Washington judge rules Big Fish social games are a form of illegal gambling

Social Gambling Draws Legal Scrutiny As Big Fish Games Settles Washington Lawsuit

A long-running legal battle between social games publisher Big Fish Games (BFG) and two of its customers has finally come to an end.

The company and its former and current owners — Churchill Downs Inc. (CDI) and Aristocrat Technologies — finalized a $155 million agreement in May to settle a pair of class-action lawsuits.

The plaintiffs, Cheryl Kater and Manasa Thimmegowda, each spent thousands of dollars on play chips for BFG’s “free-to-play” social casino games. Both are residents of Washington and allege that BFG’s products constitute illegal gambling under state law.

Now, the ink is dry on the settlement and the legal battle is officially at its end. Its implications, however, could be felt for years to come.

Trouble where gaming and gambling intersect

BFG was founded in 2002 as a developer of casual computer games such as hidden object mysteries and solitaire card titles. It later grew to become a major publisher and distribution platform.

The audience for these games skews much older and includes more women than that for other types of computer and console games. Those demographics also match that of casino gamblers quite closely. That being the case, there has been an inevitable convergence of the two industries over the years.

Many of BFG’s competitors likewise straddle the line between “gaming” as a synonym for gambling and its broader meaning.

Some, like Zynga, have followed a similar path to BFG. Others, like IGT, have come at it from the other direction, opening a social games division to complement their traditional gambling activities.

This lawsuit also calls to mind the ongoing Nevada litigation against real-money gaming company Skillz.

Predatory practices in social gaming

The overlap between the industries isn’t limited to the demographics of their customers. Social gaming and real-money gambling have both borrowed pages from each others’ marketing strategies over the years.

Therein lies the problem, however. Social gaming companies like BFG use some of the same tactics as developers of gambling products, yet they don’t have the same regulatory oversight.

Where gambling is legal, regulators have the authority to determine what companies can and can’t do to coax players to spend more money. With social gaming, few such rules exist.

Kater and Thimmegowda argued that BFG enticed VIP players with free spins and proceeds to encourage addictive behavior. Suzie Kelly, a co-plaintiff to Kater, says she attempted to take a break from BFG’s games due to her spending but was cajoled by her host into buying more chips. She claims that ultimately, she lost a total of $300,000 playing BFG’s slots.

BFG also leverages social pressure to encourage spending, according to the suit. Players can join Clubs that offer perks based on spending, and some will allegedly threaten to eject members who don’t hit certain spending targets.

When is social gaming just actual gambling?

Predatory though such tactics may be, there’s no law against them if the product itself isn’t gambling. For that reason, Kater’s 2015 lawsuit was originally thrown out of District Court before the Ninth Circuit Court of Appeals agreed to hear the case.

Judge Milan D. Smith ultimately agreed with Kater, ruling that BFG’s games constitute illegal gambling under Washington law. That reopened the door for her lawsuit to continue and paved the way for Thimmegowda to file one of her own in 2019.

The decision, like many, hinged on semantics. The wording of Washington’s gambling laws requires that players risk a “thing of value.” The question, therefore, is whether the play-money chips meet that definition.

Kater argued that they do on the basis that players can transfer them to others and a secondary market exists for them. Players can arrange real-money transfers outside of the game in exchange for play chips within it.

Judge Smith rejected this argument on the basis that such arrangements are explicitly against BFG’s terms of service. However, he opined that the gameplay itself has entertainment value. The chips therefore have value because the game cannot be played without them, so wagering them still constitutes gambling.

Big Fish a tale of two gaming companies

The settlement is further complicated by the fact that BFG changed hands partway through the proceedings. CDI owns five racetracks (including the eponymous Churchill Downs) and eight casinos around the US. It also launched the BetAmerica sportsbook and online casino brand last year.

CDI acquired BFG in 2014 for $850 million, acknowledging at the time that its products were “a logical extension” to its own in-house online racebook TwinSpires. It sold BFG five years later for $990 million, a decision that may have been influenced by the Ninth Circuit decision.

The new owner, Aristocrat, is likewise a gambling company primarily focused on slot machines. Its forays into the social gaming space began in 2012 with the purchase of Product Madness and continued with its 2017 acquisition of Plarium.

Kater’s lawsuit names CDI as the defendant and relates to events that occurred under its ownership. Thimmegowda’s was filed after the sale and names BFG directly.

Much of the wrongdoing happened on CDI’s watch, so it will pay the bulk of the settlement, $124 million. Aristocrat will pay the remaining $31 million.

Direct and indirect consequences for social gaming

Beyond BFG, Judge Smith’s decision could have implications for the larger social gaming and gambling industries. The value of play-money gambling — both as a direct source of revenue and as a marketing tool for real-money products — hinges largely on the fact that it skirts laws about gambling. It’s a hugely active space, with new brands like Gambino Slots launching on a regular basis.

The direct impact of the ruling was limited, as it applies only in Washington. Although BFG will have to change its approach as part of the settlement, companies headquartered elsewhere can continue as they always have for now.

Even so, the case has caused some companies to reevaluate their strategies. PokerStars, for instance, responded to the news of Judge Smith’s decision by suspending service for its play-money products to players in the state.

Though this particular legal battle is over, it certainly won’t be the last. The intersection of social gaming and real-money gambling is shaping up to be a battlefield for years to come. From calls to ban loot boxes to Apple’s new policies regarding simulated gambling, it’s a topic that continues to make headlines on a regular basis.

It’s also of particular importance in the US, where gambling expansion means lawmakers are regularly crafting new legislation. Clarity is essential, as gray areas are risky for consumer and company alike. BFG’s settlement is a sobering reminder of how expensive it can be for a company to find itself on the wrong side of such a blurry line.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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