Social and Sweepstakes Sportsbooks: What Counts as Sports Betting?

by BettingPros Staff |
Jun 03, 2025

In the fast-moving world of sports betting legalization, not all platforms are created equal-and not all of them operate under the same set of rules. In fact, some of the biggest names attracting users in states like California, Texas, and Florida aren't traditional sportsbooks at all. They're social sportsbooks and sweepstakes models-platforms that look, feel, and function like real-money sportsbooks, but legally operate under different classifications.

So what does count as sports betting in 2025? And where do these hybrid models fit into the conversation?

What Is a Social or Sweepstakes Sportsbook?

Unlike licensed sportsbooks, which require regulatory approval in each state, social sportsbooks operate under sweepstakes laws. They often use virtual currency or tokens that can be earned, purchased, and redeemed for prizes or real cash-thereby navigating around gambling laws.

These platforms don't require a gambling license and can legally operate in states where real-money betting remains restricted. That's why they've exploded in popularity in states like Texas and California.

They typically frame themselves as “sports betting entertainment” or "sports betting light," marketing a legal alternative to traditional sportsbooks while avoiding regulatory hurdles.

Legal? Technically. Clear? Not Exactly.

Alex Kane, CEO of Sporttrade, sees the landscape as murky-filled with platforms operating in good faith, and others toeing the line.

"There's a spectrum," Kane explains. "Some companies are thoughtful and compliant. Others are pushing the envelope and hoping to figure it out later."

That ambiguity raises important questions:

Are users aware that they're not actually betting with a licensed operator?
Are winnings considered taxable income (as many sweepstakes models require)?
Are platforms paying sales tax on token purchases, as some states require?

There's growing momentum among regulators to start answering these questions-and potentially crack down on companies that stray too far from the sweepstakes definition.

The Regulatory Risk

Kane notes that while social sportsbooks may be gaining ground now, their long-term viability could be limited. For companies that want to scale, attract investors, or eventually sell, operating in a regulatory gray area may prove to be a liability.

"At some point, operators that want to grow or sell are going to have to get more serious about regulation," Kane says. "There are real tax implications, real compliance requirements."

Some states are already considering legislation to more clearly define and regulate sweepstakes and social sportsbooks. That means today's workaround could become tomorrow's enforcement target.

For companies like Sporttrade, which operates a low-margin, exchange-based model, the economics of sweepstakes just don't make sense.

"We pay 2% in processing fees just to take deposits," Kane says. "Add on a 5-10% sales tax in some states for token purchases? That's a quarter of our revenue gone before we pay staff or taxes."

Rather than chase a short-term opportunity, Sporttrade has chosen to focus on fully regulated markets where it can operate transparently and sustainably.

What Counts as Sports Betting?

That's the big question-and as Kane points out, there's currently no universal answer. Every state defines "gambling" differently, and the federal government hasn't yet stepped in to create a consistent definition across platforms, formats, and technologies.

"There are real differences between exchanges, sportsbooks, prediction markets, and social betting," Kane says. "But let's be honest-none of them stop being gambling just because they use tokens instead of dollars."

Until clear rules are in place, the U.S. market will remain fragmented-split between licensed operators, gray-market platforms, and everything in between.

Transparency Matters

Whether a platform calls itself a sportsbook, a sweepstakes, or a social experience, bettors deserve transparency. What are you risking? What are you winning? And what legal protections do you have?

As the legal sports betting market continues to evolve, one thing is clear: regulators-and consumers-are paying closer attention.

Social and sweepstakes sportsbooks are walking a legal tightrope-one that might not last forever. As the industry matures, expect more scrutiny, clearer definitions, and a push toward transparency in what counts as real sports betting.

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