Regulus Partners: US sweepstakes casinos – the feds are coming for you

One of the biggest issues of the sweepstakes markets is hidden in plain sight: cheerleaders of the industry tend to use customer deposits as a total addressable market (TAM), which, just like real-money casinos, are around four times higher than net revenue once prizes withdrawn as cash are deducted. The US sweepstakes market is therefore likely to be entering 2025 as a roughly $2bn market rather than an $8bn one – a much smaller prize to fight for.

Significantly, customer deposits are a far more legitimate measure of underlying customer expenditure for social casino – because there are no withdrawals. However, the big question for sweepstakes casinos in 2025 is not economic but regulatory: is the business model sustainable under scrutiny?

Whether or not sweepstakes casinos are within the letter of the law is likely to continue to dominate debate in 2025, and given the increasing regulatory focus it might actually get tested. Without new law, only judges can decide whether offering a social casino is sufficiently different from gambling to qualify as a product that is not itself gambling in a sweepstakes context.

Different judges are likely to come to different conclusions. There is also a danger of ‘beware of what you wish for’. Those hoping for a ‘common sense’ spirit of the law to be applied to sweepstakes as de facto gambling probably don’t want similar ‘common sense’ to apply to whether being able to gamble anywhere in a state is an expansion of gambling versus only being able to gamble on regulated premises. Logic is rarely the friend of vested interests for long.

Riding the wave

However, where sweepstakes casinos are more flagrantly marketing themselves and operating as de facto gambling by failing to draw sufficient legal distinctions to ensure the sweepstakes carveout applies to them, regulatory intervention is likely to be brutal – and a theme of 2025. We anticipate a wave of negative decisions for the sweepstakes casino sector this year.

This shift in ‘focus’ (or perceived easy opportunity) is likely to be further accelerated by the ‘opportunities’ presented by crypto, given President Donald Trump’s vocal backing for the asset/currency. We suspect many business pitches are being adjusted for the new supposed path of least resistance. However, if contracts for difference (CFDs) on sports (crypto or not) are not a form of betting, then the law is an ass. There is an easy solution for this: the Wire Act does not define precisely what wagering on sports means, and so a judge can. But we end up right back at the spirit of the law problem that crypto casinos present.

Our big concern for the sweepstakes casino sector, just as with the ‘emerging’ crypto/CFD wagering model, is that politicians are often less interested in whether the existing regulatory-judicial framework can work but more in if they have an opportunity to intervene to further their careers by ‘doing something’.

As then US President Ronald Reagan once said in 1986: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help’.” However, if existing law is failing to define effectively what gambling is, especially if state legislation and state sovereignty can be circumvented, we can expect a lot more governance.

Those hoping that a Trump White House will be good for entrepreneurs are probably right; those hoping that a Trump White House won’t support aggressive and even knee-jerk intervention to ‘right’ a palpable exploitation are almost certainly wrong.

Paul Leyland is a founding partner at Regulus Partners, a specialist advisory for gambling strategy, fiscal-regulatory impact, safer gambling and market data. Before co-founding the firm in 2013, Leyland worked as an equity analyst in financial services specialising in the gambling industry from 2000 to 2012, before moving briefly in-house at William Hill.