Cheryl Kater v. Churchill Downs Inc.
886 F.3d 784 (2018)
Sections
Rule of Law:
Under Washington law, virtual gambling chips constitute a "thing of value" if they extend the privilege of playing a game, thereby rendering the platform an illegal gambling operation subject to the Recovery of Money Lost at Gambling Act.
Facts:
- Churchill Downs operated "Big Fish Casino," a virtual game platform allowing users to play electronic casino games like blackjack, poker, and slots.
- Users could download the app for free and receive an initial set of virtual chips, but once those chips were exhausted, users were required to purchase more chips or wait to continue playing.
- The platform sold virtual chips for real-world currency at prices ranging from $1.99 to nearly $250.
- Big Fish Casino's Terms of Use stated that chips had no monetary value, yet the app included a mechanism allowing users to transfer chips to others, which facilitated a secondary black market for cashing out winnings.
- Plaintiff Cheryl Kater began playing Big Fish Casino in 2013.
- Over the course of her gameplay, Kater purchased and subsequently lost over $1,000 worth of virtual chips playing the casino games.
- Kater sought to recover the value of the chips she lost from Churchill Downs.
Procedural Posture:
- Kater filed a class action lawsuit against Churchill Downs in the U.S. District Court for the Western District of Washington alleging violations of the Recovery of Money Lost at Gambling Act and the Consumer Protection Act.
- The District Court dismissed the complaint with prejudice, ruling that the virtual chips were not a "thing of value."
- Kater filed a motion for reconsideration regarding the dismissal.
- The District Court denied the motion for reconsideration.
- Kater appealed the dismissal to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Do virtual chips used in a "free-to-play" online casino game constitute a "thing of value" under Washington's gambling statutes such that the platform qualifies as an illegal gambling game?
Opinions:
Majority - Judge Milan D. Smith, Jr.
Yes, the virtual chips constitute a "thing of value" because they extend the privilege of playing the game, regardless of whether they have direct cash value. The court reasoned that Washington Revised Code § 9.46.0285 defines a "thing of value" broadly to include any form of credit involving the extension of entertainment or the privilege of playing a game without charge. Without the virtual chips, a user cannot play the game; therefore, the chips provide the necessary privilege to play. The court relied on the precedent set in Bullseye Distributing LLC v. State Gambling Commission, which held that play points extending gameplay were things of value even if they lacked pecuniary value. Consequently, because the chips are things of value risked on a contest of chance, Big Fish Casino constitutes illegal gambling under Washington law.
Analysis:
This decision significantly impacts the mobile gaming industry, particularly "social casinos" operating in Washington state. By interpreting "thing of value" to include the mere extension of gameplay (entertainment value), the court rejected the defense commonly used by game developers that virtual currency is worthless because it cannot be officially cashed out. This creates a precedent that subjects "freemium" games involving elements of chance to strict gambling regulations. It effectively categorizes virtual currency bought with real money as gambling stakes if that currency is required to continue playing the game.
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