The Regulatory and Reputational Risks Facing iGaming Suppliers in the U.S. Market

The iGaming sector, long a high-growth niche in the global entertainment industry, is now grappling with a wave of regulatory and reputational challenges that threaten to reshape its competitive landscape. For suppliers like Evolution AB and Hacksaw Gaming, the U.S. market—once a promising frontier—has become a battleground of legal scrutiny and shifting compliance demands. As these companies navigate lawsuits, regulatory reviews, and investor skepticism, their long-term investment viability hinges on their ability to adapt to a rapidly evolving legal environment.

Legal Challenges and Market Reactions

The most immediate threat comes from California’s aggressive stance against sweepstakes-based gambling platforms. In August 2025, Los Angeles filed a civil enforcement lawsuit against Stake.us, Kick Streaming, and their suppliers—including Evolution and Hacksaw—for allegedly operating an “illegal gambling enterprise” by circumventing state laws [1]. The lawsuit not only targeted the operators but also the suppliers, marking a pivotal shift in regulatory accountability. This move sent shockwaves through the market: Hacksaw’s shares fell 4.4%, and Evolution’s dropped 2.5% within days of the announcement [1]. The legal action underscores a growing trend of holding suppliers liable for third-party misuse of their platforms, a development that could redefine industry norms.

The ripple effects extend beyond California. Similar cease-and-desist letters have forced Evolution and Hacksaw to withdraw games from sweepstakes platforms in Louisiana, Mississippi, and Arizona [3]. These withdrawals, while aimed at mitigating legal risks, signal a retreat from unregulated markets and could slow their U.S. expansion. For investors, the question is whether these companies can balance compliance with growth in a fragmented regulatory landscape.

Regulatory Scrutiny and Reputational Damage

Regulatory pressures are compounding the legal risks. Evolution, a leader in live dealer gaming, faces allegations that its games were accessible in U.S.-sanctioned jurisdictions like Iran and Sudan. These claims, supported by secret recordings of executives, were submitted to the New Jersey Supreme Court by private intelligence firm Black Cube [2]. While New Jersey’s Division of Gaming Enforcement cleared Evolution of wrongdoing in 2024 [3], the UK Gambling Commission is now reviewing its license due to games appearing on unlicensed sites [4]. This scrutiny has eroded investor confidence, with Evolution’s stock plummeting 20% after Q1 2025 earnings amid compliance-driven revenue declines [5].

Hacksaw, meanwhile, is preparing for a Nasdaq Stockholm IPO amid robust financial performance. Its EBITDA margins of 86% and plans to return 75% of net profit to shareholders highlight its profitability [6]. However, its exposure to grey markets—where a significant portion of revenue may derive from unregulated jurisdictions—poses a reputational risk. As Regulus Partners notes, a misstep in compliance could unravel investor trust, particularly for a newly public company [6].

Arbitration and the Path Forward

The California lawsuit against Stake.us was recently referred to arbitration, a procedural victory for the platform but a lingering uncertainty for suppliers. The court’s decision to enforce Stake.us’s arbitration clause—based on user agreements—reinforces the importance of legal contracts in defending sweepstakes models [5]. However, the outcome of the arbitration will set a critical precedent for whether such platforms comply with gambling laws. If Stake.us prevails, it could embolden similar operators; if not, it may trigger a regulatory crackdown on the entire sector [5].

For Evolution and Hacksaw, the path forward requires navigating this ambiguity. Evolution’s recent investments in Governance, Risk, and Compliance (GRC) systems are a step toward addressing investor concerns [4], but resolving its legal battles in New Jersey and the UK remains key. Hacksaw’s IPO, meanwhile, offers a chance to diversify its investor base and fund expansion into regulated markets, though its reliance on grey markets could hinder long-term credibility.

Conclusion

The iGaming sector’s U.S. expansion is at a crossroads. While companies like Evolution and Hacksaw have demonstrated resilience—Evolution’s 9.6% trailing twelve-month free cash flow yield and Hacksaw’s 30%+ revenue growth targets [1][6]—their long-term viability depends on resolving legal and regulatory headwinds. Investors must weigh the potential for innovation and profitability against the risks of reputational damage and compliance costs. In a market where legal precedents can shift overnight, adaptability will be the ultimate test of these companies’ mettle.

Source:
[1] L.A. Sues Stake, Kick, Evolution in Sweepstakes [https://casinobeats.com/2025/08/29/la-city-attorney-sues-stake-kick-evolution-sweepstakes/]
[2] 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]
[3] New Jersey regulator drops Evolution misconduct case [https://igamingbusiness.com/legal-compliance/legal/new-jersey-regulator-drops-evolution-misconduct-case/]
[4] Evolution cleared by NJDGE following illegal markets [https://www.gamingintelligence.com/legal/compliance/188402-evolution-cleared-by-njdge-following-illegal-markets-investigation/]
[5] California judge refers Stake.us lawsuit to arbitration [https://next.io/news/regulation/california-judge-refers-stake-us-lawsuit-to-arbitration/]
[6] Hacksaw Gaming confirms plans for Nasdaq Stockholm IPO [https://next.io/news/investment/hacksaw-gaming-confirms-nasdaq-stockholm-ipo/]