Tennessee bans sweepstakes casinos, outlaws market spoofing

Gov. Bill Lee signed legislation that outlaws sweepstakes-style casinos and makes it illegal to manipulate online prediction markets. The bill was approved by the Tennessee General Assembly and sent to the governor for signature.

The law targets businesses that offered slot-like games while labeling them sweepstakes or promotional contests. It narrows the legal definition of prohibited sweepstakes activity, and grants state regulators authority to close operations that charge for play or award prizes in a way that amounts to gambling.

The statute also bars interfering with outcomes on prediction market platforms, defined as online sites where users wager on event results. The text creates penalties for operators and individuals who place false bets, misreport outcomes, use automated systems to distort prices or otherwise attempt to corrupt those markets.

Enforcement provisions permit relevant state agencies to investigate suspected violations, issue fines and pursue criminal charges when appropriate. The law directs regulators to coordinate with law enforcement and to adopt rules to implement the new restrictions. Operators of online markets and businesses running promotional sweepstakes must keep records and meet transparency requirements so authorities can trace suspicious activity.

The measure followed complaints from consumers, local officials and law enforcement about a rise in retail storefronts and cafes offering sweepstakes-style gaming. Critics said some outlets charged customers and paid out cash-equivalent prizes while operating outside state gambling laws. Concerns about prediction markets increased as more platforms allowed wagering on political contests, sports and other events, raising the risk of market distortion and fraud.

Owners of sweepstakes cafes and online gaming platforms have defended their practices, maintaining they operated within existing law and arguing stricter rules could harm small businesses. Legal analysts expect some operators to challenge the statute in court on grounds that activities are not clearly defined as gambling under state law. Lawmakers who supported the bill said the language focuses on the commercial elements of the operations the law restricts.

Regulators in Tennessee will begin writing rules to carry out the new law and set enforcement priorities. The statute becomes effective as specified in its provisions, and state agencies will move to implement the record-keeping and transparency requirements laid out in the measure.