A financial teardown of Laurence Escalante’s $5 billion gambling empire

Laurence Escalante built Virtual Gaming Worlds (VGW) Holdings from his basement into a global gambling powerhouse that does nearly $5 billion in revenue.

In 2023, VGW was the sixth largest private company in Australia by turnover with 1200 employees globally.

Today, you’ll find Laurence sun-baking on Lamborghini yachts or driving one of his 120 supercars.

Before founding VGW, Laurence started as a devout Christian and ran a religious-focused gaming company straight out of university, White Knight Games.

White Knight originally aimed to keep “Christ First” in all their business activities, pledging 10% of game profits to reduce poverty in the Philippines.

He also worked as a boring financial planner for many years before hitting big with his online casino empire.

So it begs the question – who is this mystery billionaire? How the heck did he amass this fortune so quickly?

In this financial teardown, I unpack the story of Laurence Escalante’s Virtual Gaming World empire.

Sweepstakes casinos

VGW group comprises three businesses: Chumba Casino, Luckyland Slots, and Global Poker.

All of the businesses fall into the category of ‘sweepstakes’ online casinos, primarily targeting the US market.

Sweepstakes casinos offer the exact same games as other online casinos: roulette, slot machines, blackjack, poker, you get the picture.

But there’s one clever difference.

You don’t gamble in real money; you gamble with virtual currencies.

You also can’t ‘buy in’ with real money.

How sweepstakes work: Sweep coins and gold coins

In every sweepstakes casino, there are two types of coins. ‘Gold Coins’ and ‘Sweepstakes Coins’.

Sweepstakes coins are redeemable for cash, with most operators specifying an exchange rate where 1 Sweepstake Coin = US$1. However, sweepstakes coins can’t be directly purchased through the game. They need to be earned through daily rewards, challenges and other ‘bonus’ mechanisms.

Then there are gold coins.

Gold Coins are a virtual currency that cannot be converted into cash. Gold Coins can, however, be directly purchased in the store, similar to how gems can be purchased in Clash of Clans.

The Gold Coins are used to drive usage in the game, with players purchasing Gold Coins once they are hooked in order to keep playing.

Then, players occasionally are gifted sweepstakes coins, offering them the chance to win real prizes.

Gold Coins generate revenue and keep players hooked on the game, without classifying as ‘gambling’, whilst any of the prizes won by the players are kept separate from the cash they used to buy in.

It’s a pretty genius regulatory play.

Now, the ‘dodgy’ thing is that most Sweepstakes casino operators will ‘gift you’ more sweepstakes coins if you buy enough gold coins.

In that regard, it’s pretty difficult to say that people aren’t using their money to gamble directly, which is what all of the Sweepstakes Casinos claim.

Because sweepstakes casinos aren’t treated as real casinos, it means that they have access to all of the states in the US that ban gambling.

They also don’t pay any licensing fees, are unregulated and fly under the radar.

VGW was one of the first cabs off the rank in this market and is reaping the rewards of their first mover advantages.

The history of sweepstakes casinos

Escalante wasn’t the first to realise this loophole. He was just the first to win big in the category on mobile.

The idea of ‘sweepstakes’ actually goes back to the 1940’s.

A ‘sweepstake’ is just a lottery with a prize where there is “no purchase necessary to enter” and “purchases will not increase the chance of winning”.

In the 2000s, there was a shift from physical slot machines to digital gambling. Venues would disguise themselves as internet cafes offering ‘slots’ on computers without the chance of winning any real prizes. These early sites didn’t have the ingenuity to build the ‘twin coin’ model which defines the sweepstakes casinos of today, but they did play a key role in catalysing the shift to online slots.

Escalante’s magic

Weaving these concepts together, Escalante was actually super super early to two big ideas that would define the explosive growth of VGW.

Firstly, he realised that mobile was going to be big. Just as the shift to mobile laid the platform for Uber and Instagram, so too did it provide a platform shift for VGW. Facebook allowed online gaming companies to advertise, providing a huge top-of-funnel to acquire customers. After Zynga Poker’s success in 2006-07, the groundwork had been laid for a wave of online gaming companies to follow in their wake.

Secondly, Escalante had the ingenuity to engineer the ‘sweepstakes’ model of offering two sets of coins. Combining an online slots platform with the cash prize-token reward model, Escalante could effectively run a ‘paid’ real money casino without customers explicitly paying to enter.

Financials

Ok, now onto the good part.

How much money does VGW make?

Enough money to sponsor the Ferrari F1 team. ?

Laurence Escalante gambling — VGW became a Ferrari premium partner in 2023 as part of a global marketing push. In response to the branding move, one of VGW’s investors remarked on Laurence’s move that, “He is pissing money up the wall and treating the company like his own personal fiefdom”.

VGW did $580 million in EBITDA and $376 million in profit after tax in FY23.

At a 5-8x EBITDA margin, which is where online gambling businesses typically trade, VGW would be worth about $3 – $5 billion on the public markets.

…Roughly the same size as Super Retail Group, or A2 Milk. ?

Whilst the numbers are clearly enormous, the margins aren’t as high as I thought they would have been, with only ~25-30% gross margins and low teen EBITDA margins.

VGW also appears to have ramped marketing and advertising expenses up in 2023.

From a topline perspective, revenue growth over the last few years has been absolutely phenomenal.

The business exploded during COVID going from $350 million in revenue to $2.2 billion in two years, likely due to the lockdowns.

But since then, growth has continued to rip, sustaining 40%-50% YoY revenue growth even in FY2022 and FY2023.

But from a cash flow perspective, the numbers aren’t quite as phenomenal. Cashflow was higher in FY18 than FY21 on a fraction of the revenue, hinting at the growing pains this business is feeling.

Half a billion in operating cashflow is still pretty incredible though.

The bloke has paid a whopping $888 million of dividends since 2018!

Regulatory risk

The obvious risk to this empire is regulation.

Their operations are quasi-legal, towing the grey line based on technicalities in the law, but there is a big chance that there will be crackdowns and the revenue will go through the floor.

In February of 2023, the state of Delaware ordered VGW to close their operations in the state, whilst Michigan also filed lawsuits against the company in December of 2022.

“The Delaware Division of Gaming Enforcement (DGE) issued a Cease Desist Order against VGW (Virtual Gaming Worlds) Luckyland Inc. on February 23, 2023 concerning their Slot Operations/Games in Delaware.”

In May of 2024, they were also hit with a class action lawsuit for their operations in the state of Georgia. The regulators are coming. ?

In the Australian gambling market, Aristocrat recently announced they are looking to divest their mobile gambling division Pixel United over similar concerns surrounding regulatory risk, which includes sweepstakes operator Big Fish Casino.

The jury is out over whether or not these online gaming platforms are legal or not.

“Social casinos is a term of art … and is not a legal definition,” said Allison Inserro of the New Jersey Attorney General’s Office.

Competition

The sweepstakes market is also heating up.

Just a few years ago, VGW had >90% market share in the sweepstakes gambling market.

Today, competition is fierce, with competitors having eaten up 55% of the market from VGW.

Fellow Australian casino billionaires Ed Kraven and Bijhan Tehrani’s Stake.com have launched a competitor. International Game Technology has PlayDigital. The list goes on.

But that being said, the market has also exploded over this time period, so this kind of drop is to be expected. It does potentially explain why margins have been compressed despite the incredible revenue growth, as gambling sites push each other to give better offers on coins.

“While [Virtual Gaming Worlds] still remains the dominant player, we are projecting them to lose significant market share in the coming years,” observes Eilers & Krejick Gaming.

Laurence Escalante gambling

IPO talks

It gets better though.

Escalante has hinted about taking the company public.

In 2021, Escalante stated in a shareholder letter:

“No time pressure exists for listing – but VGW remains open to future liquidity events.

VGW is highly profitable and has no requirements for additional funding; however, it does recognise the potential benefits for the Group and shareholders in providing liquidity on an appropriate basis – with an IPO the most likely path. A North American listing venue is now far more likely than the ASX”.

So is an IPO on the cards?

All of the early investors in VGW will want to cash out eventually.

But realistically, listing this business would be an absolute nightmare given the regulatory risks, and going public would only attract more attention.

Their stock is traded on a private markets stock marketplace in Australia called primary markets, but stock on these marketplaces typically trades at a large discount given the lack of liquidity.