Regulatory Crossroads: Assessing Long-Term Exposure and Hedging Strategies for B2B iGaming Suppliers in the U.S. Sweepstakes Casino Space

The U.S. sweepstakes casino industry, once a booming niche in the iGaming sector, now faces a regulatory reckoning. For B2B suppliers like Evolution and Hacksaw, the legal and reputational risks of supplying games to unregulated platforms are escalating, with states like California, New York, and Louisiana leading the charge. Investors must grapple with the question: How do these regulatory shifts reshape long-term exposure and what hedging strategies can mitigate fallout?

The Legal Tightrope: From Cease-And-Desist Orders to Civil Suits

The U.S. sweepstakes model—where users purchase virtual currency to play casino-style games for real-world prizes—has been increasingly labeled as gambling. States such as Michigan, Maryland, and New York have issued cease-and-desist letters to operators, with regulators arguing that dual-currency systems violate anti-gambling laws [1]. B2B suppliers, once insulated by contractual clauses absolving them of liability, are now being dragged into lawsuits. California’s landmark civil enforcement action against Stake.us and its suppliers, including Evolution and Hacksaw, marks a pivotal shift. The lawsuit alleges these companies knowingly enabled an “illegal gambling ecosystem” by providing games for unlicensed platforms [2]. If successful, the case could impose fines of up to $7,500 per violation and set a precedent for holding suppliers legally accountable [3].

This legal pressure is already translating into financial volatility. Evolution’s stock dropped 2.5% following the California lawsuit, while Hacksaw’s fell 4.4% [4]. The reputational damage is compounded by allegations that Evolution’s games were accessible in U.S.-sanctioned jurisdictions like Iran and Sudan, leading to a 20% stock decline after Q1 2025 earnings [5].

Strategic Retreats and Compliance Investments

Faced with regulatory uncertainty, Evolution and Hacksaw have adopted defensive strategies. Evolution has implemented “ring-fencing” measures, restricting game access to only licensed operators in Europe, a move that led to a 1% revenue contraction in the region but strengthened compliance [6]. The company is also expanding into regulated markets like Brazil and the Philippines, aiming to offset European headwinds [7]. Hacksaw, meanwhile, has partnered with Vixio, a regulatory intelligence firm, to streamline compliance monitoring and reduce legal risks [8]. Its proprietary RGS platform enables rapid game development tailored to regulated markets, a critical advantage as states like Connecticut and Montana enact bans on sweepstakes casinos [9].

Despite these efforts, both firms remain exposed to grey markets. Hacksaw’s IPO on Nasdaq Stockholm, which raised $404 million, highlights its financial resilience but also underscores risks tied to unregulated revenue streams [10]. Evolution’s UK Gambling Commission review, triggered by its games appearing on unlicensed sites, further illustrates the fragility of its regulatory standing [11].

Investor Hedging: Navigating a Fragmented Landscape

For investors, the key lies in balancing growth potential with risk mitigation. Evolution’s focus on regulated markets and GRC (Governance, Risk, and Compliance) systems offers a buffer against short-term volatility [12]. However, its pending acquisition of Galaxy Gaming—a move to expand U.S. market access—could face delays if legal challenges persist [13]. Hacksaw’s dual-revenue model (direct game sales and platform-as-a-service) and IPO-driven credibility provide upside, but its reliance on grey markets remains a liability [14].

Experts recommend hedging strategies such as diversifying into regulated jurisdictions and prioritizing ESG (Environmental, Social, Governance) criteria. For instance, Evolution’s 44.8% revenue share from regulated markets in Q1 2025—a jump from 39% in Q1 2024—demonstrates the value of this approach [15]. Investors should also monitor legislative trends, such as California’s AB 831, which seeks to criminalize sweepstakes gaming and extend liability to suppliers [16].

Conclusion: A Precipice of Opportunity and Risk

The U.S. sweepstakes casino space is at a crossroads. While regulatory actions threaten to erode market share, they also force suppliers to innovate in compliance and diversification. For Evolution and Hacksaw, the path forward hinges on their ability to navigate this fragmented landscape without sacrificing growth. Investors must weigh these dynamics carefully, prioritizing firms that align compliance rigor with strategic expansion. As the California lawsuit unfolds, its outcome could redefine the legal boundaries of the industry—and the investment calculus for years to come.

Source:
[1] Legal Developments in the Gaming Industry: First Half of 2025 [https://www.wilmerhale.com/en/insights/client-alerts/20250718-legal-developments-in-the-gaming-industry-first-half-of-2025]
[2] Los Angeles City Attorney Sues Stake.us & Partners [https://deadspin.com/legal-betting/los-angeles-city-attorney-sues-stake-us-partners-for-illegal-gambling/]
[3] Los Angeles City Attorney files landmark lawsuit against Stake.us and partners [https://www.gamblinginsider.com/news/30950/los-angeles-city-attorney-files-landmark-lawsuit-against-stakeus-and-partners]
[4] The Regulatory and Reputational Risks Facing iGaming Suppliers [https://www.ainvest.com/news/regulatory-reputational-risks-facing-igaming-suppliers-market-2508/]
[5] Evolution Games Ran in Banned Markets, Execs Say [https://www.bloomberg.com/news/articles/2025-08-13/evolution-games-ran-in-banned-markets-execs-say-in-secret-tapes]
[6] Evolution AB's Q1 2025: Navigating Challenges for Sustainable Growth [https://www.levelheadedinvesting.com/p/evolution-ab-q1-2025-navigating-challenges-for-sustainable-growth]
[7] Evolution AB's Q1 2025: Navigating Challenges for Sustainable Growth [https://www.levelheadedinvesting.com/p/evolution-ab-q1-2025-navigating-challenges-for-sustainable-growth]
[8] Hacksaw Gaming Enhances Compliance Efficiency Using Vixios Advanced Technical Tool [https://www.helsinkitimes.fi/gambling/hacksaw-gaming-enhances-compliance-efficiency-using-vixios-advanced-technical-tool/]
[9] Legal Developments In The Gaming Industry: First Half Of 2025 [https://www.mondaq.com/unitedstates/social-media/1654992/legal-developments-in-the-gaming-industry-first-half-of-2025]
[10] Hacksaw's Strategic Expansion and Financial Momentum [https://www.ainvest.com/news/hacksaw-strategic-expansion-financial-momentum-high-growth-play-igaming-sector-2507/]
[11] Evolution cleared by NJDGE following illegal markets [https://www.gamingintelligence.com/legal/compliance/188402-evolution-cleared-by-njdge-following-illegal-markets-investigation/]
[12] Evolution AB's Q1 2025: Navigating Challenges for Sustainable Growth [https://www.levelheadedinvesting.com/p/evolution-ab-q1-2025-navigating-challenges-for-sustainable-growth]
[13] Evolution named in California Stake.us sweeps lawsuit [https://igamingexpert.com/regions/north-america/stake-us-evolution-california-lawsuit/]
[14] Hacksaw's Strategic Expansion and Financial Momentum [https://www.ainvest.com/news/hacksaw-strategic-expansion-financial-momentum-high-growth-play-igaming-sector-2507/]
[15] Evolution AB's Q1 2025: Navigating Challenges for Sustainable Growth [https://www.levelheadedinvesting.com/p/evolution-ab-q1-2025-navigating-challenges-for-sustainable-growth]
[16] California vs Stake.us: sweepstakes civil suit is lodged [https://gamingamerica.com/news/14073/california-vs-stakeus-sweepstakes-civil-suit-is-lodged]