Tom Waterhouse from Waterhouse VC Investigates the Growth of Sweepstakes Amidst Friction in the U.S. iGaming Regulations
In the wake of online gambling’s legalization nearly a decade ago, U.S. sports betting has witnessed a remarkable ascent, predicted to amass around $13.7 billion in revenue by 2024 from an estimated $150 billion in total wagers, according to the American Gaming Association (AGA). Conversely, online casino gaming—or iGaming—has lagged behind, as only seven states have legalized it, generating an impressive $8.4 billion last year in gross gaming revenue (GGR).
What accounts for this disparity? The answer lies not in consumer demand, but in the friction imposed by regulatory hurdles. In particular, moral opposition, especially in southern states, entrenched interests from traditional land-based operators, and legislative stagnation have hindered the broader rollout of iGaming. In this regulatory vacuum, alternative gaming models like sweepstakes casinos have emerged, rapidly becoming the United States’ fastest-growing betting segment. Eilers & Krejcik forecasts this burgeoning category to reach $11 billion by 2025, exceeding regulated iGaming both in scope and revenue—a sharp jump from $3.1 billion in GGR in 2022.
A Brief Overview
When we previously examined sweepstakes, industry giants were expanding rapidly while operating largely beneath the regulatory radar. This situation has changed dramatically as the stakes have grown too significant to ignore. States are increasingly launching investigations and issuing cease-and-desist orders as the sector gains greater visibility.
VGW, the Australian company behind brands such as Chumba Casino and Global Poker, is the key player in this arena. With an annual revenue of approximately AU$6.1 billion, VGW showcases the viability of sweepstakes. Its founder, Laurence Escalante, is reportedly considering a buyout of minority stakeholders, valuing the firm at around AU$3.2 billion.
Amid intensified competition—over 25 new sweepstakes brands have emerged in 2025 alone—VGW’s market share has dwindled from over 90% to around 50%. This landscape resembles a digital land grab, filled with both opportunities and risks.
Reasons for Player Attraction
Sweepstakes appeal to players largely because of their accessibility and engaging nature. Users can quickly sign up with minimal requirements, often just an email and phone number, in exchange for “Gold Coins” and “Sweep Coins.” This promotional credit system allows operators to market their platforms as contests rather than gambling sites. As a result, they enjoy greater advertising freedom across major platforms like Meta, Google, and TikTok, which traditional operators frequently cannot access due to strict compliance measures.
The lower cost of customer acquisition and quicker growth is evident, with active player growth in sweepstakes averaging about 16%—tripling that of regulated iGaming. However, while the conversion rate to first purchases is noticeably lower among sweepstakes players, those who do engage tend to participate more frequently over time, achieving retention levels comparable to licensed platforms.
The products are typically designed for mobile use, mirroring the user-friendly mechanics of popular mobile games. Operators focus on familiar features that enhance user engagement, such as quests and social mechanics, aiming to create an experience akin to popular titles like Candy Crush.
Legal Tensions
The foundation of sweepstakes operators hinges on their classification as "promotional contests," demanding a provision for free entry to maintain their non-gambling status. Despite a modest conversion of users to first purchases, these players are projected to spend around $8.5 billion on Gold Coins in 2024, pushing sweepstakes revenue beyond that of regulated iGaming for the first time. The promotional focus on jackpots and the design of platforms often resemble that of licensed online casinos, raising questions about their regulatory compliance.
Often compared to the McDonald’s Monopoly game, it’s vital to note that in this case, the contest forms the core product, which diverges from traditional interpretations and attracts increasing scrutiny.
Growing Regulatory Challenges
Pressure is mounting from regulators in response to the significant revenue shifts. In 2024, U.S. states generated a record $15.9 billion in gaming tax revenue, predominantly from regulated operators who adhere to strict guidelines. For traditional gaming entities, every untaxed Gold Coin sale represents lost potential revenue and a challenge to a fair playing field.
Montana has already enacted a full ban effective October 1, 2025, with Connecticut and Louisiana poised to follow suit. Ongoing investigations and warnings from various states signal an increasing regulatory focus. Notably, VGW has discreetly exited Michigan and New York, suggesting a strategic retreat from potentially hostile environments. Similarly, major companies like High 5 Games have incurred substantial fines, illustrating the rising stakes in complying with evolving laws.
Outlook for the Future
The landscape remains precarious, with numerous states still presenting opportunities for sweepstakes casinos. Enforcement timelines can vary significantly, allowing these operators to continue functioning with relative freedom.
As the situation unfolds, a variety of scenarios may transpire. Some jurisdictions may move toward outright bans, while others could pursue lighter licensing regimes or establish new frameworks for oversight. Increasing compliance costs are likely to spur consolidation, favoring larger operations over smaller entrants. In some cases, states may opt to maintain the status quo for the time being.
For operators, a pivotal decision looms: to focus on immediate growth or pivot toward long-term legitimacy. Much like daily fantasy sports paved the way for legal sports betting, sweepstakes could potentially catalyze broader reforms in the iGaming space. As lawmakers confront the scale and potential revenue loss from unregulated markets, formal regulation may emerge as a compelling solution.
The Opportunity Ahead
As regulated markets encounter obstacles, grey markets tend to emerge, creating fertile ground for innovation. One area of exploration is the application of AI-driven solutions designed to curb capital flight to offshore operators—a significant challenge faced by established markets. This scenario exemplifies how friction can foster new opportunities and highlights where future value may be realized.
Waterhouse VC focuses on investments in publicly traded and private companies within the wagering and gaming sectors, exclusively serving wholesale investors. Since its inception in August 2019, the fund has recorded a remarkable gross total return of +3,252%, with an annualized rate of 84% as of May 31, 2025, reflecting the reinvestment of all distributions.