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U.S. Court Deems Social Casino Illegal Gambling

Washington State Map

On March 28, 2018, the United States Court of Appeals for the Ninth Circuit issued a ruling against Churchill Downs, the former owner of social gaming operator Big Fish Casino. This decision means that such social casinos are now considered illegal gambling under the laws of the State of Washington. This could have implications for other organizations that follow the model of selling virtual or play chips for real money.

About the Case

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In 2013, Washington resident Cheryl Kater opened an account at Big Fish Casino and eventually lost more than $1,000 worth of chips while playing the games. In 2015, she sued to regain these funds under a Washington statute that allows losers to recoup their money from illegal gambling operators.

A lower court threw out the case, holding that the virtual chips dispensed by Big Fish Casino were not a “thing of value,” and so the services of the casino did not fall into the category of illegal gambling. Kater appealed the decision, and it was reversed by the recent opinion of the court, which explained that virtual casino chips are indeed included under the definition of “thing of value.”

Relevant Washington State Law

Legal Book

The legal phrasing that applies to this case is contained within several different statutes of the Washington Revised Code. First, let's look at the law that Kater is using to justify suing for the recovery of her losses:

RCW 4.24.070

Recovery of money lost at gambling.
All persons losing money or anything of value at or on any illegal gambling games shall have a cause of action to recover from the dealer or player winning, or from the proprietor for whose benefit such game was played or dealt, or such money or things of value won, the amount of the money or the value of the thing so lost.

Next, we must consider the definition of gambling as outlined by the Washington lawmakers:

RCW 9.46.0237

"Gambling," as used in this chapter, means staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.

The final missing piece of the puzzle revolves around what's a “thing of value”:

RCW 9.46.0285

"Thing of value."
"Thing of value," as used in this chapter, means any money or property, any token, object or article exchangeable for money or property, or any form of credit or promise, directly or indirectly, contemplating transfer of money or property or of any interest therein, or involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge.

Judge's Reasoning

Man Thinking

Churchill Downs' lawyers argued that virtual chips did not constitute a “thing of value” because they couldn't be exchanged for real money. However, Judge Milan D. Smith, Jr. didn't buy this explanation. He concluded that these chips were required for the “privilege of playing at a game” within the Big Fish Casino and therefore were legally a “thing of value.” The opinion also noted that users could transfer these chips within the casino to other individuals and that third-party marketplaces had appeared allowing for the sale of Big Fish Casino's virtual chips.

What This Means for Big Fish Casino

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Judge Smith's ruling clears the way for Cheryl Kater to continue with her lawsuit to recover the value of the virtual chips she lost from Churchill Downs. Because it's a class action lawsuit, its final disposition may include many hundreds or thousands of other members of the class. Thus, Churchill Downs might find itself on the hook for a substantial sum of money.

About Big Fish Casino

Logo of Big Fish Casino

Big Fish Casino has download software for both PCs and Macs as well as apps that are compatible with iOS and Android. It's also possible to play in-browser through the instant software. The games consist of slots, blackjack, video poker, and other titles that you would expect to find at any online casino.

Users get a limited number of chips for free to try out the games upon signup, and there are additional opportunities to gain more chips every day without paying anything. However, the site's business model relies on the sale of virtual chips for real money, and several packages are available at different price points. These virtual chips cannot be cashed out through the Big Fish Casino site although several outside marketplaces exist that allow users to exchange their chips with others for real money.

Screenshot of Big Fish Casino Home Page
Screenshot of the Big Fish Casino Website

Unlike at traditional online casinos, the social elements of Big Fish are extensive and well thought-out. Players can enter personal information in their profiles, add people to their friends lists, join clubs, send messages, and interact with the community in a variety of other ways.

Big Fish was founded in 2002 in Seattle. It was bought by Churchill Downs, the land-based racing and casino gaming giant, for $885 million in 2014. In January 2018, Churchill Downs sold Big Fish to Aristocrat Technologies, a renowned developer of slot machine games, for $990 million.

Impact on the Social Gaming Industry

Image of a Billiard Table

There are plenty of operators that follow a similar model as Big Fish Casino. For instance, Zynga Casino and Global Poker offer games that use virtual currencies. These firms and others could find themselves liable for any losses that Washington's citizens incurred while partaking in their services. In the case of Global Poker, the situation is particularly troublesome for the company because its $weeps Cash chips actually are convertible to real money within the Global Poker software.

Industry giant PokerStars has already withdrawn from the Washington State play chip online poker market, citing the recent court ruling as justification for doing so. This falls in line with 'Stars' commitment to staying fully within the law so as to increase its chances of being allowed to operate legally, with the blessing (or at least indifference) of the authorities, in as many jurisdictions as possible The company stated that it hoped that “the law will be clarified,” permitting it to reenter the market at some point in the future.

Many other states have laws that declare gambling losses recoverable. In the wake of the recent Washington decision, we could see losing gamblers take advantage of them in increasing numbers, to the detriment of social gaming concerns. On the other hand, it is possible that this ruling will be challenged and appealed to a higher court where the original court's decision could be upheld. Only time will tell. Until such time, those of us wishing to play online, be it poker, casino, or sports betting, via offshore sites who use a combination of International law, bi-lateral trade agreements, and the backing of the World Trade Organization to offer online games in Washington State.

Will the Decision Stand

We don't think it will. There is too much money at stake and the ruling is too flimsy. This will be appealed. And it almost certainly will be overturned. The judge gave reasons for doing so in their own ruling! A blogger over at GamaSutra put it best when he said:

IANAL, but IMO this is a poor ruling that is likely to be overturned. The reasoning seems strained at best, and the Court acknowledges that they are ignoring both "Washington Gambling Commission and federal district courts that have analyzed similar games" and found them not to constitute gambling. -- Mike Sellers comment @ GamaSutra