The house doesn’t always win—a federal jury awarded nearly $25 million in damages to a class of consumers in Washington State after a district court in Larsen v. PTT, LLC determined that certain “social casino” games operated by High 5 Games was illegal gambling under state law.
This case serves as a reminder to game developers of the potential risks associated with incorporating chance elements in their games.
The “social casino” games at issue simulated slot machine gameplay using virtual coins that players either received for free or purchased with real money. Under Washington law, gambling is risking a thing of value on the outcome of a contest of chance with the understanding that the person will receive a thing of value in the event of a certain outcome.
Since slot machines are quintessentially gambling games when played for real money, the case turned on whether the virtual coins that players could purchase with real money were a “thing of value.”
In this case, when creating an account in High 5 Casino or High 5 Vegas, players received a free initial allotment of virtual coins, which were required for gameplay. The coins could only be used to place bets and spin the virtual slot machines—they could not be transferred or redeemed for real money or prizes.
If players ran out of coins or had less than the required “minimum bet,” they had to replenish their coin supply before being able to continue gameplay. Coins could be purchased through the game application for real currency, but both games also had mechanisms that allowed players to get coins for free. Players could, among other methods, receive free coins through periodic grants, by spinning a wheel, or by referring a friend to the game.
High 5 Games argued that its virtual coins had no economic value because they could not be exchanged for real money and were occasionally granted to players for free.
However, consistent with recent decisions in other jurisdictions, the court held that the virtual coins were “things of value,” and that the games were illegal gambling. Although the coins had no intrinsic monetary value, they derived value from the fact that they extended “the privilege of playing the game.”
Further, the fact that players may obtain additional free coins at some future time does not negate the coins’ value, as players would have to pay for coins to extend their privilege of playing until then.
This line of cases weakens the idea that operating within a virtual, closed-loop system necessarily protects game operators from the risk of inadvertently operating illegal gambling instruments.
In this case, the court demonstrated their openness to a broader interpretation of “value” in the statute. Existing caselaw is limited to questions of whether the virtual coins in games that simulate real-life gambling have economic value, but this line of cases may pose a threat even to games that do not look like traditional gambling activity.
For instance, if a game of skill also offers a chance-based minigame where a player spends real-world money to wager in-game currency for the chance to win more in-game currency, might that be considered gambling?
Given the trajectory of this evolving line of cases, the potential of future liability for game operators is uncertain. Some lawyers serving as lead counsel in multi-district litigation on behalf of plaintiffs have written that this verdict is “only the beginning.”
Game developers should consider how their in-game currency is awarded or used, especially if that currency can be also purchased with real-world currency. Consult your legal counsel to ensure that your game is not vulnerable to these emerging legal challenges.