28 February 2020

Klein Moynihan Turco LLP

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This month, the Washington State Senate and House ofRepresentatives each released separate proposed bills HouseBill 2720 and Senate Bill 6568 aimed at changingWashington's gambling law. In response to the NinthCircuit's 2018 decision in Kater v. Churchill DownsInc., Washington State's legislature isattempting to redefine what constitutes "illegal gamblinggames" within the meaning of the State's Recovery of MoneyLost at Gambling Act ("RMGLA"). Through this proposedmeasure, the Legislature hopes to prevent Washington's boominggaming industry from leaving the State.

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

As previously discussed on this blog, the Ninth Circuit's decision in Katerestablished that online gaming companies need not provide playerswith tangible money or property in order to triggerWashington's RMGLA. In Kater, ChurchillDowns's Big Fish Casino awarded players "virtualchips" that could be used for additional opportunities to playthe casino's games. The Ninth Circuit determined thatthese virtual chips qualified as "things of value" underthe RMGLA because they could be used to pay for additional gameplays. This ruling exposed Washington State gaming companiesto potential liability if their games utilized virtual items ofvalue (rather than money or tangible prizes), which many do.As a result, some gaming companies reportedly have decided to leaveWashington State which would cost the State thousands ofjobs and significant tax revenue. In addition, somesocial gaming sites have even denied Washington State residentsaccess to their sites.

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

For the purposes of this section, "illegal gamblinggames" does not include online games of chance when playedsolely for entertainment purposes with virtual items if suchvirtual items may be used only for gameplay and may not be, per theterms of service of the game, transferred, exchanged, or redeemedfor money or property.

This additional language makes clear that games utilizingvirtual items of value, that are not readily transferrable foractual money or property, are not subject to theRMGLA. Notably, a Washington State company employing virtualitems that may, in some way, be transferred, exchanged, or redeemedfor money or property will still be subject to liability under theRMGLA. For companies employing virtual items that are nottransferrable, exchangeable, or redeemable for money or property,this proposed statutory clarification would largely insulate themfrom future liability under theRMGLA.

If enacted, this legislation will affect both Washington Stateand the nation alike. For Washington State which ishome to nearly twenty percent (20%) of the global video gamedevelopment industry this legislation will entice theState's gaming companies to remain or come to the State, asthey would be able to operate without fear of RMGLA liability forawarding virtual items and allowing such items to be used forfuture gameplay. It will also likely reverse the trend ofonline social gaming companies prohibiting the participation ofplayers from Washington State. Nationally, such a statutory changemay serve as a blueprint for those states looking to maintain thestrength of their gaming industry and, at the same time, safeguardagainst the prospect of any future rulings similar to that ofKater.

Gaming Law in Washington State: Virtual Chips are "Thing ofValue"

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The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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