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Social Gaming Operators under Litigation Storm in the United States

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Social Gaming Operators under Litigation Storm in the United States

26 June 2023

In recent years, the activities of social gaming operators, as well as sweepstake operators, have been facing increasing legal scrutiny in the United States, with a series of high-profile state class-action lawsuits challenging the legality of these activities.

This litigation trend can be traced back to Washington, where a series of class action lawsuits resolved in settlements nearing $1 billion (overall since 2015), including against many prominent gaming companies, including Caesars, Zynga, Playtika, Aristocrat, Huuuge Games and others.

The litigation trend is aimed at operators of popular simulated casino games (such as slots), which typically rely on a “free-to-play” model.

A recurrent claim in these lawsuits is that the games at question should be considered as illegal gambling, since they are: (a) chance-based (typically offer virtual slots machines); (b) effectively requiring players to purchase virtual coins to play the games (notwithstanding the operators’ attempts to ensure a “free to play” model, such as by distributing free coins); and (c) awarding the winners with coins that allow for extended gameplay, a benefit that amounts to a prize under states’ local gambling law, according to such claims.

We are setting out below recent key deployments in this field –
1. Washington: On June 1, 2023, the U.S. District Court for the Western District of Washington has approved a settlement in the amount of $415 million, against DoubleDown Interactive LLC and International Game Technology PLC, operators of social casino games, alleging that the games should be considered as “illegal gambling”.

2. Alabama: On March 8, 2023, a class-action lawsuit was filed against Playtika in the U.S. Circuit Court of Franklin County, Alabama, alleging that its games should be considered as “illegal gambling” and seeking recovery payments.

3. Kentucky: At the end of 2022, a class-action lawsuit was filed against Scientific Games Corp, in the U.S. District Court for the Eastern District of Kentucky, alleging that the games operated by the company should be considered as “illegal gambling” and demanding recovery of payments.
In addition, the litigation trend has also expanded to operators of social casino games that are combined with sweepstakes that award monetary prizes; typically, these activities rely on a “two-coin” model that allows users to participate in the games for free.

Notable cases regarding such activities include –

1. California: On June 6, 2023, a $5 million class-action lawsuit was filed in the U.S. District Court of the Central District of California, against Fliff, the operator of “free to play” social sportsbook and sweepstake website, alleging that their sweepstake activity violates local gambling laws.

2. Kentucky: At the end of 2022, a class-action lawsuit was settled against VGW LuckyLand for the sum of over $11 million filed in the U.S. Circuit Court of Kentucky, alleging that their sweepstake activity violates local gambling laws.

There is an undeniable litigation trend, which is expected to continue to expand to additional U.S. states. Operators of social casino games, as well as game operators offering free-to-enter sweepstake operations, particularly those operating in the U.S., should closely review and monitor these developments, ascertain their potential exposure, and consider mitigation measures.

Please feel free to reach out to us with any question on this matter.

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