How can you tell whether the latest trend is a long-term opportunity or merely a fad? That’s the question many US-facing affiliates are asking about sweepstakes casinos. Affiliate Leaders looks at whether it is yet possible to answer it.
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It’s been 60 years since anyone last got this excited about sweeps. Back then it was a notoriously dodgy Cockney accent and a flying nanny that caused the kerfuffle, but now it is the arrival of a kind of shadow igaming market in the US in the form of sweepstakes casinos.
Proponents of sweepstakes claim that their dual-currency model – which allows players to exchange in-game currency for cash or prizes – is legal and can run without the need for a licence in almost any US state, including many that have not yet accepted igaming.
A significant proportion of the regulated industry disagrees with that interpretation of the law. But the sweepstakes sector doesn’t appear to care and has poured cash into player acquisition campaigns, complete with high-profile brand ambassadors including Paris Hilton, Michael Phelps and Ryan Seacrest.
This has been good news for affiliates in an otherwise difficult US market, and many have moved quickly to set up sweeps-based products and send players to the growing number of operators in the space. This was a relatively quiet process – and, anecdotal evidence suggests, an increasingly lucrative one – until Catena Media announced its Q2 financial results.
Catena’s new CEO, Manuel Stan, is attempting to get the business back on track after a prolonged turbulent period and made it clear that sweepstakes casinos are central to the recovery plan. They accounted for one-third of revenue in a very successful quarter for the company’s casino division – and Stan is expecting even more from the segment in the coming years.
Asked during the earnings call whether sweepstakes were merely a temporary phenomenon or represented a sustainable path to growth, his response was definitive.
“We see this as the fastest-growing vertical for us, and we expect it to continue growing. We are very well positioned to capitalise on that growth,” said Stan, before adding that Catena’s approach was not just about cashing in on the current popularity of sweepstakes.
“Also, we position ourselves for post regulation in the bigger states in the US, where we will be able to have built our databases around our brands to capitalise when the likes of California and Texas will be regulating.”
It’s all in the timing
Bold statements require confidence, thought and enough guile to make them sound plausible. They also require some luck with timing.
Stan did not get that good fortune, as subsequent events conspired to somewhat undermine his message.
Just days after Catena’s earnings call, the American Gaming Association (AGA) published its new policy on sweepstakes casinos and sportsbooks. It was about as far from being supportive of sweepstakes operators and their business model as it was possible to be.
Among the AGA’s criticisms were accusations that those operators were able to side-step state gambling laws and taxes, that they had “weak” responsible gaming and self-exclusion provisions, and that they presented “many risks for consumers”.
It also called for the authorities to begin exercising oversight of sweepstakes and to take action where appropriate. “Where state laws and regulations are not clear, legislatures should consider enacting legislation to prevent unlicensed operators from exploiting loopholes in sweepstakes regulations to offer online real money gambling,” continued the AGA.
The trade body’s new policy was definitely not what Stan would have wanted to read. But that doesn’t necessarily mean he was wrong to predict to investors that there was a big future in sweepstakes, or to ensure his company was well-placed to drive revenue from the growing vertical.
Stan was simply making the case for his business strategy (and, perhaps inadvertently, those of other affiliates who have dived into the sweepstakes market), in the same way the AGA was doing its job by lobbying for a course of action that would benefit its members.
Whether there is, in fact, a long-term future for the US sweepstakes market is a question that many in the gaming world are asking. Player numbers strongly indicate that there is plenty of demand for these casinos, but the legal picture is a little less clear.
Letter of the law or spirit of the law?
The best case scenario for the sweepstakes industry is that regulators turn a blind eye and it is able to spend the next few years building on what is already believed to be a multi-billion dollar market. This might in turn persuade lawmakers in multiple states that the sensible thing to do would be to legalise igaming, generate tax revenue and improve consumer protection.
That would, of course, be very good news for the affiliates currently building up their sweeps products and casino audiences in non-igaming states.
Unfortunately for them, it is also an unlikely outcome. And not just because of the continuing reluctance of multiple state legislatures to create regulated igaming markets.
There’s something about sweepstakes casinos that, to many in the betting and gaming industry, just doesn’t feel right. From the outside looking in, they appear to be an opportunistic proposition, designed to exploit a legal loophole to offer a form of real-money gaming.
The sweeps operators and their corporate lawyers would vehemently disagree with that characterisation. Their position is clear – that they provide players with a great entertainment experience and comply with all relevant legislation while doing so.
However, complying with the letter of the law can be a very different thing to being in alignment with the spirit of the law and the intention of the lawmakers when they passed the legislation in question.
While the spirit of the law may have, at best, limited legal standing, authorities tend to take a dim view of activities that are not in accordance with it. They can be slow to respond in this type of situation, but once the issue comes to widespread public attention they are usually keen to be seen to be taking action.
The problem now for the sweepstakes operators is that their success in attracting players has brought them to the attention of not just the AGA and its members, but also lawmakers and regulators. As a result, the pushback is underway.
Market leader VGW has found itself at the centre of this and has been ordered to halt access to its Chumba Casino, Lucklyand and Global Poker brands in Delaware, Idaho, Michigan and Washington. It also faces class action lawsuits in Georgia and Florida from players seeking to recoup losses from what they allege are illegal online gambling products.
Time will tell whether these developments are the beginning of the end for sweepstakes casinos as a mass market product, but the legal reckoning that will determine the long-term viability of the vertical appears set to arrive more quickly than anyone had expected.
