High 5 Suspension Draws Interest From Other States

In light of a groundbreaking suspension order in Connecticut, numerous other states are closely monitoring the implications for High 5 Games and the broader gambling landscape.

As March Madness approached, the Connecticut Department of Consumer Protection (DCP) made headlines with its decisive action against illegal sweepstakes operators. On March 14, the DCP issued an eight-page summary suspension of High 5 Games, a prominent social casino operator, following the company’s announcement to cease services in the state.

Distinctively, while High 5 Games provides licensed gaming products throughout Connecticut, its social gaming platform, High 5 Casino, lacks state licensing. Investigations revealed that since the launch of High 5 Casino’s sweepstakes model in March 2023, approximately 1,065 customers deposited over $3.1 million (£2.4 million/€2.38 million). The state agency responded with 1,065 criminal charges against High 5 Games for illegal gambling activities—marking a pioneering instance of a US sweepstakes casino facing such legal repercussions.

In essence, an online sweepstakes game is a digital interface where prizes are awarded based on chance and can be accessed via mobile devices and computers. The DCP’s findings highlighted that approximately $937,598 was lost by customers as a result of this activity.

Statewide Response to Illegal Operations

As the igaming sector continues to expand, a wave of states, including New York, are exploring legislation to restrict sweepstakes gambling. With operators heavily advertising during March Madness, the gambling industry is poised to see whether more states will take action similar to Connecticut. Currently, at least six jurisdictions are pursuing legislation aimed at regulating sweepstake providers.

New York State Senator Joseph Addabbo is advocating for legal igaming in his state and has expressed concerns regarding operators, like High 5, offering both licensed and unregulated products simultaneously, which he perceives as inequitable. “It’s frustrating that these companies don’t act ethically by abstaining from the unregulated market,” he noted.

Established in 1995, High 5 Games LLC is registered in Delaware and delivers a diverse range of slot products, including popular titles such as Sonic 77 Sevens and Lootapalooza. Since 2021, High 5 Games has held a supplier license in Connecticut and provides licensed gaming content to industry leaders like FanDuel and DraftKings. However, a clear distinction exists between these licensed platforms and High 5 Casino, which operates unlawfully in the state.

Understanding the Sweepstakes Model

Sweepstakes platforms like High 5 Casino utilize a dual currency model, offering “virtual coins” free of charge alongside “sweeps coins” that can lead to real-money prizes. High 5 Casino transitioned from being operated by High 5 Games to High 5 Entertainment LLC in October 2022, complicating regulatory oversight.

Some legislators argue that this dual-currency system creates a loophole, enabling sweepstakes operators to enter markets without stringent regulatory adherence. For example, unlike traditional promotional sweepstakes run by businesses, participation in High 5 Casino’s sweepstakes poses significant financial risks to players.

The DCP’s investigation unearthed evidence of High 5 Casino’s operations during a inquiry into a separate licensee. Notably, an investigator opened a customer account and demonstrated how easily players could circumvent safeguards simply by altering their associated locations.

High 5’s Commitment to Regulation

Following the DCP’s suspension of High 5 Games’ supplier license, the company has expressed a desire to collaborate with state regulators to address these issues. High 5 Games emphasized in a statement its historical commitment to responsible and transparent business practices throughout its three-decade tenure in the industry.

Moreover, High 5 Casino incentivizes new players with sign-up bonuses, offering up to 250 free “gold coins.” However, caution is warranted, as these gold coins cannot be redeemed for real money, while sweeps coins do have redeemable value but are also subject to minimum play-through requirements.

Broader Industry Implications

The recent events in Connecticut have stirred discussions among state gaming legislators nationwide. During the National Council of Legislators from Gaming States (NCLGS) 2024 Winter Meeting in New Orleans, lawmakers deliberated on the future of sweepstakes casinos, exploring potential model legislation that could impose a blanket prohibition on such operations. Penalties for violations may include hefty fines and the revocation of gaming licenses.

Shawn Fluharty, a key figure in NCLGS, underscored the proactive stance states must adopt to combat illegal operations, especially as legal igaming becomes increasingly prominent. “States with established legal frameworks are particularly motivated to protect their licensees,” he asserted.

Need for Stricter Regulations

High 5 Games outlines its licenses across several major states, including New Jersey, Pennsylvania, and Michigan, where igaming gross receipts continue to soar—Michigan alone reporting $222.5 million in December. However, concerns arise regarding High 5 Casino’s extensive catalog and its potential operations in exploitative markets.

State Senator Addabbo has introduced legislation in New York that seeks to prohibit online sweepstakes games and empower the New York State Gaming Commission to enforce penalties against operators benefitting from illegal markets. He argues, “For the safety of New Yorkers, it’s imperative to adopt such strict measures.”

Association Responses and Future Directions

High 5 Entertainment is a member of the Social and Promotional Gaming Association (SPGA), which aims to educate regulators on the complexities of promotional gaming. While the SPGA refrained from commenting on the Connecticut order’s broader ramifications, it criticized Addabbo’s bill as conflating legal promotional sweepstakes with gambling and jeopardizing legitimate business practices.

The uncertainty looms: Will a significant violation in one jurisdiction affect a company’s licensing status in others? As the industry anticipates further scrutiny and possible regulatory collaborations among states, it remains crucial to curb illegal operations that threaten the integrity of the gambling sector.

Fluharty predicts that scrutiny of illicit operators could compel more states to enact protective regulations, fostering a safer gaming environment for all stakeholders involved.