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Social Casinos Fall Prey to ‘Patchwork’ Regulations by the State: A Search for Clarity on Gambling Standards

Recently, a lawsuit was filed against Big Fish casino owners by two players alleging that their social casino was similar to real-money online gambling. In response to this accusation, the original owner, Churchill Downs, and the new owner, Aristocrat, spent millions for the settlement of the class-action lawsuit, which the Washington State court approved in February. So, how does this verdict dictate the scenario for other social casinos out there?

Big Fish casino Game image

Recently, a lawsuit was filed against Big Fish casino owners by two players alleging that their social casino was similar to real-money online gambling. In response to this accusation, the original owner, Churchill Downs, and the new owner, Aristocrat, spent millions for the settlement of the class-action lawsuit, which the Washington State court approved in February. So, how does this verdict dictate the scenario for other social casinos out there?

Big Fish Casino, which was originally owned by Churchill Downs Inc. (CDI), was bought by Aristocrat Leisure Ltd. in 2018. The players claimed that this platform contained unlawful betting practices, leading players to purchase chips online after no free chips were left.

Both plaintiffs accounted for spending $1,000 or above their chip pile and claimed were equal to losses. They accused Big Fish Gaming (BFG) of “exploiting the same psychological triggers as casino operators.” This lawsuit landed a tough blow to BFG. It had to pay off an amount of $155 million, mainly to avoid any sort of uncertainties and expenses that tag along with handling the case. The operator had to lay off 250 employees in its Seattle office within 24 hours of the announcement.

BFG is not the only one to face such a lawsuit. The year 2018 saw a similar lawsuit being filed against the Washington-situated Huuuge Games, which was again resolved by paying off $6.5 million. Other targets include Playtika, DoubleDown Interactive, and High 5 Games. Plaintiffs in these lawsuits claimed to have lost between as little as $20 to as much as $300,000.

Harry Jackson, an attorney overlooking the gaming industry and leading associate with the Fox Rothschild law firm, asserts that gambling-related activities are problematic. According to him, the gambling laws are overlooked by state legislative bodies with no definitions set by the federal body for activities that can be categorized as gambling enterprises.

The Major Elements of Gambling

Gambling is formed mainly by three pillars: the payment, the prize, and the element of chance. Most states follow this model. If any of these three is missing, then the activity is not considered gambling.

In various social casinos, we see the third model missing, which means that you can enter the games for free, but in the prize category, one can get virtual chips or tokens, and the element of chance or the RNG factor is also there. That’s why in Jackson’s viewpoint, social casinos don’t count as a gambling activity.

He says that yes, you will get a good number of virtual tickets the moment you sign in. When they are expended, a period of a few hours or days is introduced before you can access the tickets. But, the games are all free, and there’s no charge imposed on the players.

But, Judge Milan D. Smith of the U.S. Court of Appeals had a very different take on the matter. In his opinion, the virtual chips or tokens in BFG had actual value, although no monetary value was associated with them and they cannot be cashed out or withdrawn at cost. According to Judge Smith’s statement, gambling is any game that risks anything of value based on a chance-dependent result or any contingent event planned for the future.

This verdict taken by a court in Washington was all it took to throw all the Washington-based social casinos out there in a state of chaos. These social casinos are home to various tech and gaming companies. Other free-to-play games will also be dragged into this gambling category. Any game where you can now buy extra chances or chips to play it after the free period is over can be considered gambling. If other rogue courts started siding with that Washington court, it would prove to be a pretty alarming case for all the social game operators out there in Washington. Any match-3 game such as Candy Crush can be pulled into the category as well.

What exactly can Be Categorized as Gambling: A Search for Clarity

These lawsuits and their settlements have proved to be troublesome things for the social gaming operators. This scenario has also urged lawmakers to make laws defining what gambling is. Lawmakers such as Washington Senator Mark Mullet (D) have contributed to this process and aims to act against this threat.

Attorney Jackson also mentioned that Washington Senator Mark Mullet and former House Representative Chad Hudgins (R) filed bills in the Washington House of Representatives. Both bills aimed at getting rid of any discrepancy and reinforcing a deal that ensures the protection of these gaming companies from a legal dispute if they would sell tokens that can’t be withdrawn for actual cash.

If such goals are reached, then these hassles could be done away with in no time and could be replaced with a more effective business model.

This step was taken with a specific agenda in mind. Senator Mullet et al. became aware of the fact that these class-action lawsuits can cause financial risk for the video game industry in Washington. Another possibility is that thousands of employees might get laid off. The legislation aims to remove such a threat to economic stability in a state like Washington, an abode to one-fifth of the entire social gaming market.

Additionally, such cases aren’t contained in any particular place. Another lawsuit was filed in California against tech giant Apple. The suit alleged Apple was illegally profiting from various social casino apps on its application store and even running online casinos against California law. Two players filed this suit and complained of spending a massive sum of money after running out of freebies.

Another instance would be the suit filed in Alabama against the social casino app present in the Android and iOS platforms.

Shifting from FTP to RMG Can be A Possible Solution

Ross Krasner, CEO and co-founder of RYU Games, recommended that social gaming operators shift their free games to real cash versions.

RYU Games, a San Francisco-based startup company, offers game developers the perfect tools to enter the real money gaming domain. Real-money tournaments can now easily be added to the mobile gaming platform.

In an interview with Krasner, he said that most game developers want to get into this industry because it has always been a lucrative and booming trend among casino lovers. But, there a lot of things to bear in mind in order to build such a platform. Firstly, you will need state-wise permission. Secondly, operators need to build a platform that matches up novice players with those of the same skill set; protecting them from getting outplayed by veteran gamblers is a technical challenge that is pretty hard to deal with.

RYU Games also offer these companies SDK (Software Development Kits), which enhances the entire process. The real-money games portfolio built by RYU Games is closer to the thrilling Esports tournament held online in terms of the competitive game atmosphere.

In-App Developer magazine, a March issue unfolded the news that in 2020, competitive esports tournaments are expected to earn more than $1.1 billion, increasing the bar up to 15.7% than the 2019 stats. It also reported the potential setbacks of the state-wise regulation. The issue mentions that RYOU Games’ cash tournaments Software Development Kit help developers navigate this regulation easily by turning mobile games into real-money tournaments.

FanDuel and DraftKings, the top tier Daily Fantasy Sports contest operators, have invested throughout several years millions of dollars to persuade state legislative bodies that their skill-based games are often wrongfully conceived as gambling. They also had to pursue the legal bodies into believing that.

Last year, after all the fuss, the Internal Revenue Service still didn’t provide a clear-cut answer and left the state to deal with it. DFS’s legality within every state is still a gray area and is often judged based on the fact that whether DFS is a skill-based or chance-based game.

So, shifting from FTP to RMG can be a pretty complicated step, said Jackson. It is challenging and not cost-effective at all. So, back to the three major elements on which gambling hinges- the chance factor, prize, and the consideration.

While this battle of lawsuits persists, many more companies are suffering from losses and unsympathetic judges. All of which encourages plaintiffs to go ahead with their plan of filing suits in other states.

This is where cross-border federal laws come into the picture, and it would greatly benefit social casino operators. They help clarify the position of social games. They are a lot better than the patchwork regulation across the country.

Meanwhile, every new punter is entitled to 100,000 free chips when they sign in to the Big Fish Casino website. However, the casino has made it immensely clear that they don’t lure players in hopes of winning substantial real-money prizes. It also states in its disclaimer that the practice and success in social gaming doesn’t imply any future success in real gambling.

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