You Betcha! “Gambling” Site Wins in Washington Court of Appeals

Betcha.com is an “honor system” gambling website. It functions as a social networking platform where gamblers make private bets with one another. Betcha collects a small fee from its members in exchange for the privilege of making bets with other users, but the website is 100% agnostic with respect to disputes between the parties — with one exception: Betcha allows users to leave feedback for other users.

Betcha.com is a person-to-person betting platform. We connect people who like to bet. . . . For legal reasons, betting on Betcha is done on the honor system — bettors who pay build their reputations (called “Honor Ratings”), bettors who don’t may find it tough to get action in the future.

After agents from the Washington State Gambling Commission visited Betcha.com’s offices, they told the operators of the site that it was engaged in “illegal professional gambling.” The agents told them to cease all operations, return all fees that Betcha.com had collected from its customers, and to get a lawyer. (Op. at 5).

Betcha filed a declaratory action seeking a ruling on the legality of its service. The trial court sided with the state, but the Washington Court of Appeals sided with Betcha.

The key issue was Betcha’s terms of service.

1. ACCEPTANCE OF TERMS
Welcome to Betcha.com (“Betcha”), the world’s first honor-based betting exchange. Betcha provides its service to you, subject to the following Terms of Service (“TOS”) . . . .

2. DESCRIPTION OF SERVICE

Betcha provides users with a global platform to list and accept bets (the “Service”). Bets made on Betcha are made on the honor system — that is, bettors are not obliged to pay when they lose. We hope they will, of course, not because they have to, but because they should. In any case, bets made on Betcha carry no
term, express or implied, that winning bettors will be paid when they win.

The way it works is as follows:

To place a bet on Betcha.com’s website, a user had tofirst register, create a username, provide a mailing address, and fund an account with a credit card payment over the Internet. Upon registration, he receivedan honor rating of 250, which couldthen go up or down based on his payment record and feedback from other bettors with whom he had bet. He could then bet with other users, individually or in pools, by drafting a bet or using pull down menus provided on the website to assist in formulating the proposition, or he could select from lists of predrafted wagers on a variety of topics. He could also set parameters such as how long the bet wasto remain open, and the minimum “Honor Rating[]”that the accepting bettor must possess. (Op. at 4)

When a bet is made, Bectcha gets a small fee for its trouble and then deducts the amount equal to the bet from both parties’ accounts and holds it in escrow. After the event upon which the two parties had laid a wager concludes, the parties log in and report on the outcome. If the winner reports that they won and the other party doesn’t report anything, the winner’s report is deemed conclusive, and the winner gets the escrowed funds.

However, here is where it gets legally interesting.

Betcha “holds the purse” for active bets by acting as an escrow agent for the bettors wagered amounts, losing bettors are allowed to simply “not pay.” See Op. at 3. The losing party can log in and report “I’m gonna welch.” If the party welches, the the opposing bettor can report negatively upon the experience, thus hurting the other party’s reputation ranking and making it less likely that anyone else will bet with them — however, the bets were, by design, non-binding and thus not “gambling.”

The Washington Court of Appeals agreed that this arrangement made it clear that there “can be no understanding that a bettor will receive something of value where the website stresses that all bets are non-binding.”

The salient point here is that as a prerequisite to registration and use of Betcha.com’s website, users must acknowledge and agree that all bets made on the website are non-binding. Accordingly, bettors cannot have an understanding that they will receive something of value if they win. (Op. at 11)

Washington Law defines “[g]ambling”as “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.” RCW 9.46.0237. Given the non-binding nature of Betcha’s wagering system, no actual gambling occurred.

The case is Internet Community & Entertainment v. State Of Wa Gambling Comm’n.

HT: Venkat