Racing and casino company Churchill Downs (NASDAQ:CHDN), organizer of the world-famous Kentucky Derby race, has agreed to pay $124 million to settle two class action lawsuits, according to news reports. Australian computerized gambling system and spinning reel slot machine maker Aristocrat Leisure Ltd. (ASX:ALL) will pay the rest of the $155 million settlement, or $31 million.
The lawsuits, Thimmegowda v. Big Fish Games and Kater v. Churchill Downs, relate to the Big Fish Games online gambling brand, which Churchill Downs sold to Aristocrat in 2018. That year, a 9th Circuit court ruling said the Big Fish's virtual chips indeed constitute online gambling, making them illegal in Washington state, where groups of online bettors launched civil lawsuits over their Big Fish losses, which in one instance stacked up to more than $300,000.
The lawsuits focused on the purchase of virtual chips to play online poker, blackjack, and slot machines in a "social casino" game. The game app is free to download and the virtual chips cannot be redeemed for actual money, with the gamblers only playing in order to win more chips to play more games. However, the 9th Circuit ruled the chips a "thing of value," because the players must buy them with actual money, therefore constituting illegal online gambling.
If approved by the U.S. Federal District Court, the settlement will free Churchill Downs from any indemnification obligations toward Aristocrat, which bought Big Fish Games from Churchill for $1.3 billion. The settlement will significantly reduce Churchill Downs' net gain from its sale of Big Fish, which it bought in 2014 for approximately $885 million.