Gaming & Gambling Update – Week of May 20, 2024

Orrick, Herrington & Sutcliffe LLP


Recent Developments:

  • New Efforts to Ban Political Events Markets
  • Court Denies Online Casino App Confidentiality
  • Fantasy Sports Bill Advances in New York
  • Dave & Buster’s Social Betting Feature Draws Scrutiny
  • More Regulated Online Gaming North of the Border? Alberta Considering Launching in 2025

New Efforts to Ban Political Events Markets

The Commodity Futures Trading Commission (CFTC) recently voted to issue a new rule proposal which would serve to ban event contracts on political elections, as well as sporting events, awards, and more. The CFTC has previously rejected efforts to allow event contracts on political events within legal financial markets. A separate effort to approve a national market on sporting events also failed to gain traction with a majority of the commission. The commission’s 3-2 vote on May 10, which followed party lines, comes amidst increased attention on political wagering in advance of the Presidential election in November. Democratic Commissioner Kristin Johnson argued that political event contracts could affect the integrity of the democratic process, while U.S. Senator Jeff Merkley (D-OR) is on record calling political event contracts “a clear threat to our democracy and elections.” In contrast, U.S. Representative Dusty Johnson (R-SD) recently authored a letter to the CFTC advocating for legalizing political event contracts as a preferable alternative to the offshore and unregulated markets.

Multiple prediction markets have also weighed in on this debate. Platforms Kalshi and PredictIt have previously filed lawsuits challenging the CFTC’s decisions. Kalshi CEO Tarek Mansour promises that his company will continue to engage with the CFTC and Congress to formulate a plan to allow customers to “participate in legitimate trading…on a legitimate, regulated exchange and not on offshore and illegal markets where there is no consumer protection or market integrity.”

The CFTC will accept comments on the proposed rule through July 9, 2024.

Court Denies Online Casino App Confidentiality

The Delaware Court of Chancery ruled recently that a mobile casino app user could not keep the details of an arbitration process confidential. Vice Chancellor Morgan T. Zurn issued the decision, saying that defendant Brooke Kingston failed to show “good cause” to maintain confidentiality that would outweigh the principle that “all court proceedings are presumptively open to the public.”

Kingston, a Kentucky resident, was sued by Product Madness Inc., a gaming company based in the U.K. but with a presence in the U.S., in order to confirm a previous arbitration award that the parties had reached in proceedings in New York. Kingston’s initial complaint centered around her patronage of free social slot-themed games offered by Product Madness. After Kingston allegedly spent $30 on virtual coins in apps operated by Product Madness in 2023, she filed an arbitration demand against the company seeking to have its offerings declared illegal under a centuries-old Kentucky statute. (The statute since has been amended to clarify that these types of play-for-fun games are lawful.) Kingston argued that, because the game was unlawful, the terms of service and its arbitration provision should be invalidated, enabling her to file suit in court to collect all money spent on the app by Kentuckians. Product Madness came away victorious in the arbitration process, as all of Kingston’s claims were dismissed. Arbitrator retired Judge Kirk H. Nakamura found no basis to apply Kentucky law at all, given the choice of law provision in the terms of service to which Kingston had agreed, and ruled that that she lacked standing to bring a claim since she alleged no injury. Product Madness counsel filed a motion to confirm the award in Delaware Chancery Court. Kingston counsel had sought to keep the award confidential.

Fantasy Sports Bill Advances in New York

In New York, the Senate Racing, Gaming, and Wagering Committee voted to pass Senate Bill 9044A on to the Senate Finance Committee. The bill would update New York’s laws and regulations regarding fantasy sports products in the state to allow pick ‘em and peer-to-peer contests. According to the New York State Gaming Commission, 15 companies currently hold temporary permits to offer interactive fantasy sports. Bill sponsor Sen. Joseph Addabbo Jr. (D) highlighted that fantasy sports has generated $3-4 million per year in tax revenue, and that his bill would include a $5 million licensing fee and a renewal fee equal to 1% of gross revenues due every five years.

Dave & Buster’s Social Betting Feature Draws Scrutiny

Multiple states have moved quickly to review Dave & Buster’s recently announced peer-to-peer betting function within its loyalty app. This social competition feature would allow customers to stake money on their performances against others at the arcade chain. Regulators in Ohio and Pennsylvania have indicated that the product is under review, and the Illinois legislature quickly introduced and advanced a bill to prohibit amusement venues from facilitating wagers on amusement games. Nevada has taken a definitive stance against the plan, with Nevada Gaming Control Board chairman Kirk Hendrick reiterating his agency’s opposition to any unlicensed gaming, including “activities that could promote underage gambling.”

More Regulated Online Gaming North of the Border? Alberta Considering Launching in 2025

The Canadian province of Alberta could be in position to launch a competitive online gaming market as early as 2025. There is strong motivation within the provincial government for the revenue that would be generated from a competitive online gaming model. It was recently announced that the provincial budget would include CA$1 million for a review of online gambling in the jurisdiction, with a specific goal of “reducing the regulatory burden on business and finding ways to increase contributions to Alberta charities and community facilities.”

If authorized, Alberta would join Ontario as the second Canadian province to open a legal, competitive iGaming market. Some sources believe that Alberta could model its regulatory and licensing structure on that of its sister province. Ontario’s regime allowed unlicensed operators offering online gaming to become regulated and to continue offering their products throughout the licensing period. Online gaming in Ontario, which has a population about 3.5 times that of Alberta, brought in $1.26 billion in gaming revenue in its first year of operation. Alberta’s population of 4.2 million is comparable to the U.S. state of Oregon.