How Paris Hilton, Drake, and NBA stars 'create veneer of legitimacy' for disputed sweepstakes casinos

The smiling faces of Paris Hilton and Ryan Seacrest made surprise appearances before the Louisiana Senate for Friday's hearing on illegal gambling.

No, they weren't personally in attendance, but the world-famous celebrities were conspicuously included in a slide presentation on social and sweepstakes casinos — the quasi-legal websites offering both free casino-style games and lucrative prizes, such as cash, gift cards or cryptocurrency. In one ad, the fist-pumping Seacrest is seen plugging Chumba Casino, where anyone can 'play for free,' while a crop-topped Hilton holds a chip for sweepstakes operator, Wow Vegas, in the other.

The websites are just two cogs in the multibillion-dollar industry that now finds itself besieged by lawsuits. In the eyes of many gaming corporations, not to mention lawsuit plaintiffs and state regulators, sweepstakes casinos act as traditional casinos, only without the oversight, consumer protections and tax laws. So not only can they avoid the steep 24-percent federal gambling levy, but sweepstakes operators aren't subject to regulatory hurdles like anti-money laundering and responsible-gaming protections.

One operator, Australia-based Virtual Gaming Worlds (VGW), reported $4 billion in revenue last year alone. Now the company faces accusations of illegal gambling in a New York lawsuit that claims VGW uses celebrity endorsers to 'create a veneer of legitimacy' around its product. (See VGW's statement below)

'I'm not sure ''if you don't trust us, you can trust Paris Hilton'' is a winning message for companies operating multibillion-dollar illegal operations out of places like Malta, Isle of Man, or US mail drops,' Friday's presenter, Howard Glaser of gaming corporation Light & Wonder, told DailyMail.com.

Sweepstakes endorsers include a range of celebrities from gambling enthusiasts Drake and DJ Khaled to swimmer Michael Phelps, as well as NBA stars Karl-Anthony Towns and Paul George – none of whom offer any distinctions between traditional gambling and sweepstakes play.

Instead, ads typically center around the social aspect of the casinos, while omitting the potential for actual gambling losses.

Others tempt customers with promises of prizes. One such operator, Stake, ran a social media ad showing off Drake's cars, planes and mansions before pivoting to footage of the rapper playing online casino-style games.

'Daddy, why do we have so much money?' read the first caption on the screen.

Another caption explained: 'Because I never gave up.'

The discrepancy between gambling websites and social or sweepstakes casinos is a bit complex, but operators of the latter insist they're not involved with the former.

A spokesperson for an industry trade group, the Social and Promotional Gaming Association (SPGA), explained its members are not in direct competition with online casinos and sportsbooks. Furthermore, according to SPGA data, most of the players on social-sweepstakes casinos are playing for free.

'Most social sweeps customers never make a purchase,' the SPGA spokesperson told DailyMail.com. 'The minority of customers who make purchases do so in amounts far smaller than the typical deposit or bet size at real-money online gambling sites.'

Social casinos offer customers a chance to play casino-style games with friends. Players have the option to buy valueless currency often referred to as 'gold coins,' which cannot be exchanged for real money, but can be used to unlock various features within the games.

But within the world of social casinos exists sweepstakes gaming, allowing customers to obtain other currency known as 'sweeps coins' that can be exchanged for cash or other prizes. 

And therein lies the potential for financial losses, like the ones claimed by plaintiffs in Florida, Georgia, New Jersey and New York. One player told the Washington Post he lost more than $100,000 on sweepstakes casinos in the past year after continuing to buy more coins in pursuit of cash and other things of value. 

Traditional online casinos are banned in all but seven states, which has helped to fuel the popularity of sweepstakes casinos.

Anyone over the age of 18 can access the sweepstakes sites, which don't require typically require identification. However, websites like Chumba will ask for IDs from players attempting to withdraw any funds.

Many websites, like the crypto-compatible Stake, allow customers to submit mail-in requests for free sweeps coins, provided the players follow painfully specific instructions. What's more, players are often rewarded with sweeps coins simply for signing up, thereby giving them a reason to try their hands at any number of casino games for a chance to win – or lose – real money.

So why are sweepstakes sites allowed to operate in 48 states, while online casinos are banned in all but seven?

According to the stakeholders, their product is the free casino-style gaming, and the real-stakes competition is simply a means of promoting their bread and butter.

'Social sweepstakes games are simply a form of online entertainment,' an SPGA spokesperson told DailyMail.com by email. 'No purchase is required to play at social casinos with sweepstakes prizes. Consumers never have to pay for an opportunity to win prizes. That lack of a purchase requirement - or ''consideration'' - is a crucial distinction between social sweeps and traditional online gambling sites like casinos.'

Think of the way that McDonald's uses its annual Monopoly game to promote its food: Customers aren't paying to gamble, but rather they're buying hamburgers and fries that offer them the chance to win lucrative prizes, such as a $1 million jackpot.

And without a purchase requirement, or 'consideration', the game itself doesn't meet the definition of gambling in the US.

'Sweepstakes are a long-standing method for promoting all kinds of everyday businesses in the United States, everything from burgers to magazine subscriptions to coffee and home improvement stores,' the SPGA spokesperson told DailyMail.com. 'Sweepstakes promotions are regularly used by a who's who of household names like AT&T, Chase, Home Depot, Marriott, Starbucks, and Wal-Mart.'

But to many gambling industry insiders, that argument doesn't cut it.

For starters, gaming attorney Daniel Wallach points out, McDonald's Monopoly game doesn't run indefinitely. Rather, it has a well-defined beginning and end, thereby suggesting the sweepstakes is not the fast-food giant's main product. Instead, the sweepstakes is being used to promote real products like fries, shakes, and the Filet-O-Fish. 

'They don't last forever and they're generally not tied to casino-style games of chance,' Wallach told DailyMail.com. 'They're just cash giveaways.

'The sweepstakes [casinos] possess none of the characteristics commonly associated with McDonald's-style sweepstakes promotions,' Wallach continued. 'Besides running in perpetuity, the sweepstakes casinos offer ''casino-like'' payouts, typically 80 percent or more of revenues, whereas the typical payout percentage for a temporary promotional sweepstakes is a trivial share of the revenue earned by the company [typically less than one percent].'

Wallach is quick to liken the online social sweeps casinos to the internet cafes that sprang up in Florida, offering customers the chance to play casino-style games for real prizes. Many of those brick-and-mortar establishments have since been shuttered over allegations of illegal gambling. 

Now, Wallach argues, social sweeps casinos should face similar scrutiny.  

'These distinctions are not arbitrary,' Wallach said of social sweeps casinos. 'They have repeatedly been cited by courts and state attorney generals as key factors in determining that a sweepstakes promotion was in fact a guise for illegal gambling.'

One of the casino industry's leading trade organizations, the American Gaming Association, is now pushing lawmakers to investigate sweepstakes operators and, in some cases, enact new legislation on the issue.

'Consumers are being deprived of protections and states are forgoing significant tax and revenue opportunities as this gambling replaces that conducted through regulated channels,' read a well-circulated AGA memo. 

And then there are the plaintiffs who have sued social casinos in more than a dozen states. 

Sweepstakes casino operators paid a combined $14.2 million in four separate cases in Kentucky without admitting any wrongdoing, according to the Washington Post. Meanwhile VGW agreed to pay $11.75 million in one class-action lawsuit, saying the settlement was made to avoid legal costs and continued litigation.

In the latest lawsuit, which is largely similar to its predecessors, New York state residents Lamar Prater and Rebecca Pratt both claim to have lost well over $1,000 to VGW, which is described in the filing as an 'illegal gambling enterprise.'

Apple and Google have also been named as defendants in lawsuits for hosting the sweepstakes sites. But unlike VGW, neither tech company responded to DailyMail.com's request for comment.

'We generally don't comment on matters before the courts,' a VGW spokesperson told DailyMail.com via email. 'However, we note that this claim has only just been filed with the court and VGW has not been formally served.

'We have full confidence in our compliance with all laws and regulations where we operate, and remain confident about the future,' the spokesperson continued. 'We continue to offer our free-to-play games across most of North America, as we have for more than a decade, creating not only great games, user experiences and entertainment, but also ensuring this is done safely, responsibly and at the highest level of standards. 

'More broadly, we'd reiterate that class actions and other litigations and arbitrations are relatively common across the online social games industry (and the US more broadly), and our standard practice is that we intend to vigorously defend any claim which may be brought against us.'

The issues between traditional online gambling and sweepstakes casinos could prove problematic for some celebrity endorsers.

Towns, a star center with the Knicks, and the 76ers' George both endorse VGW's Global Poker brand while the NBA is partnered with traditional gaming titans like FanDuel and DraftKings.

'It's ironic that professional athletes are hawking illegal sports betting 'sweeps' sites while at the same time the leagues want to project a strong stance against illegal gambling - especially when trying to tamp down the occasional gambling scandal,' Glaser told DailyMail.com.

It was just eight months ago that Toronto Raptors forward Jontay Porter received a lifetime ban from the NBA over allegations he conspired with gamblers. However, to be clear, Porter's scandal is unrelated to anything involving social or sweepstakes casinos.

Regardless, Glaser sees sweepstakes casinos as a major issue for leagues such as the NBA.

'I'd expect that a league crackdown on athletes endorsing sweepstakes sites is a matter of when, not if,' Glaser added.

Neither an NBA spokesman nor the players' agents responded to DailyMail.com's requests for comment. For that matter, spokespeople for Drake, DJ Khaled, Hilton, Seacrest and Phelps also neglected to respond to DailyMail.com emails.

Asked if their celebrity endorsers have a responsibility to explain to customers the differences and similarities between iGaming and sweepstakes casinos, VGW insisted there is nothing more that needs to be done.

'We have full confidence in our influencer and ambassadorial partnerships, and our business practices more broadly,' the spokesperson said. 'Some of our values are ''our players come first'' and ''we do what's right'', and we put our values at the core of everything we do.'

Glaser, an outspoken opponent of sweepstakes websites, sees things differently. 

'Celebrities who lend their names to shady illegal gambling sites are, at a minimum, putting their reputations at risk as well as courting civil and class actions by consumers who allege harm,' Glaser said. 'There is also some risk that state regulators and state attorneys general rope celebrity endorsers into enforcement efforts for facilitating illegal gambling.'