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If you have been looking for new places to play online baccarat in recent times, then you may well have come across sweepstakes casinos. While they are a relatively new part of the iGaming industry, they have been enjoying rapid growth. However, this growth is attracting ever more regulatory attention the casinos blur the boundaries between free-to-play social casinos and traditional gambling.
Also known as “sweeps casinos”, these sites provide a very similar experience to a traditional casino. They offer all the games you would expect to find, from slots to baccarat, video poker, scratch cards, and so on.
At present, traditional iGaming is legal in very few US states, and sweepstakes casinos offer a way around this. Despite regulatory limits, Macquarie analyst Aaron Lee has noted that sweepstakes casinos saw a compound annual growth rate (CAGR) of about 75% from 2019 to 2022, which make it into a $4 billion market, which he believes could potentially encourage more states to explore iGaming legalization.
Lee said:
“Though there are clear similarities between sweepstakes and iGaming, we see little evidence of cannibalization. Rather, we think the growth of sweepstakes could actually be a positive for iGaming legislation by attracting attention to the untapped tax revenues.”
Lee also suggested that if any cannibalization occurs, it would more likely impact social casinos rather than iGaming.
Controversy Surrounding Sweepstakes Casinos
As their popularity continues to grow, sweepstakes casinos are coming under criticism from regulators who argue that they closely resemble iGaming. Similar to social casinos, sweeps platforms offer free-to-play games that promise prizes. However, players are also offered optional in-app purchases designed to boost gameplay or improve their odds.
While these purchases are not mandatory, some players spend significant amounts of money, which often leads to regrets about the loss of the “free-to-play” aspect. Furthermore, as social games don’t offer real money payouts in the same way as iGaming sites, they often leave players feeling frustrated.
Lee explained that sweepstakes casinos avoid being classified as lotteries or traditional gambling by eliminating the element of “consideration”, which is something of value that players must provide in order to play (e.g. money). Gambling traditionally involves three elements: consideration, prizes, and chance. By removing the need to pay for participation, sweepstakes casinos comply with legal distinctions. Players are offered alternative methods, such as mail-in entries, to participate without spending money.
As Lee explained,
“Users can also choose to play with a sweepstakes currency, which can effectively be used like real money, as users can wager sweepstakes coins for the chance to earn more coins, and can also redeem those coins for cash prizes. This is the sweepstakes promotional aspect, whereby sweepstakes operators would argue that the sweepstakes promotes the purchase of the virtual currency.”
Sweepstakes operators argue that purchasing virtual currency is simply an entry into a drawing, which makes it distinct from standard betting. However, the American Gaming Association (AGA) has called for stricter scrutiny of the dual currency systems used by sweeps casinos, claiming they exploit gaps in federal and state laws. However, legal action is complicated, as most operators are based outside the U.S.
Currently, sweep platforms restrict access in four states and face some form of prohibition in seven additional states.
The Rapid Growth of Sweepstakes Casinos
Research conducted by Eilers & Krejcik Gaming (EKG) shows the sweepstakes casino market grew from $460 million in 2019 to $4.2 billion in 2022. Lee noted that revenues are reported similarly to lottery earnings, meaning payouts to winners are included in the total. On a net basis, sweepstakes casinos generated approximately $1.3 billion in 2022, compared to $7 billion for social casinos and $6.5 billion for real-money iGaming.
Lee added that, “Nonetheless, the sweepstakes industry saw strong growth during the pandemic, and growth has continued at a strong pace thereafter.”
Projections from Eilers indicate gross revenues for the sweepstakes industry growth could climb to $5.6 billion in 2024 (a 30% year-over-year increase) and $6.9 billion in 2025 (a 24% increase). On a net basis, those figures translate to roughly $1.7 billion and $2.1 billion, respectively.
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