Date: December 9, 2024, 02:45h.
Updated on: December 9, 2024, 02:45h.
Sweepstakes casinos are a rapidly growing segment within the gaming industry, with potential for further expansion. However, this growth may attract increased regulatory scrutiny in the future.
Sweepstakes casinos, also known as sweeps casinos, blur the line between social casinos (free to play) and iGaming (real money betting). These casinos have seen significant growth, with a compound annual growth rate of approximately 75% from 2019 to present, resulting in a $4 billion industry today. This growth could potentially lead to increased iGaming legislation.
There is little evidence of cannibalization between sweepstakes and iGaming, according to Macquarie analyst Aaron Lee. The growth of sweepstakes could actually benefit iGaming legislation by attracting attention to untapped tax revenues.
If cannibalization were to occur, social casinos would be more likely impacted than iGaming by the expansion of sweepstakes casinos.
Sweepstakes Casinos: Controversial Yet Lucrative
As sweepstakes casinos rapidly gain popularity, they face increasing scrutiny as some regulators view them as a form of iGaming in disguise. Similar to social casinos, sweepstakes casinos offer free-to-play games with the chance to win prizes. However, players may be enticed to make in-app purchases to improve their odds of winning.
While these purchases are not required, some players end up spending significant amounts on the games. This can lead to disappointment as sweepstakes casinos lack the defined outcomes and real money potential of traditional internet casinos.
Aaron Lee noted that sweepstakes casinos differentiate themselves from lotteries and traditional betting by removing the element of consideration. Operators must clearly state that no purchase is necessary to win prizes and provide alternative methods, such as mail-in forms, for participation.
Players can use sweepstakes currency to play, which can be exchanged for real money prizes. Sweepstakes operators argue that the purchase of virtual currency acts as a promotional aspect, encouraging further participation.
The American Gaming Association (AGA) is urging regulators to focus on the dual currency system used by sweepstakes casinos, as it may violate federal and state laws. Legal action against operators is challenging due to many being based outside the US.
Currently, residents of four states are barred from accessing sweepstakes casinos, while there are restrictions in place in seven other states.
Explosive Growth of Sweepstakes Casinos
Recent research by Eilers & Krejcik Gaming (EKG) shows that the sweepstakes casinos market surged from $460 million in 2019 to $4.2 billion in the past year. Macquarie’s Lee explained that sweepstakes casinos report revenue similarly to lotteries, with prizes paid out factored into the top line.
On a net basis, sweepstakes casinos likely generated about $1.3 billion last year, compared to $7 billion for social casinos and $6.5 billion for real money iGaming.
Despite challenges, the sweepstakes industry saw strong growth during the pandemic and continues to expand. Eilers projects gross revenues to reach $5.6 billion in 2024, with an estimated net income of $1.7 billion, and $6.9 billion in 2025, resulting in around $2.1 billion in net profit.