Sweepstakes Casinos to See More Growth, Scrutiny, Says Analyst
Sweepstakes Casinos to See More Growth, Scrutiny, Says Analyst
Sweepstakes casinos are an exciting and rapidly expanding segment within the broader gaming landscape. Industry professionals believe that this growth will continue, albeit with heightened regulatory attention.
Known also as sweeps casinos, this type of wagering blurs the lines between social casinos—which are typically free to play—and iGaming. iGaming involves internet versions of standard casino games with real-money betting, currently permitted in only seven states. According to Macquarie analyst Aaron Lee, sweepstakes casinos achieved a compound annual growth rate (CAGR) of about 75% from 2019 through last year, establishing a $4 billion industry that could spur new iGaming legislation.
“Though there are clear similarities between sweepstakes and iGaming, we see little evidence of cannibalization,” noted Lee. “In fact, we believe sweepstakes growth could positively influence iGaming legislation by highlighting untapped tax revenues.”
If cannibalization does occur, it is likely social casinos—rather than iGaming—that will feel the effects of the increasing popularity of sweepstakes casinos.
The Controversial Nature of Sweepstakes Casinos
The rapid expansion of sweepstakes casinos is attracting scrutiny, as some regulators perceive them as a form of iGaming disguised. Like social casinos, sweeps versions entice players with the promise of free-to-play games. Players may win prizes while playing, but they face the temptation of in-app purchases that may shorten their odds of winning.
Although such purchases are not mandatory, some bettors still spend significant amounts on the games. Many find themselves regretting their choices as they effectively lose the free aspect of social casinos without enjoying the defined outcomes and real money potential of traditional online casinos.
Lee suggests that sweepstakes casinos do not fit into the categories of traditional lottery or betting, as operators eliminate the element of consideration—a key aspect in defining gambling—by ensuring that no purchase is required to win prizes. Alternatives must be offered for clients to enter drawings, such as mail-in forms.
“Users can elect to play with a sweepstakes currency, which can act similarly to real money. Players can wager sweepstakes coins to potentially earn more and redeem them for cash prizes,” noted Lee. “This represents the promotional element of sweepstakes, where operators argue that their offering enhances the appeal of purchasing virtual currency.”
According to Lee, the operators of sweepstakes casinos consider the purchase of virtual currency as an entry into a drawing, which differentiates it from standard betting formats. The American Gaming Association (AGA) is advocating for stricter scrutiny from regulators regarding the dual currency system employed by sweepstakes casinos, which may contravene federal and state laws. Enforcing legal actions is challenging, as most operators are based internationally.
Currently, operators of sweepstakes casinos restrict access for residents of four states, with some prohibition in seven additional states.
The Rapid Growth of Sweepstakes Casinos
Recent analysis from Eilers & Krejcik Gaming (EKG) indicates the market for sweepstakes casinos surged from $460 million in 2019 to $4.2 billion last year. However, as Lee observed, sweepstakes casinos report revenue similar to lotteries, factoring the prizes paid to winners into their gross revenue reports.
On a net basis, the sweepstakes sector likely represented around $1.3 billion last year, compared to $7 billion for social casinos and $6.5 billion for traditional iGaming.
“Despite the pandemic, the sweepstakes industry experienced robust growth, which has persisted at a strong pace into the present,” concluded Lee. “Forecasts suggest this industry could expand to $5.6 billion in gross revenues by 2024 (~30% growth year-on-year) and to $6.9 billion in 2025 (24% year-on-year), translating approximately to net figures of around $1.7 billion and $2.1 billion respectively.”
In summary, the growth of sweepstakes casinos not only indicates an evolving landscape in the gaming industry but also raises urgent questions surrounding regulatory measures and the future of iGaming legislation. As the industry expands, it will be critical to monitor how these developments impact various gaming sectors and player protections.
