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A loss recovery law in Kentucky has been costly in recent years for gaming companies, with Aristocrat Leisure Ltd. as the latest to be targeted with a lawsuit surrounding its social casino offering.
Kentucky resident James Tipmore last month filed suit against Aristocrat and its social gaming subsidiary Product Madness, seeking to capture three times the losses of all Kentuckian players of the social casino games over five years.
A Kentucky law that governs gambling allows any third party to sue to recover three times the losses from a gambling operation that is not authorized or legalized by the state, provided that the losing party in the gambling transaction does not sue the operator within six months and that the third-party lawsuit is brought within five years of the delivery or payment.
The 18th-century state law was most prominently used in a lawsuit filed by the state itself against Stars Interactive, the operator of PokerStars.
After a judgement by a state court ordering parent company Flutter Entertainment to pay over $870 million after PokerStars was found to have operated illegally in the state before 2011, the case was ultimately settled in 2021 with Flutter paying the state a settlement amount to $300m.
Malta-based sweepstakes gaming operator VGW also agreed to spend $11.75m in 2022 to settle a class-action lawsuit in Kentucky citing the loss recovery statute.
In the filing against Aristocrat, Tipmore's attorney Christopher Rhoads argues that even though social casino players are playing for the chance to win virtual coins to continue playing the games, it still constitutes a gambling operation.
“It is scarcely a defense that 'social casino' slot machines do not afford gamblers the opportunity to win real money because the currency in such games consists of 'virtual coins' that are only redeemable as additional opportunities to play the games,” Rhoads claims.
“Those with gambling addictions have been documented to lose thousands of dollars playing these slot machines, to the point of financial ruin and marital strife, even though these gamblers could never win their money back – only the opportunity for additional spins at the slot machine.
“Second, the law in many states, including Kentucky, states that the opportunity to win additional playing time is a 'thing of value' such that gambling for more playing time is illegal gambling even though the gambler never has the opportunity to win her money back,” he continued.
An Aristocrat spokesperson told Vixio GamblingCompliance that the company is aware of the action in Kentucky and pushed back against the plaintiff’s arguments.
“We firmly reject any contention that social-casino-themed mobile games are gambling, and will vigorously defend our position,” the spokesperson said. “These games very clearly offer no opportunity to ‘cash out’ or win anything of value. Such games are offered purely for entertainment.”
The Kentucky legislature approved a tweak to the law via a 2023 bill that prohibited skill-game machines in the state, redefining “something of value” for the purposes of gambling as not including “the award of free, extended, or continuous play which is awarded as a prize for playing a game or scheme for a charge”.
Still, Rhoads wrote, the previous definition of "something of value", which includes “involving extension of service, entertainment, or a privilege of playing at a game or scheme without charge”, would still apply up until the new law took effect, and the new statutory definition should not be applied retroactively.
“[Aristocrat’s] games allowed players to spend real money to purchase virtual coins which the players then gamble in the hopes of winning additional coins that allow them to continue playing the game without an additional charge, clearly making those coins 'something of value' within this definition,” he wrote.
The case was filed in the U.S. District Court for the Western District of Kentucky on August 22, and Aristocrat has yet to file a response to the initial complaint.
