There is an active lawsuit that could make promotional sweepstakes gambling sites illegal in California.
On Sept. 2, US District Judge Edward Davila filed an interlocutory appeal to the Ninth Circuit Court of Appeals, which covers California and eight other states. Depending on how the Ninth Circuit Court rules, Apple, Google, and Meta could be liable for profiting from casino chip purchases from social casinos, otherwise known as promotional sweepstakes sites.
A class action lawsuit accused platforms like Apple, Google, and Meta of promoting illegal gambling through promotional sweepstakes sites. These sites, such as Chumba Casino, LuckyLand Slots, Fliff, and Global Poker, have players play with two types of fake digital currency — most commonly called Gold Coins and Sweeps Coins. They offer bettors free Gold Coins for slots, casino games, poker, and sports betting. Bettors can also buy more Gold Coins, and they can redeem Sweeps Coins for real cash prizes.
Since Gold Coins refill daily, buying them is optional. Social casino, poker, and sports betting apps can be downloaded from the App Store and Google Play Store. Bettors can also find them on social media sites like Facebook.
Real-money online casinos, online poker, and online sports betting are all illegal in California, so promotional sweepstakes sites make up the bulk of legal online gambling in the state. And, especially with Prop 27 (which would legalize online sports betting) looking like it won’t pass this November, promotional sweepstakes sites will only grow in popularity.
What the Plaintiffs Argue
The plaintiffs argue that due to the large amounts of credits purchased each year, these promotional sweepstakes sites attract real-money gamblers and behave as real-money platforms. From Q3 2020 to Q2 2021, American iOS users spent $990 million on social casino apps. Those figures fuel the plaintiff’s argument that these sites circumvent anti-gambling laws.
Further, the plaintiffs allege that the platforms are liable for social gambling’s illegal activities for three reasons:
- “Count I alleges that by hosting Illegal Slots … Apple engaged in unfair competition … by committing unlawful, unfair and fraudulent business acts and practices.”
- “Count II alleges, by hosting Illegal Slots, Apple was unjustly enriched to the detriment of Plaintiffs and profited immensely by … retaining a percentage of the money spent by consumers in social casinos.”
- “Count III alleges, by actively participating in the operation of social casinos by providing market guidance and helping create and develop the social casinos, Apple violated Alabama Code § 8-1-150(a).”
(Alabama Code § 8-1-150(a) states that gambling contracts are “considered void.”)
This case’s plaintiffs believe that promotional sweepstakes sites are illegal and the platforms that host them should be held liable. Promotional sweepstakes sites are currently legal in California because, even though players can exchange certain fake digital currency for real cash prizes, the digital currency itself has no real-world value.
How the Judge Ruled
Judge Davila dismissed two of the three charges against the tech companies. His reasoning revolved around Section 230 of the Communications Decency Act, which shields platforms from liability for a third party’s speech. In this case, the third party would be the promotional sweepstakes sites.
So, Count 1 failed. Section 230 allows platforms to host and moderate the content it chooses. Count 1 would have to hold the promotional sweepstakes sites liable rather than the platforms targeted by this lawsuit.
Count 3 failed because Apple’s tools are standard offerings for improving all its apps. Therefore, Judge Davila found that this was the app equivalent of an editorial role. Because Section 230 keeps the government from telling private websites how to moderate third-party content, Count 3 was not a reason to make Apple pay damages.
Count 2 was the only one that could deliver the plaintiffs a victory. Count 2 would hold Apple and Google responsible for earning revenue from illegal activity — and the lawsuit alleges promotional sweepstakes gambling is illegal. That is not a protected content moderation function. Protecting the right to earn money illegally also doesn’t promote voluntary content moderation, which is the second goal of Section 230. So, this is the one point the case hinges upon.
“Players must buy virtual chips from the Platforms app stores and may only use these chips in the casino apps. It is this sale of virtual chips that is alleged to be illegal,” Davis wrote in his opinion. “Plaintiffs neither take issue with the Platforms’ universal 30% cut, nor the Platforms’ virtual currency sale. Plaintiffs only assert that the Platforms role as a ‘bookie’ is illegal. Plaintiffs therefore do not attempt to treat the Platforms as ‘the publisher or speaker’ of third party content, but rather seek to hold the Platforms responsible for their own illegal conduct — the sale of gambling chips.”
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What’s Next for Promotional Sweepstakes Sites in California?
Judge Davila appealed Count 2 to the Ninth Circuit Court. His filing is the judicial equivalent of asking the higher court to double-check his reasoning on Section 230’s application and scope. When the Ninth Circuit hears this appeal, it will have to decide whether Apple, Google, and other big tech companies profited illegally from user purchases on promotional sweepstakes apps.
On the one hand, the Ninth Circuit could rule that Section 230 grants immunity to tech companies. To do so, the Ninth Circuit would have to invoke case law with circumstances similar to tech platforms’ current situation.
The Ninth Circuit could also agree with Judge Davina’s assessment of Section 230’s scope and application. That would mean that the tech companies in this lawsuit would be liable for damages if promotional sweepstakes sites were declared illegal.
The consequences of such a ruling would be important for states where most online gambling remains illegal, such as California. These promotional sweepstakes sites can fill the gap for people who want to participate in online gambling. It makes the Ninth Circuit’s ruling crucial for the future of online gambling in California, especially considering online casinos, online poker, and online sports betting likely won’t be legalized any time soon.
We should know more about whether the appeal will proceed by November.