USA Law and Practice Contributed by: Chao Yu (Charles Yu) and Greg Pilarowski, Pillar Legal
1. Introduction 1.1 Current Outlook and Recent Changes The US gaming industry operates under a complex legal and regulatory system that involves both federal and state laws. The industry is primarily regulated at the state level, with federal laws playing a supporting role that reinforces and complements state regula- tions. The US allows a wide range of gambling activities, including traditional land-based casinos featuring table games and electronic gaming devices, as well as online gambling, sports betting, fantasy sports, and other interactive formats. Each state decides which of these activities are permitted within its borders and establishes its own licensing and compliance sys- tems. The online gambling market in the US has evolved rapidly over the past few years, particularly follow- ing the Supreme Court’s 2018 decision in Murphy v National Collegiate Athletic Association , which permit- ted individual states to legalise and regulate sports wagering. Since then, a growing number of states have passed laws allowing sports betting, including mobile and online wagering, and the market has expanded quickly across the country. Thirty-eight states have legalised sports betting, but the level of access var- ies by state. Some states have more restrictions; for example, in New Mexico, North Carolina, and North Dakota, retail sports betting is limited to tribal casinos. In contrast, online casino gaming (iGaming) remains far more limited. Currently, only seven states – Con- necticut, Delaware, Michigan, New Jersey, Pennsylva- nia, Rhode Island, and West Virginia – have legalised online casino gaming. While online casino gaming is still not legalised in most states, a wide range of social and alternative gaming models have developed across the US. These include the following. • Free-to-play games that incorporate features such as “loot boxes where players can use real-money to purchase randomised virtual items that cannot be redeemed for real-world currency.
• Skill-based games, including fantasy sports com- petitions, which rely primarily on player skill rather than chance. • Online sweepstakes casinos, which simulate casi- no-style play using two virtual currencies – typically “gold coins” and “sweepstakes coins”. Players can purchase gold coins to play non-cash games for entertainment purposes, while sweepstakes coins are provided as “free” promotional gifts in con- nection with such purchases. Unlike gold coins, sweepstakes coins can be used to enter games that offer cash prizes or other redeemable rewards, allowing operators to claim that the model does not constitute traditional gambling because players are not directly wagering real money. For free-to-play games, regulators have increasingly focused on child protection and the use of “loot box” mechanics. In early 2025, the Federal Trade Commis- sion (FTC) took enforcement action against Cogno- sphere LLC (HoYoverse), the developer of Genshin Impact, over concerns that its loot-box system misled players about real-money costs and targeted minors. The FTC settled the case with HoYoverse for a USD20 million fine. As part of the settlement, the FTC required the company to make improvements to its loot box system, including clear disclosure of item odds, trans- parent virtual currency exchange rates, and simplified purchase mechanics. The order also requires parental consent for players under the age of 16 to make in- game purchases. Skill-based games have also drawn increasing atten- tion from consumers. AviaGames ( Pandolfi, et al v AviaGames Inc ) and Papaya Games ( Kelly Starkebaum v Papaya Gaming Ltd. ) are currently facing ongoing consumer class-action lawsuits in the US, alleging that their apps used automated bots instead of real human players, potentially manipulating game out- comes. The lawsuits claim that such practices mis- led users about the competitive nature of the games and have raised broader questions about fairness and transparency in skill-based gaming. For online sweepstakes casinos, several states have recently moved to ban this model through new leg- islation. California, Montana, Connecticut, and New Jersey have officially prohibited the operation of
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