Mere months after completing its acquisition of Seattle-based Big Fish Games, the Australian slot machine supplier and iGaming industry leader Aristocrat Leisure Limited saw its subsidiary’s flagship casino app deemed illegal by a U.S. appellate court.
Aristocrat acquired Big Fish Games from the Louisville-based Churchill Downs Incorporated (CDI) for $990 million in January of this year. At the time, both companies were well aware of a three-year old lawsuit filed against Big Fish Casino, a so-called “freemium” game available both as a mobile app and via web browser.
That suit – known as Cheryl Kater v. Churchill Downs Incorporated – was filed by a Big Fish Casino player in April of 2015.
Big Fish Casino offers players the chance to play casino games like slots, blackjack, roulette, and poker online using “virtual chips.” Players receive an initial allotment of virtual chips to begin with, but if they lose those, they can’t play for free again until the next monthly allotment is released.
Players can also pay for virtual chip packages, which are priced from $1.99 to $250, to get back in the games early – a monetization feature which Kater contends caused her to lose over $1,000.
The U.S. District Court for the Western District of Washington initially heard the case, in which Kater accused Big Fish Casino of violating the Washington Consumer Protection Act (WCPA) by offering an illegal form of real money gambling. That court dismissed Kater’s suit in 2016, but her appeal went to the Ninth Circuit of U.S. Court of Appeals.
In his ruling, Judge Milan D. Smith of the Ninth Circuit asserted that Big Fish Casino’s payment system did constitute illegal gambling:
“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.
In sum, these virtual chips extend the privilege of playing Big Fish Casino.”
Judge Smith pointed to the millions of dollars in revenue generated for Big Fish Casino’s owners, and the inherent monetary value of virtual chips, in justifying his ruling:
“Despite collecting millions in revenue, Churchill Downs, like Captain Renault in Casablanca, purports to be shocked – shocked! – to find that Big Fish Casino could constitute illegal gambling.
We are not.
We therefore reverse the district court and hold that because Big Fish Casino’s virtual chips are a ‘thing of value,’ Big Fish Casino constitutes illegal gambling under Washington law.”
Aristocrat – which was indemnified by CDI against any losses associated with the case prior to purchasing Big Fish Casino – issued a public statement in which the company declared its intention to appeal the ruling:
“Aristocrat and CDI are working together to vigorously defend the action.
Aristocrat agrees with CDI’s statement ‘that there are meritorious legal and factual defenses against (the) Plaintiff’s allegations and requests for relief’ and Aristocrat is not aware of any other US Court having expressed an opinion similar to that of the court in this action.”
CDI chairman Bill Carstanjen addressed the ruling during the company’s quarterly earnings call last week:
“Obviously, we believe social casino games do not run afoul of Washington state law.
Our company believes very strongly we have meritorious legal and factual defenses, and we intend to vigorously defend ourselves in this matter against all allegations and requests for relief.”
CDI also filed a quarterly report with the Securities and Exchange Commission (SEC) which clarified the company’s arrangement to contest the ruling in conjunction with Aristocrat:
“In accordance with the terms of the stock purchase agreement, the company is working closely with [Aristocrat Technologies] to vigorously defend this matter in both the District Court and in any further appellate proceedings.”
