A lawsuit against a sweepstakes gaming company is using California’s law against Internet cafes as its argument.
The case against High 5 Entertainment was recently filed in the San Francisco Supreme Court by plaintiff Thomas Portgual and represented by Smith Krivoshey, PC, according to a Daniel Wallach social media post.
NEW: Sweepstakes casino operator High 5 Entertainment has been sued in San Francisco Superior Court for operating an illegal gambling website in violation of California law. This is the first sweeps case to draw parallels to the Internet cafes and the first to cite CA caselaw. pic.twitter.com/RaMFQjKxKs
— Daniel Wallach (@WALLACHLEGAL) December 28, 2024
The document accuses High 5, which operates a popular sweepstakes social casino, of violating the Golden State’s anti-gambling law.
The lawsuit alleges that the sweepstakes operator has “scaled up, on a massive scale, an illegal tactic that criminals once attempted to use to evade state gambling laws.”
Calling it the “Internet Cafe Gambling Scam,” the legal team compares online social casinos to brick-and-mortar operations in the early 2000s that would promote internet time or long-distance telephone minutes by offering free sweepstakes points that could be turned into dollars and used by customers on casino-style slot machines.
Internet cafes then provided cash prizes, mimicking casinos. The lawsuit notes that U.S. and California courts and law enforcement officials “repeatedly determined that such tactics were an obvious pretext and cover for illegal gambling.”
The document also sources a California business code that outlaws sweepstakes operators that simulate gambling.
Murky waters
Social casinos, or sweepstakes casinos, look and feel like regulated iGaming. Their legality in murky waters has caught the attention of the sports betting and online gaming industry in 2024.
Sweepstakes operators aren’t regulated by most U.S. states like online casinos from FanDuel or DraftKings. They aren’t paying the same tax rates as legal gaming operators, and sweepstakes sites and apps can be accessed in states with little legalized gambling, like California and Texas.
The sweepstakes gaming industry has made $2 billion and could be up to $4 billion by 2025, according to Sports Betting Alliance president Jeremy Kudon.
“That’s money that could be going to states,” Kudon said in October. “That’s money that could be going to tribes. They’re taking money away right now. It’s amazing how long this went kind of under the radar.”
Many sweepstakes operators provide coins or tokens that are free and/or purchased for online casinos or sportsbooks. High 5 offers over 1,700 online casino games, including slots and live dealers. Customers can make deposits through credit/debit cards, PayPal, Skrill, and Trustly to purchase “Sweep Coins” that can be redeemed for virtual gift cards.
Under fire
A lawsuit filed earlier this month by a New Jersey resident accuses High 5 and other sweepstakes operators McLuck.com, Wow Vegas, and Crowncoins Casino of offering illegal gambling. Apple, Apple Pay, Google, and Google Pay are also named in the lawsuit for aiding, funding, and promoting the sweepstakes companies.
The American Gaming Association asked legislators and regulators to evaluate and identify their laws concerning sweepstakes gaming to determine legality.
The U.S. industry trade group representing many of the U.S.’s legal sports betting and online casino operators also teamed up with the Indian Gaming Association, which has publicly announced it will fight against sweepstakes companies in California.
