Florida lawsuit could be key in fighting sweepstakes, attorneys say

This week’s edition of the Indian Gaming Association’s (IGA) New Normal webinar series focused on the evolving landscape of sweepstakes, featuring an in-depth analysis of a pivotal lawsuit in Florida that has the potential to influence similar legal challenges nationwide.

On January 29, the hosts of the webinar, Victor Rocha and Jason Giles—IGA’s conference chair and executive director, respectively—welcomed James Meggesto and Samir Patel, distinguished gaming attorneys from Holland & Knight LLP, to share their expertise.

The conversation delved into strategic avenues for countering sweepstakes operations, a topic Rocha and Giles have explored in interviews with a diverse array of industry stakeholders, including lobbyists, regulators, and tribal leaders.

At the core of this discussion was the ongoing lawsuit in the U.S. District Court for the Middle District of Florida, Knapp vs. VGW Holdings. As highlighted by Meggesto and Patel, this lawsuit stands out from previous actions taken against sweepstakes operators. The attorneys recently published an article on January 21 outlining the potential implications of this lawsuit for the broader gambling sector.

During the webinar, Patel indicated that sweepstakes issues have “percolated to the top” of concerns for operators. Meggesto expressed concern over the “lack of urgency” he perceives in addressing the proliferation of these gaming models.

Florida: A Crucial Battleground for Sweepstakes Legislation

The Florida lawsuit is particularly noteworthy for two primary reasons. Firstly, as Patel pointed out, Florida is among the few states with well-defined legislative frameworks governing sweepstakes. Chapter 849 of the Florida Statutes delineates regulations related to gambling, explicitly prohibiting various forms of gambling unless duly licensed or authorized. Notably, Section 849.08 outlaws unlicensed lotteries, while Section 849.14 forbids engaging in any game of chance that involves wagering money or valuables.

The ambiguous boundaries between online casino operations and sweepstakes have made it challenging for legal operators to convincingly argue that sweepstakes sites constitute illegal gambling. As attorneys noted, these sites utilize a “two-coin freemium model,” where players earn both virtual coins, which lack monetary value, and “sweeps” coins, which can be exchanged for cash. Operators claim that this cash conversion constitutes illegal gambling; however, sweepstakes sites maintain that players are merely purchasing entertainment with an entry into a legally recognized giveaway.

Follow the Money: The Implications for Payment Processors

An additional aspect of the Knapp case that generates interest is its inclusion of payment processors as defendants, particularly WorldPay, which recently faced a denial of its motion to dismiss the case. According to Patel and Meggesto, WorldPay’s decision to remain involved in the litigation could signal caution for other payment processors collaborating with sweepstakes casinos.

Disrupting the operations of payment processors could emerge as a compelling strategy for curbing the proliferation of sweepstakes models. Patel shared a humorous reference to a classroom adage among law students: “sue everyone,” suggesting that attaching defendants with substantial financial resources can yield favorable outcomes. He pointed to a New Jersey case that included tech giants Apple and Google as defendants.

As the lawsuit progresses, discovery is scheduled for October 4, with a trial anticipated in the same month. Mediation is set for April 18, and panelists expressed hope that this matter will proceed to trial, enabling the court to thoroughly examine the issues at hand and deliver vital industry transparency.

“Keep Settling, Keep Operating”: A Tactical Perspective

From a tactical outlook, Patel voiced concerns that VGW and other sweepstakes operators might opt for expedient settlements to navigate the increasing number of lawsuits. “It may be more beneficial for them to simply keep settling while continuing operations,” he suggested.

He explained that sweeps operators frequently incorporate arbitration clauses in their terms and conditions, as highlighted in a prior legal dispute involving Fliff, a social sportsbook platform. “Sweeps operators have been skirting regulation ever since,” Patel stated.

The panel of attorneys concluded that, ultimately, a comprehensive legal approach from states would be necessary to confront the challenges posed by sweepstakes. Meggesto noted, however, that prioritizing this issue among lawmakers remains complex. The model igaming legislation proposed by the National Council of Legislators from Gaming States includes provisions to ban sweepstakes; however, there is no certainty that this language will gain traction in future legalizing states.

In light of the rapid expansion of the sweepstakes model, a compelling argument may stem from the significant tax revenues states are missing out on. “At the end of the day, money speaks, and that’s when it truly resonates,” Meggesto concluded.