Laurence Escalante, founder of sweepstakes casino giant Virtual Gaming Worlds (VGW), is seeking to buy out the remaining 30% of the company he doesn’t already own. The deal would give him full control of the Australia-based business which launched Chumba Casino in 2012, kicking off the US sweepstakes casino vertical.
The news, first reported by the Australian Financial Review, comes during a tumultuous year for the sweepstakes industry overall. Bills that outlaw sweeps casinos are appearing in more and more states, with one over the line in Montana and three others looking to follow it in Nevada, Connecticut, and Louisiana.
VGW Profits are Still Healthy
Escalante’s three sweepstakes brands are Chumba Casino, Luckyland Slots, and Global Poker, and reports suggest a revenue of $6.13 billion with a profit of $491.6 million for VGW for the year ending June 2024.
Escalante’s market share has inevitably declined since 2012, when VGW was the first operator in the space – today, the sweepstakes casino landscape includes hundreds of competitors. His brands are failing to keep up with the innovations of many competitors too – Chumba still has a very small games library, for example. However, VGW still retains the benefits of first mover advantage if we look at profits.
In terms of a company valuation, this proposed deal values VGW at $3.2 billion, a conservative estimate considering the recent earnings. Escalante has reportedly offered shareholders $5.05 a share, although this isn’t his first buyout offer – that came in November last year at $3.50 to $4 a share, and it was rejected.
There are some details to the recent offer that have raised eyebrows though. The Australian newspaper reports that the move would mean relocating the company offshore to Guernsey. The buyout would also be handled via a Special Purpose Vehicle (SPV), essentially a shell company that Escalante controls. In fact, current shareholders have been offered ownership in the SPV, effectively providing continued dividends but handing full operational control over to Escalante. Finance for the buyout would come from outside lenders and a loan from VGW, the company he’s acquiring full control of. It’s financially efficient, but VGW’s own assets are partially being used to help the founder tighten his grip on the company.
Yes, as laws in an increasing number of US state legislatures reduce the company’s market, it’s likely Escalante wants tighter control and increased room to maneuver VGW as he sees fit. We’ve also seen cease-and-desists from gaming regulators, as well as private cases from disgruntled players looking to take advantage of cracks in VGW’s legal armor (none of those private cases have succeeded so far).
To combat the anti-sweeps legislation, VGW looks to be attempting to pacify lawmakers and other stakeholders by pre-empting any further decisions that could affect it as a company. For example, it recently withdrew its brands from promotional play in New York state, a sizeable market that’s also been considering anti-sweeps legislation. As for the four jurisdictions mentioned at the start, VGW is already out of three of them. The minimum age requirements to play at VGW casinos were raised to 21+ in February too.
On top of this, Escalante founded the Social Games Leadership Association (SGLA) last month, collaborating with other major sweepstakes brands. The goal with this trade group is likely to rebrand the sweepstakes vertical in a more positive light, as well as influence lawmakers who may be open to regulation rather than outright banning. All we’ve seen so far is the latter, with only one bill suggesting a regulated sweepstakes market introduced in New Jersey, then swiftly withdrawn.
Tricky Times Ahead for the Whole Sweepstakes Industry
It’s no surprise that tensions boiled over in VGW’s Telegram message group for investors last month. Escalante reportedly went on an expletive-filled rant, urging investors to sell up if they’re not happy with his leadership. Viewed in this light, the most recent buyout offer could be seen as less than friendly.
But as the mastermind behind sweepstakes casinos, we’ll follow keenly what happens next. Escalante and his brands set examples that competitors follow, and if anyone has a shot at influencing future legislation, it’s him.
Author: Joseph Allen
Updated:
