The interactive entertainment industry is experiencing explosive growth in 2025, but with this expansion comes a complex and fragmented landscape of state gaming laws. For businesses in this dynamic sector, understanding the legal distinctions between skill-based games and chance-based gambling is crucial for maintaining stable payment processing. This comprehensive guide breaks down the current state of gaming laws, explores the payment processing challenges they create, and provides actionable solutions for interactive entertainment businesses.

The Great Divide: Skill vs. Chance in State Gaming Laws

The cornerstone of gaming regulation in the United States is the distinction between games of skill and games of chance. This fundamental difference determines whether a game is considered a legitimate contest or a form of gambling, with profound implications for payment processing.

Defining Games of Skill

A game of skill is one where the outcome is determined primarily by the player’s physical or mental abilities, rather than by random chance. While a small element of chance may be present, the player’s expertise, practice, and strategic decisions are the dominant factors in achieving success. Legal precedent often hinges on whether an average player’s performance can improve with experience.

Key characteristics of skill-based games:

• Player input is the primary factor: The player’s actions directly influence the outcome.
• Practice improves performance: A player’s skill level increases with experience.
• Strategic decision-making: Players can make choices that affect their chances of winning.

Examples of skill-based games include chess, trivia, and many popular esports titles. Payment processors generally view these games as lower risk, as they are often exempt from traditional gambling laws.

Defining Games of Chance

A game of chance is one where the outcome is determined predominantly by a randomizing element, such as a roll of the dice, a spin of a wheel, or a shuffle of cards. While some player input may be involved, it has a negligible effect on the final result. These games are considered a form of gambling and are subject to strict state and federal regulations.

Key characteristics of chance-based games:

• Randomness is the primary factor: The outcome is vastly unpredictable.
• Player skill has minimal impact: An expert player has no significant advantage over a novice.
• Wagering is central to the experience: The primary purpose is to bet on an uncertain outcome.

Examples of chance-based games include slot machines, roulette, and lotteries. These activities fall squarely under gambling laws, making payment processing extremely high-risk and heavily regulated.

The Gray Area: Hybrid Games and Emerging Challenges

Many modern interactive entertainment products blur the lines between skill and chance. Daily fantasy sports (DFS), social casino games, and online sweepstakes often incorporate elements of both, creating a regulatory gray area that poses significant challenges for payment processors.

• Daily Fantasy Sports (DFS): While players argue that selecting a fantasy lineup is a game of skill, some states classify it as a form of sports wagering.
• Social Casinos: These free-to-play games simulate casino experiences but often utilize virtual currencies that can sometimes be exchanged for real-world prizes, raising concerns about regulatory oversight.
• Online Sweepstakes: These promotions offer prizes based on chance but are often structured to avoid being classified as illegal lotteries. However, as we will see, states are cracking down on these models.

This ambiguity poses a significant risk for payment processors, who must navigate a complex patchwork of state laws to determine the legality of each transaction. As a result, many processors adopt a conservative approach, often denying services to businesses that operate in this gray area.

The 2025 State-by-State Regulatory Landscape

The regulation of interactive entertainment is not handled at the federal level; instead, it is a complex patchwork of state laws that are constantly evolving. 2025 has been a particularly active year for state legislatures, with many taking steps to either clarify or expand their gaming laws.

The Crackdown on Online Sweepstakes and Dual-Currency Systems

One of the most significant trends of 2025 has been the state-level crackdown on online sweepstakes and games that use dual-currency systems. These models, often employed by social casinos and other interactive entertainment platforms, have come under intense scrutiny from regulators, who view them as a means to circumvent traditional gambling laws.

Montana’s Aggressive Stance

In a move that sent shockwaves through the industry, Montana passed Senate Bill 555, which takes effect on October 1, 2025. This law criminalizes any platform that “knowingly transmits or receives gambling information, allows consumers to place a bet or wager using any form of currency, and makes payouts of any form of currency.” The penalties are severe, with potential imprisonment for up to 10 years and fines of up to $50,000. This broad language has created significant uncertainty, leading major players, such as Virtual Gaming Worlds (VGW), to exit the state.

Connecticut’s Comprehensive Reform

Connecticut took a more comprehensive approach with Senate Bill 1235, which targets online sweepstakes casinos that simulate gambling games. The bill defines explicitly and regulates games that use a “dual-currency system of payment allowing the payer to exchange [or win] currency for any prize or award or cash or cash equivalents.” This is a clear signal that states are becoming more sophisticated in their understanding of emerging gaming models and are moving to regulate them.

The Expansion of Legalized Sports Betting and iGaming

While some states are cracking down, others are moving in the opposite direction by expanding legalized sports betting and iGaming. The Multi-State Interstate Gaming Agreement (MSIGA), which allows for shared player pools for online poker, has been a key driver of this trend. In April 2025, Pennsylvania joined the MSIGA, which already included New Jersey, Nevada, Delaware, West Virginia, and Michigan. This expansion creates new opportunities for licensed operators but also highlights the importance of state-by-state compliance.

The Patchwork of State Laws: A Compliance Nightmare

The result of these divergent approaches is a compliance nightmare for interactive entertainment businesses. A game that is perfectly legal in one state may be considered illegal gambling in another. This creates enormous challenges for payment processing, as processors must be able to block transactions from prohibited jurisdictions.

Key state-level variations:

• Bans on skill-based wagering: Some states, such as Florida, prohibit wagering on games of skill, treating them in the same manner as traditional gambling.
• Regulation of DFS: States like New York and Massachusetts have specific laws regulating daily fantasy sports, while others have no particular regulations.
• Age restrictions: The legal age for gaming varies from 18 to 21, depending on the state and the type of game.

This complex legal landscape is a significant reason why interactive entertainment is considered a high-risk industry by payment processors.

Payment Processing Challenges for Interactive Entertainment

The unique regulatory and operational characteristics of the interactive entertainment industry create a host of payment processing challenges. These challenges can impact everything from player experience to revenue and can even put a business at risk of account termination.

1. High-Risk Classification

Due to the complex legal landscape, the potential for high chargeback rates, and the association with gambling, interactive entertainment is almost universally classified as a high-risk industry by payment processors. This means that many traditional processors, such as Stripe and PayPal, will not provide services to these businesses. Those that do often charge higher fees and impose stricter terms.

2. Regulatory and Compliance Burdens

Payment processors that serve the gaming industry must invest heavily in compliance to ensure they are not facilitating illegal transactions. This includes:

• Geolocation services: To block players from prohibited states.
• Age verification: To ensure players meet the legal age requirements.
• AML/KYC compliance: To prevent money laundering and fraud.

These compliance costs are often passed on to merchants in the form of higher fees.

3. Chargeback and Fraud Risks

The gaming industry is a prime target for fraud and chargebacks. Players may dispute charges after losing a wager, or fraudsters may use stolen credit cards to fund accounts. High chargeback rates can lead to fines from card networks and even account termination.

4. Interrupted Gameplay and Poor User Experience

In the fast-paced world of online gaming, a seamless payment experience is crucial. Slow deposits, failed transactions, and clunky checkout processes can lead to player frustration and lost revenue. Research indicates that nearly one in five online transactions is abandoned due to the lengthy processing time. Redirecting players to off-brand, third-party payment pages can also erode trust and lead to higher cart abandonment rates.

5. Scaling and Performance Issues

Major gaming events and traffic spikes can put a significant strain on payment processing systems. If a processor’s infrastructure can’t handle the volume, it can lead to failed payments, frustrated players, and lost revenue. Scalability is essential for long-term success in the gaming industry.

SpectrumePay: Your Solution for Interactive Entertainment Payment Processing

Navigating the complex world of state gaming laws and payment processing challenges requires a partner with specialized expertise in high-risk industries. SpectrumePay offers tailored solutions for interactive entertainment businesses, empowering them to succeed in this rapidly evolving market.

Proven High-Risk Expertise

With a 98% approval rate for high-risk merchant accounts, SpectrumePay has a proven track record of securing stable and reliable payment processing for businesses in complex regulatory environments. Our team understands the unique challenges of the gaming industry and works closely with our clients to design customized solutions that meet their specific needs.

Essential Compliance and Risk Management Solutions

We provide key compliance and risk management tools designed explicitly for high-risk industries like interactive entertainment:

• AgeMatch Age Verification: Our leading age verification solution protects children from unauthorized access to online age-restricted content while protecting businesses from potential compliance liability.
• Comprehensive Chargeback Protection: We ensure you never fight chargebacks alone, providing dedicated dispute management to protect your bottom line and save money in the long run.
• PCI Compliance Support: Full assistance with Payment Card Industry Data Security Standard (PCI-DSS) compliance to meet global data security requirements.
• Chargeback Mitigation and Dispute Management: Tailored solutions designed specifically for the complex high-risk space, with expertise in navigating regulatory challenges.

Seamless and Branded Payment Experience

We offer a seamless and branded payment experience that builds player trust and reduces friction. Our solutions include:

• Real-time deposits: So players can fund their accounts without leaving the game.
• Branded checkout pages: To maintain a consistent brand experience.
• Support for alternative payment methods: Including digital wallets and pay-by-bank solutions.

Scalable and Reliable Infrastructure

Our payment processing infrastructure is designed to scale, ensuring that you can handle traffic spikes and major events without interruption. We offer high uptime, local compliance expertise, and a proven track record of reliability.

Conclusion: Thriving in the Complex World of Interactive Entertainment Payment Processing

The interactive entertainment industry offers immense opportunities, but it also presents significant challenges. Navigating the complex patchwork of state gaming laws and overcoming the hurdles of high-risk payment processing requires a deep understanding of the legal landscape and a strategic approach to payments. By partnering with a specialized payment processor like SpectrumePay, interactive entertainment businesses can not only survive but thrive in this exciting and dynamic market.

Don’t let payment processing hold you back from achieving your success. Contact Spectrum Payment Solutions today to learn how we can help you navigate the complexities of state gaming laws and secure the stable, reliable payment processing you need to grow your business.

Frequently Asked Questions

What is the difference between a game of skill and a game of chance? A game of skill is one where the outcome is determined primarily by the player’s abilities. A game of chance is one where the outcome is determined mainly by a randomizing element. This distinction is crucial in deciding whether a game is considered gambling under state law.

Why is interactive entertainment considered a high-risk industry? Interactive entertainment is considered high-risk due to the complex and fragmented legal landscape, the potential for high chargeback rates, and the association with gambling.

What are the key payment processing challenges for gaming businesses? The key challenges include high-risk classification, regulatory and compliance burdens, chargeback and fraud risks, interrupted gameplay and poor user experience, as well as scaling and performance issues.

How can Spectrum Payment Solutions help my interactive entertainment business? Spectrum Payment Solutions offers tailored payment processing solutions for high-risk industries, including comprehensive compliance and fraud prevention tools, a seamless and branded payment experience, and a scalable and reliable infrastructure.

References

1. Snell & Wilmer. (2025, June 5). Banned, Fined, and Redefined: The 2025 State Crackdown on Online Sweepstakes. https://www.swlaw.com/publication/banned-fined-and-redefined-the-2025-state-crackdown-on-online-sweepstakes/

2. American Gaming Association. (2025, May). State of the States 2025. https://www.americangaming.org/wp-content/uploads/2025/05/AGA-State-of-the-States-2025.pdf

3. Paramount Commerce. (2025, June 12). 5 Payment Challenges Costing iGaming Operators in 2025—And How to Fix Them. https://www.paramountcommerce.com/resources/blog/5-payment-challenges-costing-igaming-operators-in-2025-and-how-to-fix-them