States prohibit dual-currency game models: Key implications

Recent changes in state laws call into question what constitutes “gambling” and could have significant implications for gaming operators.

Unlicensed gambling is illegal in the United States. Nevertheless, activities that offer the opportunity to win money based on the outcome of uncertain events have proliferated in recent years. Such activities fall along a spectrum that includes contests and sweepstakes, state authorized lotteries, social gaming, season-long fantasy sports leagues, draft style daily fantasy sports games, pick’em-style daily fantasy sports games, traditional sports wagering, horse racing, casino-style gambling, and so-called prediction markets that offer event contracts that are regulated by the Commodity Futures Trading Commission. Much of that activity, if properly structured and administered, does not constitute “gambling” under the law as historically interpreted and enforced. However, certain legislation may alter the gaming landscape.

In particular, changes in California, New Jersey, New York, and Louisiana have introduced new prohibitions against “dual currency” game models and emboldened private plaintiffs and regulators to challenge a wide range of gaming activity that had previously been generally understood to be legal. The new laws and wider crackdown expose gaming business models to increased scrutiny and seek to extend potential liability to media affiliates, content licensors, payment processors, and other non-operator entities that knowingly and willfully support the operation or promotion of the illegal activity.

California

California’s new law, effective as of January 1, 2026, makes it unlawful for any person or entity to operate, conduct, or offer an online “sweepstakes game,” absent licensure by the state gaming commission or a narrow exception for limited and occasional promotional initiatives.

Under the law, an online “sweepstakes game” is defined as a simulated gambling program that allows a person to play for the chance to win a prize, including cash or cash equivalents, using a dual-currency system where users purchase one type of coin, token or other item bundled with a second type of bonus currency that is positioned as being free. Examples of gambling programs include slots, video poker, table games, lotteries, bingo, sports wagering, and games that mimic or simulate these.

Although the bonus currency is positioned as being free, putting the bonus currency at risk in a game of chance is treated as illegal gambling under the California law if it is purchased directly or indirectly and can be exchanged for cash or cash equivalents or used to enter for the chance to win a prize.

Any person who violates this law is guilty of a criminal misdemeanor punishable by a fine of between $1,000 and $25,000 or by imprisonment in the county jail for up to one year, or both. A violation can also be treated as a predicate act that supports a legal claim under California’s Unfair Competition Law (UCL), Business and Professions Code Section 17200. Violation of California’s UCL exposes the defendant to injunctive relief, restitution, civil penalties of up to $2,500 per violation, and attorneys’ fees.

New Jersey

New Jersey’s new law is similar to the California law but is broader in important ways. Specifically, New Jersey’s law states that “offering or conducting a sweepstakes in which a person present in New Jersey may participate by paying or proffering something of value” would constitute unlawful gambling and subject the operator or sponsor, or any officer, employee, or agent of the operator or sponsor, to civil liability.

A “sweepstakes” is broadly defined as “a promotional, advertising, or marketing event, contest, or game, whether played online or in person, in which something of value, such as a prize or prize equivalent, is awarded, either directly or indirectly through means such as a dual currency system of payment that allows a participant to exchange the currency for a prize or prize equivalent.”

New York

New York’s new law is also similar to the California law, prohibiting “online sweepstakes games” and expressly targeting a dual-currency model. The New York Attorney General has sent cease-and-desist letters to dozens of online sweepstakes casino operators over the past six months, signaling an intent to aggressively enforce this new law.

Louisiana

Finally, in Louisiana, the state legislature passed legislation that would have prohibited “Any game, contest, or promotion that is available on the internet or accessible on a mobile phone, computer terminal, or similar access device that utilizes a dual-currency system of payment allowing the player to exchange the currency for any prize or award or cash or cash equivalents, or any chance to win any prize or award or cash or cash equivalents.” The Governor of Louisiana vetoed the bill, explaining that the bill was unnecessary because the activity in question was already illegal under Louisiana law.

Conclusion

Gaming operators, especially those that use a dual-currency system on their platforms, are encouraged to assess whether these new laws expose their historical business models to greater risk.

More broadly, media affiliates, content licensors, payment processors, and other entities that support such gaming operators are encouraged to determine if continuing to provide such support exposes them to legal risk and, if so, implement strategies designed to mitigate that risk.

For more information, please contact the authors.