Social Gaming: Emerging Regulation (aka “Make Money and Avoid Jail”) SESSION ID: MASH-T09B Behnam Dayanim Partner PAUL HASTINGS LLP [email protected] www.caveat-vendor.com @bdayanim Social Games Industry - Evolution  In 2007, the social games phenomenon was introduced to the world through Facebook.  In 2013, there were over 750 million people worldwide playing social games. Experts expect that number to double by 2015. #RSAC 2 The Basics of Social Games  Common characteristics of social games:  Played for entertainment;  Game play is typically (not always) very simple;  Played through social networks; and  Players may play at little to no cost.  Many games are designed with social interaction and competition among players in mind.  Popular games include Candy Crush, Farmville, The Sims, and Words with Friends. #RSAC 3 Social Games – Business Models Generally, there are two business models employed in the social games industry: • Up-front cost for the game or application • Buy the application like Angry Birds • Free game or application with in-game purchases available to enhance the entertainment experience • Farmville allows users to buy more land or tractors #RSAC 4 Social Casino-Style Games  Over the past 3-4 years, there has been an emergence of casino-style social games such as slots, poker, blackjack and roulette.  Many companies have entered the social casino style games space in the last few years including Zynga, Electronic Arts, IGT and Caesars. #RSAC 5 Social Casino-Style Games Major Point of Difference:  Cash or merchandise awarded?  #RSAC 6 Differences from gambling?  In the US, gambling generally requires 3 elements:  Consideration: The payment of something is required to play the game  Chance: The outcome of the game turns on chance, not skill  Prize: Money, money’s worth or something of real- world/tangible value is awarded based on game play  Evaluation of these games requires assessment of those elements, which is not always simple or straightforward #RSAC 7 Regulation of Social Gaming? Is it a “gateway” to real-money gaming?  Do virtual prizes have value?  What is the behavior we are trying to prevent (or what is the  interest we are trying to protect)? Which games are “shams” and which are not?  Should who offers the game matter?  Brand equity – which is leveraging which and does that matter?  Should name of the game matter?  Should profitability of social gaming matter?  Okay to offer cash prizes?  #RSAC 10 Intersection of Social Games and Gambling Are there constitutional considerations (e.g., commercial  speech)? Supreme Court in 1976 considered law banning sale of low-  alcohol (referred to as “non-intoxicating”) beer to minors “Rational basis”  Fairness issue  In the context of discrimination (gender or tribal-focused  restrictions on sales) or economic protectionism (wine shipments), laws have failed rational basis (or heightened scrutiny) analysis #RSAC 9 Electronic Sweepstakes Explosion of “internet cafes” that are viewed as shams/fronts for  gambling Threat to expanding legal gambling industry  State responses – examples:  Florida – prohibited slots include “systems or networks of devices”  Receive “anything of value,” including additional play (even if the  system is “available for free play”) North Carolina – “conduct[ing] a sweepstakes through the use of  an entertaining display” is prohibited #RSAC 8