The Proliferation of Social Gaming Casinos: Legal Compliance Considerations
Social gaming casinos and sweepstakes operators have been facing increasing legal scrutiny in the United States and beyond. As these platforms continue to gain popularity, it is crucial for operators to understand the complex regulatory landscape surrounding this emerging industry.
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Understanding Social Gaming Casinos and Dual-Currency Models
Social gaming casinos typically offer casino-style games without real-money stakes, using virtual currencies instead. However, the industry has evolved to include two distinct models:
- Social Casino Model: These platforms offer casual games resembling gambling in a closed-loop economy, where rewards cannot be redeemed for real-world currency or prizes.
- Dual-Currency Model: This model operates differently, utilizing two types of virtual currency:
- Virtual coins: Distributed for free or purchasable, used solely for gameplay.
- Sweep-coins: Obtained through daily log-ins, promotions, or as bonuses for purchasing virtual coins. These can be exchanged for cash or prizes.
Legal Scrutiny and Regulatory Concerns
The dual-currency model, in particular, has drawn attention from regulators and industry groups. On August 19, 2024, the American Gaming Association (AGA) called for gaming regulators and state attorneys to investigate “sweepstake casino” operators using dual-currency systems. The AGA urged authorities to determine compliance with respective laws and consider legislation to prevent the exploitation of sweepstake regulation loopholes.
Beyond regulatory and industry scrutiny, private actions, including class actions, are quite common and target operators of online social gaming casinos and related concepts with regularity.
Key Legal Considerations
The legality of social gaming casinos varies by state, with some allowing free operation and others imposing restrictions. Key legal considerations include:
- Whether games are truly free to play
- How virtual currencies are used
- Marketing practices that could mislead players about winning real money
Legal Framework and Gambling Elements
The regulatory backdrop for social casino gaming involves both federal and state statutes. Most state definitions of gambling hinge on three elements:
- Consideration
- Chance
- Prize or thing of value to be won
Social gaming companies have argued against these elements in litigation since 2015, contending that freemium models lack consideration and that virtual currency does not constitute a “prize” with monetary value.
Compliance Recommendations
To mitigate legal risks, social gaming operators should consider the following:
- Explicitly state in Terms and Conditions and/or Official Rules that in-app currencies have no cash-out value and cannot be transferred between users.
- Actively monitor and disallow secondary markets for virtual currencies or accounts.
- Clearly display methods for obtaining additional tokens without purchase.
State-Specific Legal Tests
States employ different tests to assess whether a game is skill-based (contest) or chance-based (lottery or sweepstakes):
- Dominant Factor Test: Determines if skill outweighs chance in-game outcomes.
- Material Element Test: Considers if chance plays any significant role in determining outcomes.
- Any Chance Test: Prohibits games with any element of chance.
Some states, like South Carolina and Wisconsin, use unique approaches or have not clearly defined their stance.
Recent Legal Developments
In June 2024, a Washington court ruled that virtual coins in social casino apps should be interpreted as “things of value,” regardless of periodic giveaways. This decision may influence future legal interpretations in other states.
App Store Compliance Requirements
In addition to state and federal regulations, social gaming casino operators must also navigate the compliance requirements set by major app stores as well as advertising platforms. Specifically, Apple’s App Store, Google Play Store, Google Ads, and Facebook by Meta have implemented strict guidelines for social casino apps to ensure user safety and legal compliance.
Apple App Store Guidelines
Apple has established rigorous standards for social casino apps:
- Age restrictions: As of August 20, 2019, all social casino applications on the App Store must carry an age rating of 17-plus in all countries and regions.
- Compliance with local laws: Apps must fully adhere to the legal requirements of the locations where they are available, including obtaining necessary licenses.
- Age and location verification: Robust systems must be in place to verify users’ ages and prevent access in regions where gambling is prohibited.
- Native iOS development: Apple requires gambling apps to be native to iOS rather than HTML5-based.
Google Play Store Requirements
Google has also implemented specific guidelines for social casino apps:
- Personalized ads: Starting December 4, 2024, Google will allow personalized ads for social casino game app campaigns, subject to certain restrictions.
- Certification process: Advertisers must complete Google’s certification process before launching social casino game campaigns.
- Clear distinction: Apps must clearly differentiate between social casino games and real-money gambling activities.
- Age restrictions: Social casino apps must be clearly labeled as intended for users 21 or older and for amusement purposes only.
- Transparency: Descriptions and creatives must explicitly state that the app does not offer real-money gambling or the opportunity to win real money or prizes.
These app store compliance measures add another layer of complexity for social gaming casino operators. Developers must carefully design their apps, creatives, and descriptions to meet these requirements while still appealing to users. Failure to comply with these guidelines can result in app rejection or removal from the respective app stores. As the social gaming casino industry continues to evolve, operators must stay informed about changes in app store policies and adjust their strategies accordingly to maintain compliance and ensure their apps remain available to users.
An Increasingly Complex Regulatory Landscape
As the social gaming casino industry continues to evolve, operators must navigate an increasingly complex legal landscape. Staying informed about state-specific regulations, implementing clear terms of use, and maintaining transparent practices are crucial for compliance. Operators in the space should closely monitor developments in this rapidly changing field to ensure compliance in the social gaming casino market.
