Sweepstakes casinos have carved out a unique niche in the online gaming landscape, operating without the exchange of real-money bets. Adopting a “freemium” model, users engage with virtual tokens that can be obtained gratis or via indirect purchase, employing these tokens as virtual funds to unlock in-game features. Following gameplay, these virtual currencies can be converted into real-world cash or prizes, thus offering a tantalizing incentive for players.
For over a decade, the largest sweepstakes casinos have been providing services that mimic the engaging experience of real-money online casino gaming—also known as igaming—particularly in jurisdictions where such activities are either outright illegal or not comprehensively regulated. Those familiar with real money casino offerings would instantly recognize the gaming products at the vanguard of the sweepstakes casino scene, with popular sweepstakes slot titles hailing from renown developers like Pragmatic Play, Playtech, and NetEnt.
A staggering annual growth of 89% from 2019 to 2022 has been reported by Eilers & Krejcik Gaming for the global sweepstakes market, amassing revenues that reached a peak of $3.1 billion in 2022. This figure is roughly half the size of the US sports betting market, which registered a gross gaming revenue of $7.5 billion the same year, with industry leaders Flutter and DraftKings spearheading the charge.
The United States has played a pivotal role in the escalation of the sweepstakes market, especially with igaming remaining prohibited across most states. Although online sports betting has found legal standing in over thirty states, the adoption of igaming legislation has been significantly slower. Presently, only seven states—Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island, and West Virginia—permit igaming. Meanwhile, in states bereft of legalized igaming, sweepstakes casinos have effectively bridged this gap, offering players a comparable igaming experience.
The spearhead of the sweepstakes casino operation is Virtual Gaming Worlds (VGW), a company which boasts an overwhelming 90% market share, largely attributable to their flagship offering, Chumba Casino. VGW customers engage in purchasing virtual gold coins for use within Chumba Casino, which hold no value beyond this platform. Yet, with each purchase of gold coins, players are gifted bonus “sweeps coins,” which, unlike the former, can be redeemed for cash in various regions of the US and Canada.
Established in 2010 by Laurence Escalante, VGW has grown to employ over 1,300 individuals globally, with around 220 based in Perth, Australia. The success of Escalante, now 42, has seen his wealth soar to an impressive valuation of around $3.9 billion, as reported by the Australian Financial Review, owning roughly 70% of VGW. The latest financial highlight for VGW revealed a 29% boost in revenue, hitting AU$2.8 billion, and a net profit increase of 23% to AU$207 million.
Escalante’s ascent to wealth places him alongside 28-year-old Ed Craven, a fellow Australian who co-founded the crypto wagering platform Stake.com. Craven’s enterprise recorded a staggering AU$1.8 billion in revenue in 2021, netting a profit of AU$550 million and thus consolidating his fortune at an estimated AU$3.1 billion.
VGW operates under a Maltese gaming license in the United States. However, this position is not impervious to legislative changes. Any revision to federal sweepstakes regulations or state laws could potentially shake the foundations upon which VGW and its competitors are built. Moreover, as igaming becomes legal in more states, there is the potential for a migration of customer interest from sweepstakes casinos to igaming operators.
Despite regulatory risks, the sweepstakes casino market has seen fresh competitors emerge, capitalizing on the rapid growth of the sector. Stake.US, for instance, is a sweepstakes adaptation of the well-known crypto wagering site founded by Ed Craven. The market is projected to burgeon at a rate of 31% annually over the next three years, propelled by states yet to legalize igaming.
In territories like Australia, where igaming remains illegal, “social casinos” such as Lightning Link Casino provide slot machine simulations. These are distinctly different from sweepstakes models as they do not facilitate cash prize winnings but rather promote entertainment with the option to purchase in-game currency.
Around the globe, Aristocrat’s social casino games experience monetary inputs of approximately $1 billion in in-game purchases. In 2020, social casinos tallied nearly US$7 billion in revenue globally.
Waterhouse VC, a venture fund, stands at the intersection of these growing industries, catering to wholesale investors with a focus on wagering and gaming businesses. Since its establishment in August 2019, Waterhouse VC has accomplished a gross total return of 3,067% (111% annualized), assuming the reinvestment of all distributions, as calculated till 31 March 2024.
