USA Law and Practice Contributed by: Chao Yu (Charles Yu) and Greg Pilarowski, Pillar Legal
dual-currency sweepstakes-style gaming platforms that mimic real-money casino play, by amending their gambling laws. In addition, a number of other states – including Pennsylvania, New York, Michigan, Maryland, and many others – have taken enforce- ment actions against sweepstakes casino operators by issuing cease-and-desist letters or similar regula- tory warnings.
Sports betting has been far more widely adopted, including mobile and online sports betting. Currently there are 32 states (including Washington, DC) permit- ting mobile or online sports betting. Fantasy sports occupy a unique position under US gaming law, and states take different approaches to determining whether they constitute a form of gam- bling. Many states, such as New York, Pennsylva- nia, and New Jersey, classify daily fantasy sports as games of skill rather than games of chance, and there- fore permit them under state law. This interpretation is supported in part by the UIGEA, which includes an exemption for fantasy sports that meet certain crite- ria, such as outcomes reflecting participants’ skill and knowledge rather than the results of a single sporting event. However, some states, such as Nevada, Wash- ington, and Montana, treat fantasy sports as a form of gambling and require operators to obtain a licence or prohibit the activity altogether. Other states may not have special laws that prohibit fantasy sports, but the attorneys general have opined unfavourably on the legality of daily fantasy sports in their states, such as Alabama, Illinois, and Texas. Social gaming generally refers to free-to-play games that simulate casino-style gameplay, where players use virtual currencies such as coins or tokens that can- not legally be redeemed for real-world money. Most US courts have ruled that such games do not con- stitute illegal gambling, as long as the in-game items or credits lack cash-out or real-world monetary value (for example, Taylor v Apple, Inc., No 20-cv-03906-RS (N.D. Cal. 2022) , and Mason v Machine Zone, Inc, No 15-2469 (4th Circuit 2017) ). Even when secondary markets exist where players informally trade virtual items for money, some courts have generally found that if such transactions violate the game’s terms of service, trading via secondary markets does not affect the legal classification of the game itself (for example, Coffee v Google LLC., No 5:20-cv-03901-BLF (N.D. Cal. 2020) ). However, Washington State has taken a different approach. In Kater v Churchill Downs Inc., 886 F.3d 784, 788 No 2 (9th Circuit 2018) and Larsen v PTT, LLC, 3:18-cv-05275-TMC (W.D. Washington, 11 June 2024) , the courts held that social casino games could qualify as illegal gambling because the virtual coins used to play were considered a “privilege
2. Jurisdictional Overview 2.1 Online Gambling
At the federal level, the primary federal statute addressing online gambling is the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which establishes that the legality of internet gambling depends on whether the activity violates state law. “Unlawful internet gambling” means a “bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made” (31 US Code (USC), Section 5362 (10)(A)). Therefore, the legalisation and regulation of online gambling occur primarily at the state level, where each state has the authority to determine: • what types of gambling are permitted; • how and where gambling activities may be con- ducted; and • who is eligible to participate, including age and location restrictions. As described, online gambling (other than sports bet- ting) in the US is limited, and there are only seven states offering regulated online gambling (see 1.1 Current Outlook and Recent Changes ). Some states adopt additional restrictions on online games. For example, in Delaware, only the state Lottery Commis- sion is authorised to conduct online gambling. In other states, such as New Jersey, Nevada, and Pennsylva- nia, licences are generally limited to existing brick- and-mortar casino operators that have obtained per- mission to offer wagers online. The remaining states do not allow online gambling, but some states offer certain forms of online lottery (comprising direct online computer sales and/or mobile device sales).
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