Laurence Escalante is living large off controversial gambling billions
At 42, he is one of the country’s youngest billionaires. But Virtual Gaming Worlds investors hoping for a big payday are increasingly concerned it may never come.
Ask a teenage boy what he would do with a billion dollars and the answer would probably look much like Laurence Escalante’s Instagram.
Escalante is the founder of Virtual Gaming Worlds, the operator of the wildly popular Chumba Casino and now one of the country’s largest private companies. This success has also made him, at 42, one of the country’s youngest billionaires with a fortune of some $3.9 billion, according to the Financial Review Rich List.
When he’s not flying around on a Bombardier 7500 emblazoned with his nickname Lee – funded with a multimillion-dollar loan from retailing billionaire Gerry Harvey – he’s riding around in a supercar or importing Lamborghini yachts. Lingerie-clad waitresses pour Dom Pérignon at a private club in his hometown, Perth. In Hong Kong, he’s on a shopping spree for rare Rolexes.
He’s living so large that he escaped a conviction in Victoria late last year for bringing small amounts of drugs into Australia on the way back from Las Vegas. He had been “partying with literally 20 friends,” and “didn’t even know he had it,” as he told Australian Border Force officers at the time.
Escalante, a father of four, earned his riches from pioneering the use of a loophole in US law to deliver slick online poker machine games to millions of Americans initially via Facebook.
Business is booming. In a note sent to investors on Monday, Virtual Gaming Worlds said revenues had risen nearly 30 per cent to $2.8 billion in the six months to December 31, and the company’s net profits after tax had jumped 23 per cent to $207 million.
But, as his partying and spending heats up, investors are becoming increasingly concerned that Virtual Gaming Worlds may never go public. Multiple interviews – and messages in internal chat groups – reveal previously unreported fears about the company’s direction. Those fears will only be heightened now, with an investigation by The Australian Financial Review revealing that Australian regulators have previously blocked an attempt by the company to list on the ASX. PayPal, the global payments provider, has also terminated an agreement to provide its services.
Escalante’s early life could not be further from how he lives today. He grew up playing World of Warcraft and by 23, after studying to be an actuary at Macquarie University, Escalante was running Christian software startup White Knight Games.
In one game released in 2005 – Timothy and Titus: Saints, Martyrs, Heroes – players collected “love”, “faith” and “hope”, rather than cash or weapons. “By … encouraging players to learn from the lives of Saint Timothy and Saint Titus, we believe we are able to put Christ and His message at the core of the players’ experience,” Escalante said in promotional material from the time.
Quickly, however, he pivoted toward less saintly ventures. In 2010 Escalante started Virtual Gaming Worlds, an online platform that allowed players to make their own virtual casinos and play poker with their friends. “This is just a taste of some of the potential when we combine the world of gaming and the world of gambling,” Escalante said in an early pitch to enthusiastic venture capitalists, where the idea was jokingly labelled as “degenerate”.
Escalante had hired former Sega executive Tim Allison to help get his Christian games into the US. Soon, Allison was working on Virtual Gaming Worlds alongside other gaming industry veterans like Steve Parker, a former executive at Aristocrat Leisure.
Former Gilbert + Tobin partner Peter Leonard, a top data lawyer, also joined the board. Ben Reichel, previously general counsel for TAB, eventually became the chief operating officer.
In 2011, Virtual Gaming Worlds’ business plan included a revenue forecast “in the billions,” although this was later pared back.
It was in 2012 when Escalante hit a gold mine. “Laurence came up with the idea to use sweepstakes laws in the US to replicate online casinos and slot machines, as at the time couldn’t get a licence for online gambling,” Reichel, Virtual Gaming Worlds’ former chief operating officer, says. “It was a brilliant idea, people were keen to have an online gambling experience.”
In meetings, Escalante and company executives had discussed internet cafés in Florida that had managed to avoid restrictions on gambling by offering so-called sweepstakes games with chances to win prizes if customers purchased access to onsite computers. That practice was later banned, but Escalante thought he could offer sweepstakes games online, accessible to players through Facebook – with the tech giant taking a 30 per cent cut.
A player at the New York New York Arcade in Florida in 2013, shortly before the state banned sweepstakes internet cafés. AP
(Escalante denies the cafés were his inspiration. “I iterated Virtual Gaming Worlds’ business model of social gaming, plus sweepstakes promotions, with expert advisers to ensure compliance with applicable laws. Yes, the idea evolved as we refined and innovated. But any story involving internet cafés and Florida sweepstakes games is ... total fabrication,” he says.)
While gambling laws vary between US states, companies that accept money from customers and offer them a game of chance with a prize must generally be licensed and regulated. The sweepstakes games Escalante proposed – Chumba Casino and Luckyland Slots – didn’t necessarily require payment to play.
Customers can play games such as poker, bingo, and slots without putting any cash in, or they can write letters to the company to get free “sweeps coins” which allow them to participate. But to win big, there’s an incentive to buy more coins – and hence the revenue starts pouring in.
Sweepstakes companies argue these games don’t fit within the definition of regulated gaming and means Virtual Gaming Worlds is not required to hold a licence. “It is a workaround or a loophole for the US law on casino gaming,” says one former employee.
Escalante’s idea has proved a popular one. The Virtual Gaming Worlds board consulted several top US gaming lawyers, who gave them the go-ahead to roll out the product. “When [it] switched to sweepstakes gambling it was clear it was going to take off,” says another former employee. “[They] were reeling in hundreds of thousands a month with no marketing budget.”
After Kickstarter suspended Virtual Gaming Worlds’ crowdfunding campaign, Escalante enlisted Peter Sheppeard, a “rough as guts” former mining executive turned stockbroker, to raise funds by selling stakes in the company on the private market.
“He did a really terrific job of raising money mainly in Perth – there was so much mining industry money sloshing around,” one person familiar with the business says, adding Sheppeard initially raised as much as $7.5 million. Shares were first offered for as low as 2¢. Some investors who bought a few million shares are now receiving multimillion-dollar dividend cheques.
Sheppeard, who declined to comment, is now “comfortably retired” – in part because of his own Virtual Gaming Worlds shares – according to those who know him.
Then there was the question of where to get funding to expand. The board, in 2014, was keen to go public, believing they had at least one bank prepared to underwrite a listing. Late that year, they presented Escalante with options for raising capital.
The IPO would have inevitably needed Escalante to reduce his stake in the company to make it more palatable to investors. Escalante pulled the plug on the plan then and there, and the board all resigned on the spot. In their place, appointed his then-wife, Sarita Escalante, and his father, Lorenzo Escalante.
But the need for financing pushed Escalante back toward the equity markets in 2016, when he attempted a backdoor listing through a company called Synergy Plus, then chaired by Domenic Martino, an adviser to mining billionaire Clive Palmer. While the ASX raised concerns about the legality of the business’ operations, the Australian Securities and Investments Commission put a stop order on the prospectus, killing the transaction.
Sources close to the regulator said the stop order was issued over concerns about whether Virtual Gaming Worlds’ business complied with local gambling laws. ASIC declined to comment.
Virtual Gaming Worlds tries to avoid using the term “gambling”, instead saying it offers social “casino-themed” games that differ from real gambling. But an early investor presentation for a $5 million funding round notes that the company was aiming for “conversion of players to: purchasers, gamblers”.
(Asked about the presentation, Escalante says it did not represent Virtual Gaming Worlds’ strategy and the company takes “responsible social gameplay incredibly seriously”. “The document you refer to was from several years ago in a different context and at a very different time,” Escalante says.)
Nonetheless, Virtual Gaming Worlds’ games reel in plenty of non-gamblers. Anthoula Petropoulos, a 54-year-old recruiter from Atlanta, Georgia had hardly even been to a real casino before she came across Chumba Casino seven years ago on Facebook. “I’d had very little real-world gambling experience,” she says.
Petropoulos became a regular paying player. Virtual Gaming Worlds even assigned her a VIP customer service representative who helped her with any issues and sent gifts. “I received a huge Thanksgiving gift box … it had a whole turkey and ham, it was like a $500 meal in a box,” she says. When she started playing in 2017 the bets felt small. These limits have slowly increased with some games having maximum bets in the hundreds of dollars.
Now, Chumba even has its own prepaid Mastercard, which players can use to purchase coins and redeem winnings. Players say that since winnings are processed instantly, it makes it easier to use their funds to continue playing.
Virtual Gaming Worlds paid its first dividend in 2018, and gaming professionals like Kenny Alexander, formerly of Entain, and Nigel Blythe-Tinker, who helped list bookmaker William Hill in the United Kingdom, did stints on its board. But it was the COVID-19 pandemic that was transformational for the company. It recorded net profit of $115.8 million in the six months to the end of December 2020, a 60 per cent increase on the 2019-20 financial year.
“Covid turbocharged the business and in 2021-22 Laurence became very wealthy,” Reichel, Virtual Gaming Worlds’ former chief operating officer, tells The Australian Financial Review. While the company doesn’t have a strict dividend policy, many have been more than happy with their haul, even while shares trade south of $3 on Primary Markets, a trading platform for unlisted groups.
“The continued growth in our revenue, net profit and cash flow allows us to pay a strong dividend yield,” Escalante says.
Virtual Gaming Worlds was largely in the right place at the right time – and has benefited from being first to market. By 2021 Chumba Casino had over a million players.
Other competitors are starting to appear. Aristocrat and Light and Wonder, both ASX-listed poker machine specialists, operate divisions with similar propositions to Virtual Gaming Worlds.
An absence of licence fees has also made it an easy – and extremely profitable – market to enter.
Marketing helped too. Many insiders describe Mats Johnson, the company’s chief marketing officer, as a “very good operator”. Virtual Gaming Worlds has lent on influencers to spread the word – no one more so than Canadian actor Brian Christopher, whose videos get millions of views. More recently, it has clinched a partnership with television presenter Ryan Seacrest.
But the grey area in which Virtual Gaming Worlds operates has led to unwanted attention from partners and regulators. In 2018, PayPal terminated a deal to provide payment services, a brand partnership that had previously been a selling point for the company, according to people familiar with the matter.
But the biggest threat to emerge has been more recent. In October, authorities in Michigan announced a crackdown on Virtual Gaming Worlds’ rival, Golden Hart. The company quickly left the state. In January, Michigan gaming regulators said they had sent cease-and-desist letters to three operators, including Virtual Gaming Worlds, ruling they were not operating legally.
Escalante says Virtual Gaming Worlds wrote back to the Michigan authorities defending the game. By then, he says, “we had already decided to exit the state”.
Other states have been unable to confirm whether sweepstakes games such as Chumba Casino operate legally in their jurisdiction.
“Social casinos is a term of art ... and is not a legal definition,” Allison Inserro, of the New Jersey Attorney General’s Office, says. “Regardless of the name an entity gives itself or its offerings, the actual actions and contests will determine whether the activities are conducted in compliance with state and federal law.”
New Jersey, along with regulators in Florida say they cannot confirm or deny the existence of any investigations into the business operations of Virtual Gaming Worlds. Authorities in Arizona say any forms of online gambling in the state – other than sports betting and fantasy sports – are illegal.
Increasingly more individuals are suing Escalante’s company, alleging it is operating illegally. So far, they have not been successful. One case in Florida, demanding Virtual Gaming Worlds be barred from operating ion the state, was dismissed after the court ruled that the plaintiff could not remain anonymous. In June, an Ohio plaintiff, Curtis Holcomb, lost a similar claim.
“We have operated in North America for more than a decade and have full confidence in our compliance with all laws ... where we operate,” Escalante says. “If that changes, we act accordingly and closely monitor legislative, regulatory and enforcement-related developments where we operate.”
Keith Whyte is the executive director of the National Council of Problem Gambling, a non-profit organisation advocating for problem gamblers. Visiting Sydney last week, Whyte warned of the dangers of unregulated sweepstakes. He says the claim that sweepstakes games aren’t gambling is a “legal fiction”.
“They certainly meet operational and psychological definitions of gambling, and we know people develop gambling problems playing them,” Whyte says.
Investors are more nervous, however, about Escalante’s seemingly blasé attitude to listing the company. Asked recently about the timing of a float, Escalante told an Instagram user it would happen “eventually”. “He’s having a lot of fun, whether he would want to work harder,” one investor says, adding that an IPO would simply invite more regulatory scrutiny in any case.
If it were to float, Virtual Gaming Worlds could be worth far more than the price its shares have recently fetched. Last year, it bought back 7 per cent of shares on issue for $6.50 each. The transaction cemented Escalante’s hold, leaving him with nearly 70 per cent of votes.
But there are questions about whether the company is ready to list, and whether its chief executive is displaying the professionalism to bring on board institutional investors. The incident on the way back from Las Vegas underlines their concerns. “If he had conviction recorded he wouldn’t be able to get a US visa – and wouldn’t be able to supervise the business in the US,” one investor says. Another adds: “His behaviour is not commensurate with a multi-billion dollar company.”
Escalante with some of his cars.
Some investors are still fuming about an expensive decision announced last March to sponsor the Ferrari Formula One team. Escalante tells the Financial Review it “supports growth and brand recognition in our core North American market”. Investors, however, say it is a vanity move. “He is pissing money up the wall and treating the company like his own personal fiefdom,” one says.
Some aren’t so sure.
“The company today … would it be a better company if it had strong independent voices countervailing Laurence’s? I don’t know,” one former employee who remains a shareholder says.
On the other side of those profits are countless players losing plenty of money. Petropoulos, the recruiter from Georgia, says she doesn’t know how much she has spent over the years.
“I can’t even tell you because the couple of times that I had the big wins, I probably spent a lot of that back,” she says. “There were even a couple of times where I got up to very high amounts and kept playing and just lost all of it.”
This article has been updated to reflect that ASIC’s concerns about Virtual Gaming Worlds’ proposed listing was with its compliance with Australian, not US regulations. It has also been updated to clarify that some of the company’s gaming products can continue to be accessed for free.
