Sweepstakes Casinos: American Gaming Association Calls For Regulatory Scrutiny Amid Market Growth

The American Gaming Association (AGA) has issued a warning about the rise of sweepstakes casinos, labeling these operations as potential threats to consumer protection and the integrity of the legal gaming market.

In a recent publication, the AGA underscored its concerns that sweepstakes casinos and similar models are exploiting ambiguities in state gambling laws. The organization suggests that these operators are potentially skirting the regulatory frameworks that govern the traditional gaming industry.

Sweepstakes and social casinos operate under a model that allows players to engage in traditional casino games such as slots, poker, and roulette, often using a dual-currency system. Players can acquire virtual currency, commonly known as Gold Coins, to play these games.

Alongside Gold Coins, which are purchased with real money, players receive “Sweep Coins” either as a bonus with the purchase of Gold Coins or through various promotions. These Sweep Coins can then be exchanged for real money or prizes, blurring the line between free-to-play games and real-money gambling.

The AGA argues that, although these sweepstakes casinos claim to operate legally by not requiring players to spend real money, they functionally resemble online casinos. The dual-currency system, according to the AGA, is a tactic designed to evade licensing and regulatory oversight. This lack of regulation, the AGA contends, poses significant risks to consumers and undermines the integrity of the gaming industry.

Impact on the legal gaming industry

The legal gaming industry in the U.S. is highly regulated, with stringent requirements intended to protect consumers, ensure fair play, and contribute to state revenue through taxes and fees. Regulated gaming companies invest heavily in compliance, responsible gaming protocols, and product testing. They also operate under the scrutiny of gaming regulators.

The rise of sweepstakes casinos presents a growing challenge. These entities, by operating in a gray area and arguably outside of the established legal frameworks, deprive states of significant tax revenue.

Additionally, consumers who engage with these platforms are left vulnerable due to the absence of robust responsible gaming measures and the lack of independent oversight. The AGA highlights the potential for fraudulent activities and the involvement of bad actors in these unregulated environments, further exacerbating the risks.

The sweepstakes casino market boom

Despite the AGA’s concerns, the sweepstakes casino market has experienced explosive growth in recent years. According to data from Eilers & Krejcik Gaming, the sweepstakes gaming market expanded at a compound annual growth rate (CAGR) of 85% between 2019 and 2023. In 2023 alone, the market grew by 61%, reaching $5.6 billion in player purchases and generating $2 billion in net revenue.

This rapid growth has been fueled by several factors, including the expansion of existing operators, the launch of new products, and the significant performance of market leaders like Virtual Gaming Worlds (VGW), which operates platforms such as Chumba Casino, Luckyland, and Global Poker. VGW’s revenue increased by 26% year-over-year in 2023, contributing to the overall market expansion.

Looking ahead, Eilers & Krejcik Gaming projects that the market will continue to grow at a CAGR of 44% over the next two years, potentially reaching $11.4 billion in player purchases and $4 billion in net revenue by 2025. This forecast suggests that, despite regulatory pressures, the sweepstakes casino market is likely to remain a significant force in the gaming industry.

Regulatory and legal challenges

The rapid growth of the sweepstakes casino market has not gone unnoticed by state regulators. In response to concerns about the legality and consumer protection issues associated with these platforms, several states have taken action against specific operators. For instance, VGW was forced to cease operations in Idaho, Washington, Michigan, and, more recently, Delaware.

State and federal courts are also intervening to determine what happens next. As such, it’s possible that a blanket policy may appear in the future.

The AGA concluded its letter by urging gaming regulators and state attorneys general to investigate companies that offer casino games or sports betting under the sweepstakes model. The organization wants these authorities to assess whether these operators are in compliance with state laws and regulations. It also wants them to take appropriate action against those found to be violating the rules — although those rules are not yet fully understood.