A U.S. district judge in Nevada recently granted a motion for certification in a class-action lawsuit against Wynn Resorts. The suit alleges that management deceived investors by not disclosing sooner Steve Wynn’s history and pattern of sexual misconduct. As we know, it was finally revealed, not by management, but by The Wall Street Journal. In the end, Wynn resigned and the management and board of directors were reorganized. As a result, the price of the stock dropped from its peak of $195 a share in May 2018 to a low of $48 in April 2020. Stockholders were understandably distressed.
Steve Wynn’s conduct did have a role in the decline of the stock, but so did the policies of President Xi of China, the pandemic, and the radical drop in casino revenue that COVID caused. Those can be seen as causes in an economic analysis, but they cannot be held accountable. In a court of law, class-action suits need a guilty party, a culprit, someone to hold responsible and to pay those harmed. So this group of investors targeted Wynn management.
Class-action lawsuits in gaming are not uncommon.
Even more recently another federal judge allowed one against Russell Investments Trust Company brought by employees of Caesars. The employees claimed their retirement accounts lost value due to RITC’s change in investment strategies. This suit is easy to understand. That fund was their retirement, in some cases almost everything they had saved; it and Social Security would define the last years of their lives.
The Wynn suit is more nebulous; the parties are not threatened with living under a bridge in their old age. Rather, the plaintiffs see a chance to make back some of what they lost when the price of Wynn fell. Actually, it is more likely that the suit was the idea of a law firm specializing in class actions. These firms constantly scan the news, on the alert of opportunity.
Steve Wynn’s demise was seen as an opportunity by many people. He left an imagination gap in the gaming industry and his problems came at just the right time to join the MeToo movement’s list of high-profile abusers. The case does have some logic to it: When seemingly overnight, a company’s stock falls that much it is logical to think that management and the board of directors might have had a role in the drop.
In another case in Kentucky, a company called VGW Malta Ltd. agreed to pay $11.5 million to a group of players at the Chumba Casino and Luckyland Slots. Any patron who had spent more than five dollars in any 24-hour period in those casinos between March 2017 and 2022 was eligible to join the suit. The plaintiffs argued that the games were illegal in Kentucky and, therefore, they had been cheated. It is actually more complicated, but that is the essence of the claim. The Kentucky Legislature must have agreed. This month, lawmakers passed a law banning those “gray” games.
In the most recent case, DrafKings is being sued for “allegedly selling NFTs (non-fungible tokens) as unregistered securities.” I won’t attempt to unbundle that one; I simply don’t understand it. But it serves here to illustrate how common gaming class actions have become.
We can understand one more gaming-related class action that we can understand. It too is against Caesars, this one about Caesars’s sports-betting advertising — that Caesars misleads would-be bettors with false advertising about bonuses, free or risk-free bets. The language comes almost directly from the criticisms of a public official in New York recently.
Besides this lawsuit, the questionable nature of the language in those advertisements has also led to proposed legislation in several states. Those efforts seek to limit the amount of advertising a sports-betting company can do, prevent the advertising altogether, eliminate tax breaks for advertising and promotions, and/or ban the use of those promotions.
The Caesars suit is the most serious for gaming. Besides the potential cost to the company, it will highlight sports-betting advertising and promotions to a greater degree than is already the case. Symbolically, it is also the most important; it puts gaming in the same frame as other major categories where the industry involved is described as greedy, heartless, harmful, and predatory. That category includes drugs like opioids and products like tobacco, asbestos, talcum powder, and lead-based paint. The critics claim these products do serious harm to the health of the users. And in those cases, the critics have won. Lead-based paint and asbestos are gone and tobacco is on a very short leash. Tobacco adverting is not allowed and smoking is now illegal in public spaces in most states, although casinos are still exempt in many jurisdictions.
Being classed as harmful or dangerous is not to a product’s advantage. It is not a good position for sports betting or for the gaming industry. Other than being class actions against the gaming industry, those product lawsuits have only one other aspect in common: the threat they represent. The gaming industry cannot afford to be demonized in the press, legislatures, or courts. Gaming depends on a reputation for integrity and friendliness and without that, the industry becomes an unpleasant shadow of its potential as an entertainment industry.
