Free-to-play sports prediction site Fliff is the target of a class action suit in California, alleging that it constitutes an illegal sportsbook. Fliff employs the same model as sweepstakes social casinos like Chumba and Pulsz but allows users to stake virtual cash on the outcome of real-world sporting events rather than on slots and other casino games.
Operators using this model offer the chance to win cash prizes but say they are not gambling sites. That’s because they don’t directly accept deposits and withdrawals. Instead, they’re a play-money social gambling product with a sweepstakes promotion built on top, which is legal under federal law.
Sweepstakes operator VGW, which owns Chumba, recently settled a class action suit accusing it of offering illegal gambling. However, that suit focused on the social casino aspect. The plaintiffs employed similar logic to suits against other companies like DoubleDown, whose products have no cash prizes on offer. To date, the sweepstakes portion of the business model hasn’t faced a significant legal test.
The plaintiff, Bishoy Nessim, has filed his suit in California because of a caveat in the state’s laws. His complaint points out:
California law defines a ‘sweepstakes’ as ‘any procedure for the distribution of anything of value by lot or by chance that is not unlawful under other provisions of the law.
California’s laws expressly prohibit “bookmaking,” and voters emphatically rejected a proposal to change that last year.
Nessim and his legal team are seeking a jury trial. They’re asking the court to declare Fliff to be an illegal sports betting operation, demand that it discontinue its operations in California, and return to its Californian users any money they have spent.
Per the complaint, Nessim estimates that he has personally spent $7000 to $8000 on Fliff.
If It Looks Like a Sportsbook and Quacks Like a Sportsbook…
Much of the complaint is dedicated to pointing out the similarities between Fliff and real-money sportsbooks. Among the factors it points to are:
- The selection of sporting events Fliff users can choose for their predictions, which is much like that at many sportsbooks
- The types of predictions available, which are similar to and use the same terminology as betting lines at sportsbooks, such as moneyline, total, and spread.
- The terms in which Fliff is discussed by users on the internet. The complaint says these indicate that “Fliff is recognized as a sportsbook that California residents can use to place sports bets.”
The complaint weighs in at 18 pages, but it’s easy to get a sense of its thrust from the subheaders used in laying out its factual allegations, which assert:
A. California Voters Rejected Legalized Sports Gambling
B. Online Gambling is Highly Addictive
C. Fliff Operates an Unregulated Sportsbook
D. Fliff Violates California Law
E. Fliff Violates the Federal Wire Act
The Wire Act argument is another inclusion that hinges on Fliff’s specific similarity to sports betting. Despite the Department of Justice’s attempts to extend the Wire Act to encompass all gambling, courts have established that it applies solely to sports wagering. The logic on that front is that if Fliff is, in fact, running a sportsbook, then it would be violating the Wire Act by transmitting information across state lines.
Possible Ramifications for Other Sweepstakes-Model Products
Social casinos using the sweepstakes model have become popular across the US thanks to the slow pace of online gambling expansion. While residents of New Jersey, Pennsylvania, Michigan and a handful of other states now have access to legal real money online casinos, those elsewhere in the country have grown frustrated that they do not. Sweepstakes casinos are a partial answer in that they offer casino games with the potential to win cash prizes.
Fliff is unusual in applying the same model to sports predictions. Online sports betting is now legal in over half of all states, most recently Kentucky. However, California and Texas are big markets that have yet to regulate it. That was seemingly motivation enough for Fliff to develop its product.
Although Nessim has requested a jury, we should probably not expect this case to reach that point. Historically, companies facing a legal challenge to their business model through the civil courts have shown a tendency to settle if they fail to have the case dismissed. In doing so, they avoid a verdict that would potentially jeopardize their ability to continue operating at all.
Even if the case were to reach a conclusion, it might not set a significant precedent for sweepstakes model casinos. That’s because so much of Nessim’s argument hinges on laws about sports betting and Fliff’s resemblance to a sportsbook.
That said, it’s a case that those other companies will be watching carefully. Whether or not the legal logic is directly applicable, a successful class action against Fliff might encourage plaintiffs and class action law firms to consider trying their luck against other companies operating on a similar model.
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