Proposed Gambling Law Revision Aimed At Protecting Washington State Gaming Industry

United States: Proposed Gambling Law Revision Aimed At Protecting Washington State Gaming Industry 28 February 2020 Klein Moynihan Turco LLP

This month, the Washington State Senate and House of Representatives each released separate proposed bills – House Bill 2720 and Senate Bill 6568 – aimed at changing Washington's gambling law.  In response to the Ninth Circuit's 2018 decision in Kater v. Churchill Downs Inc., Washington State's legislature is attempting to redefine what constitutes "illegal gambling games" within the meaning of the State's Recovery of Money Lost at Gambling Act ("RMGLA"). Through this proposed measure, the Legislature hopes to prevent Washington's booming gaming industry from leaving the State.

How would this gambling law change protect Washington State's burgeoning gaming industry?

Impact of Kater on Washington State Gambling Law 

As previously discussed on this blog, the Ninth Circuit's decision in Kater established that online gaming companies need not provide players with tangible money or property in order to trigger Washington's RMGLA.  In Kater, Churchill Downs's Big Fish Casino awarded players "virtual chips" that could be used for additional opportunities to play the casino's games.  The Ninth Circuit determined that these virtual chips qualified as "things of value" under the RMGLA because they could be used to pay for additional game plays.  This ruling exposed Washington State gaming companies to potential liability if their games utilized virtual items of value (rather than money or tangible prizes), which many do.  As a result, some gaming companies reportedly have decided to leave Washington State which would cost the State thousands of jobs and significant tax revenue.  In addition, some social gaming sites have even denied Washington State residents access to their sites.    

Proposed Gambling Law Change

The legislation proposed in both the Washington State House and Senate seeks to address the question of what constitutes a "thing of value" by creating a statutory carve-out for online social gaming.  The bills do this by adding language to the RMGLA that defines "illegal gambling games" as follows:

For the purposes of this section, "illegal gambling games" does not include online games of chance when played solely for entertainment purposes with virtual items if such virtual items may be used only for gameplay and may not be, per the terms of service of the game, transferred, exchanged, or redeemed for money or property.

This additional language makes clear that games utilizing virtual items of value, that are not readily transferrable for actual money or property, are not subject to the RMGLA.  Notably, a Washington State company employing virtual items that may, in some way, be transferred, exchanged, or redeemed for money or property will still be subject to liability under the RMGLA.  For companies employing virtual items that are not transferrable, exchangeable, or redeemable for money or property, this proposed statutory clarification would largely insulate them from future liability under the RMGLA.     

Proposed Gambling Law Change May Have Substantial Effect on Gaming Industry 

If enacted, this legislation will affect both Washington State and the nation alike.  For Washington State – which is home to nearly twenty percent (20%) of the global video game development industry – this legislation will entice the State's gaming companies to remain or come to the State, as they would be able to operate without fear of RMGLA liability for awarding virtual items and allowing such items to be used for future gameplay.  It will also likely reverse the trend of online social gaming companies prohibiting the participation of players from Washington State. Nationally, such a statutory change may serve as a blueprint for those states looking to maintain the strength of their gaming industry and, at the same time, safeguard against the prospect of any future rulings similar to that of Kater.

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