Analyst Calls Appeals Court’s Gambling Decision ‘Dangerous Precedent’ for Online Video Games

Last week, the Ninth Circuit Court of Appeals in San Francisco overturned a lower court ruling that found free-to-play online video games don’t constitute gambling under Washington state law.

Specifically, the appeals court ruled in favor of the plaintiff, who had spent $1,000 on “coins” on a virtual casino slot game to extend play. Players are provided a number of free coins daily but can purchase additional coins to extend play within a 24-hour period.

That payment option, according to the appeals court, held “intrinsic value,” and constituted gambling under state law.

To Michael Pachter, media analyst at Wedbush Securities in Los Angeles, the decision has ramifications for free-to-play online video games that allow players additional turns for a fee.

Activision’s King Casino generated nearly $2 billion in revenue in 2017, including a $1 billion in the U.S. Most of the revenue coming from the purchase of “boosters” in games, which accelerate the solving of the particular game or extending play.

Zynga generated $850 million in revenue, with an estimated $400 million coming from the purchase of time-saving options.

“Should the Circuit Court’s decision be applied in other states, these companies may face a series of lawsuits,” Pachter wrote in an April 2 note.

The analyst expects the latest decision to be appealed by a “more rationale” court that does not render value on virtual video game pieces.

“However, until that happens, there is some risk that Activision and Zynga will see increased legal risk to their ongoing operations in Washington state,” Pachter wrote. “Should other states decide to cite the [lower court] decision as precedent, we may see an uptick in legal activity elsewhere.”

Cable Trade Group Enters Legal Defense of FCC’s Net Neutrality Pushback

The American Cable Association has entered the legal defense of the Federal Communications Commission’s ruling to roll back Internet regulatory provisions, also known as Net Neutrality.

The ACA March 16 filed a motion to intervene in the case with the U.S. Court of Appeals of the Ninth Circuit in San Francisco.

The court was selected by lottery to hear the case challenging the FCC’s ruling last December to reclassify Internet Service Providers (ISPs) as information service providers. That action – restoring lighter regulatory oversight in a 3-2 vote along political lines – overturned the prior FCC’s 2015 ruling that classified ISPs as common carriers under Title II of the Communications Act of 1934.

In the motion, the ACA said it meets the requirements for intervention as a trade association of small and medium-sized cable companies. Many of ACA’s members provide broadband Internet access service, and thus are “directly affected” by the FCC’s declaratory ruling.

ACA member companies, which include not only traditional cable operators but also municipally owned systems and electric co-ops, pass over 18 million homes mostly in rural areas and small cities and provide a wide range of services, including video, voice, high-speed Internet, and dedicated fiber-optic connections to more than 7 million subscribers.

The ACA claims that despite assertions to the contrary by advocates of Net Neutrality, smaller ISPs represented by ACA have provided their customers with unrestricted access to Internet content on a consistent basis. It says tougher regulation hampers investment.

“The unwarranted common carrier burdens associated with Title II made these ISPs reluctant to [expand] their broadband networks and explore offering innovative services,” said the ACA.

The trade group contends the FCC’s move to rollback Net Neutrality guidelines would benefit the entire Internet economy, especially consumers. Net Neutrality advocates claim the opposite.