In-App Purchases of Virtual Gaming Chips May Violate Washington Gambling Law

Published: Apr. 09, 2018

Updated: Oct. 05, 2020

The Ninth Circuit has held that a free-to-play virtual casino app offering in-app purchases of virtual chips for continued gameplay may constitute illegal gambling under Washington state law.

Churchill Downs, the defendant, operates a free-to-download mobile app called Big Fish Casino (“BFC”). Users can use virtual chips to play casino games and win additional chips. Each user starts with a certain number of free chips and is awarded additional free chips over time, but also has the option to buy more chips from BFC. BFC’s Terms of Use make clear that the chips have no monetary value and cannot be exchanged for cash, but BFC does allow the transfer of chips to another user, subject to a small transfer fee (in virtual chips).

Plaintiff Cheryl Kater alleges she purchased and lost over $1,000 worth of virtual chips. She sued BFC’s operator under Washington’s Recovery of Money Lost at Gambling Act, claiming that BFC was an “illegal gambling game” that involved “staking or risking something of value” and an agreement to “receive something of value in the event of a certain outcome.”

The key question before the Ninth Circuit was whether BFC’s virtual chips are a “thing of value” under Washington law. The district court said they were not and dismissed plaintiff’s complaint. Under Washington law, a “thing of value” is “any money or property, any token, object or article exchangeable for money or property, or any form of credit or promise . . . contemplating transfer of money or property . . .  or involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge.” The district court concluded that because there is never a possibility of receiving real cash or merchandise, no matter how many chips a user wins when playing BFC, no prize of value is ever awarded.

The Ninth Circuit disagreed, expressly declining to follow in the steps of other recent court decisions that found “free to play” gaming apps do not violate anti-gambling laws in other states. The appeals court agreed with BFC that the existence of a secondary market for virtual chips does not make them a “thing of value,” since BFC’s terms specifically prohibit such transactions. However, the court nonetheless concluded that chips are valuable because they fit within the statutory definition—constituting “a form of credit . . . involving extension of . . . entertainment or a privilege of playing Big Fish Casino without charge.”

The court reasoned that because the virtual chips were required to play the casino games, a user must either win or purchase chips if they wanted to extend the “privilege” of continuing to play. The Ninth Circuit did not consider (for technical reasons) BFC’s argument that extended gameplay is free because users continue to receive free chips over time. It is unclear, however, whether this factor would have changed the outcome.

In light of this decision, companies that offer online games involving purchasable virtual credits should review their offerings to ensure compliance with applicable state law as well as continue to monitor the interpretation of this and similarly-designed laws as they are applied to different game types in different jurisdictions.