Proposed Washington Gambling Law Changes Aimed at Keeping State Video Gaming Industry Around

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In response to the Ninth Circuit’s decision in Kater v. Churchill Downs Inc., Washington State’s legislature is attempting to redefine what constitutes “illegal gambling games” within the meaning of the state’s Recovery of Money Lost at Gambling Act (RMLGA). Through this proposed measure, the legislature hopes to prevent Washington’s booming gaming industry from leaving the state.

In Kater, the Ninth Circuit held that the Big Fish Casino video game platform constituted illegal gambling under the state’s law because the virtual chips used in the games constituted a “thing of value.”

The game platform allowed users to play games such as blackjack, poker and slots. Free to download, the app provided first-time users with a set of free chips. Additional chips could be earned as a reward for winning games or purchased for prices ranging from $1.99 to $250. Although the casino’s terms of use stated that the virtual chips had no monetary value, a mechanism existed to transfer chips between users on a secondary black market. A Washington resident filed suit, alleging the platform violated the RMLGA.

Reversing dismissal of the lawsuit, the Ninth Circuit ruled that the virtual chips are a “thing of value” pursuant to the statute. “The virtual chips, as alleged in the complaint, permit a user to play the casino games inside the virtual Big Fish Casino,” the panel wrote. “They are a credit that allows a user to place another wager or re-spin a slot machine. Without virtual chips, a user is unable to play Big Fish Casino’s various games. Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have ‘the privilege of playing the game.’ Likewise, if a user wins chips, the user wins the privilege of playing Big Fish Casino without charge.”

Concerned about the impact of the ruling on the gambling industry in the state, Washington lawmakers responded with a pair of bills.

Both HB 2720 and SB 6568 would amend the RMLGA to create an exception for online gaming platforms with the addition of the term “illegal gambling games.” The updated statute would read: “For purposes of this section, ‘illegal gambling games’ does not include online games of chance when played solely for entertainment purposes with virtual items if such virtual items may be used only for gameplay and may not be, per the terms of service of the game, transferred, exchanged or redeemed for money or property.”

Users of online gaming platforms would still be able to transfer virtual chips between themselves without triggering liability for casinos such as Big Fish, pursuant to the proposed measures, as long as the virtual item is not transferrable for actual money or property.

Both bills note that Washington has “made it a priority to grow clean, high-wage jobs by encouraging firms engaged in video game development to invest and grow in the state,” estimating that 20% of the global video game development industry is now based in the state.

The Ninth Circuit’s decision—and similar class action suits filed in its wake—have resulted in economic uncertainty, lawmakers said, expressing concern that businesses would remove thousands of jobs from the state as well as significant tax dollars. “Therefore, it is the intent of the legislature to remove this economic uncertainty by clarifying that a player is not entitled to recovery under [the RMLGA] unless the video game played provides a mechanism for the withdrawal of money or property from the game,” according to the proposed laws.

To read HB 2720, click here.

To read SB 6568, click here.

Why it matters: While the new Washington laws do not specify any companies, the motivation behind their creation appears pretty straightforward. Big Fish Games and Double Down Interactive both run “social casinos” and operate in the state, and both companies have been named in class action complaints alleging that their virtual currency is a “thing of value.”

While social casinos might bring to mind and provide a feel of real gambling, neither of these sites allows users to cash out virtual chips for real money. Instead, users can (at most) use their winnings for more plays in these digital casinos. Money might go in, but it can never come out. However, that exact functionality is the basis for these lawsuits. Even though users can’t spend any money earned through the sites outside of the game, the class action complaints allege that the ability to play more games has value since users would otherwise have to pay money to continue playing.

For Washington State—which houses a significant portion of the global video game development industry—lawmakers hope this legislation will entice the state’s gaming companies to remain in the state and continue to operate without fear of RMLGA liability for awarding virtual items and allowing such items to be used for future gameplay. The new legislation will also likely reverse the trend of online social gaming companies prohibiting the participation of players from Washington State. Nationally, such a statutory change may serve as a blueprint for those states looking to maintain the strength of their gaming industries and, at the same time, safeguard against the prospect of any future rulings similar to that of Kater.

These types of lawsuits are sure to continue, but once this legislation passes, it looks like they will be brought in states other than Washington.