A Word of Analyst: ‘Little evidence’ of Sweepstakes Casino Cannibalisation
Jerard V. • Last updated on 26 December 2024
The casino industry is currently battling different views of sweepstakes casinos. Some believe that sweepstakes casinos are taking over the market dominated by traditional casinos, while others believe sweepstakes serve a different market entirely. Aaron Lee, an analyst at the US equity research firm Macquaries, stated that sweepstakes and conventional online casinos are similar. Lee mentioned the similarities between both betting categories, including how they are marketed, the kinds of promotions they offer, and the games available.
Lee stated that contrary to popular opinion, there is little evidence to prove sweepstakes casino cannibalization. The Macquarie analyst further affirmed that iGaming dominates the gambling industry with record growth rates. He backed up his statement with New Jersey’s 24% Y-O-Y increase in revenue from iGaming in September.
Lee further argued that sweepstakes casinos do not enable the cannibalization of the iGaming industry but act as an alternative for players who do not have access to conventional real-money gambling.
Michigan’s Crackdown on Sweepstakes Fails to Boost iGaming
Gaming consultant firm Eilers & Krejcik Gaming (EKG) analyzed more than 50,000 data points from 28 casinos across six US states in its 2024 report on sweepstakes. The database gave EKG access to data covering approximately 64% of the US iGaming industry. The gaming firm projects that gross gaming revenue from the US will hit $7.3 billion in 2024, while sweepstakes will rake in $2.9 billion.
Even though sweepstakes have much to offer regarding tax revenue, some US states are cracking down on such ventures. The most recent instance is the Michigan Gaming Control Board (MGCB) issuing cease-and-desist letters to Virtual Gaming Worlds (VGW), resulting in the operators of Chumba Casino and Luckyland Slots exiting the state.
John Lessau, manager of criminal investigations for the MGCB, was against the idea that sweepstakes are mere tools for promoting a product. He affirmed that sweepstakes are gambling and a legitimate way to promote a product and raise profits.
EKG’s report showed that while the Michigan government is stern about banning sweepstakes, the decision has not been favorable as the state recorded the second-worst iGaming growth of the year from January to August 2024 compared to its performance from January to August 23 at 24.8%. In contrast, West Virginia’s gambling revenue increased by 54.5% during the same period.
Commenting on the topic, a sweepstakes’ Social and Promotional Gaming Association (SPGA) spokesperson mentioned that critics make groundless claims about sweepstakes casino sites posing a threat to real-money online gambling sites. The spokesman invalidated the claims, indicating that the facts don’t corroborate such views. He went on to state that free-to-play players dominate the customer base of a typical SPGA member. Highlighting that most social sweep customers don’t make any purchases, and even the tiny fraction only invests small amounts compared to the average deposits at online betting sites.
Macquarie: sweepstakes could be the catalyst for iGaming regulation
Further in the report, Aaron Lee, Macquarie’s analyst, argued that sweepstakes could help state lawmakers identify untapped revenue and even serve as a complementary part of the gambling industry. To illustrate his idea, Lee expounded on how the rise of Daily Fantasy Sports served as the foundation for sports betting.
The analyst countered that authorized iGaming providers are unlikely to be ready to enter the sweepstakes casino market. Lee claimed that the idea carries a high regulatory risk, even with the possible elements that would generally make it appealing.
Because US gaming regulators have historically been very critical of any operations in jurisdictions that are not explicitly regulated, he stated that operating sweepstakes, which are currently not entirely regulated, could seriously jeopardize operators’ gaming licenses in current and future states that legalize iGaming.
Sources:
- “‘Little evidence’ of sweepstakes casino cannibalisation, claims analyst” https://next.io/news/regulation/little-evidence-sweepstakes-casino-cannibalisation-claims-analyst/Next.io. December 11, 2024.
- Social and Promotional Gaming Association.Organizatio that protects players, promotes responsible innovation, and advocates for clear regulations.
- Michigan Gaming Control Board (MGCB): Regulatory body that ensures of fair and honest gaming and safeguards the interests of the citizens of the state of Michigan.
