that include a free entry method or low-value purchase ancillary to the purchase of certain goods (so long as they don't involve coins redeemable for cash) of no more than $20. New York's bill, awaiting the Governor's signature, is aimed at platforms on which players purchase virtual coins in order to play games for the chance to win virtual coins that can be redeemed for cash or prizes. In the meantime, the New York Attorney General has been sending cease and desist letters to operators of online platforms that offer players slot, table games and sports betting using virtual coins that can be exchanged for cash and prizes. The letters warn the operators that the virtual coins are "something of value" under New York's current anti-gambling laws, even if some coins can be obtained for free.
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