Social Games: Pure Entertainment or Treacherously Close to Gambling?

The social media game industry has expanded rapidly over recent years and is expected to only continue its growth worldwide. Many of the most popular social games, while technically free-to-play or “freemium,” have a monetization function that allows players to pay a fee for a chance to win an item or card. Japanese game industry insiders call this function “gacha.” While the mechanism can take different forms, at its heart it provides a randomly distributed prize to a player in exchange for a small amount of money. While the Japanese Consumer Affairs Agency has already banned a subcategory of gacha (“kompu gacha” or complete gacha,that awards a grand prize to a player if he accumulates a set of items,each of which was randomly awarded via the gacha function), the United States courts and legislatures have not yet addressed this issue. Historically, gambling in the United States has been the domain of the states - subject to various state constitutional and statutory prohibitions – supplemented by federal law. While there is variation in the gambling regulations from state to state, there is also agreement that gambling or a lottery is comprised of three elements: consideration, chance, and prize. An analysis applying the common law definition of gambling to the gacha function finds that gacha arguably constitutes gambling under American law. The Article explores further, however, whether or not the gacha mechanism, part of many social games, should be treated as gambling. Arguing that the three-pronged gambling definition test should not be applied mechanically but rather in light of the purposes of regulation, the Article posits that unless the industry proves resistant to making certain self-regulatory measures, social gaming should be treated as distinct from illegal gambling. To do otherwise would be to elevate form over substance.