Whatnot Faces Legal Challenge Over Alleged Illegal Gambling in Card Breaks
Photo by Mick Haupt on Unsplash
Whatnot, a livestreamed shopping platform for collectibles and consumer goods, is facing allegations that its trading card break format constitutes illegal gambling and violates the Racketeer Influenced and Corrupt Organizations (RICO) Act. The company is accused of operating an “unregulated online casino” without consumer protections.
Plaintiffs argue that randomized box breaks and repack products meet the legal definition of gambling under California law.
Box breaks are a common format in the trading card market where buyers purchase a “spot” tied to a team or player in a sealed box or case. During a livestreamed event, a “breaker” opens the packs and distributes the cards based on what is pulled.
The format allows collectors to buy into specific teams or players at a lower cost than purchasing full boxes, but outcomes vary, and participants may receive cards worth less than their entry price.
Arbitration Filings Target Core Business Model
St. Louis-based attorney Paul Lesko has filed 15 arbitration claims against Whatnot and is preparing an additional 15 cases. He’s representing users who allege financial harm tied to the platform’s mechanics.
Lesko said:
“Our cases focus on Whatnot allegedly running an illegal casino without the safeguards that regulated casinos are required to have to protect consumers. Due to those lack of safeguards, we believe consumers are at risk of unfair and fraudulent activities as well as addiction issues without the proper guardrails.”
The filings argue that Whatnot’s system constitutes a lottery-style product. They describe the platform as “an unregulated online casino where it exploits its customer base by encouraging compulsive spending.”
Lesko said the case came to light now because Whatnot’s recent changes to its arbitration clause negatively affect consumers. He warned consumers about an opt-out period they should be aware of.
Legal Argument: ‘Chance, Prize, Consideration’
At the center of the case is whether Whatnot’s format meets the legal definition of gambling. At the core of the legal challenge is the standard test of whether an activity involves the three elements of gambling: chance, prize, and consideration.
In a recent interview with Cllct Media, Lesko explained the framework: “Under contest lottery sweepstakes laws, you need three things. You need chance, you need a prize, and you need consideration.”
He explained that “consideration” is satisfied when users pay to enter a break, while the “prize” is the potential value of the cards, and the outcome is determined entirely by chance.
He added that users are not purchasing cards directly, but rather:
“You’re buying a spot… that gives you a chance… after a wheel spin or a dice roll… That’s where the chance comes in.”
Lesko compared the mechanics to a grocery store trip:
“It’s like if you went to the grocery store and you wanted to buy a turkey, you get there, they spin a wheel, and you leave with broccoli.”
The filings argue that this structure mirrors the mechanics of gambling rather than those of traditional retail transactions.
‘Casino-Like Atmosphere’ and Addiction Claims
Plaintiffs also allege that Whatnot’s livestream format creates a high-pressure environment designed to encourage repeated spending.
Lesko said users went on the platform to buy cards, but instead found themselves caught up in a “casino-like atmosphere… and the next thing they know they’re spending money hand over fist.” He described Whatnot as a “very addictive platform.”
The filings allege that the platform lacks standard responsible gambling tools available at online casinos, including:
- Spending limits
- Self-exclusion options
- Other addiction safeguards.
Lesko acknowledged that Whatnot did try to implement some spending limits. However, he added, “they’re toothless because you can actually change the spending limits.”
Lesko said that the biggest problem is the lack of self-exclusion mechanics. According to him, some of his clients asked breakers to ban them or delete their information. Instead, they received coupons or other incentives to keep coming back.
He added that instead of selling cards, Whatnot is “making money off dopamine.”
Fraud and Oversight Concerns
The filings also raise concerns about how Whatnot manages its sellers, especially those with “Premier Shop” status. The plaintiffs allege that the platform has allowed some users to engage in unfair practices.
Some of the more serious issues cited include:
- “Shill bidding,” where fake bids are used to raise prices.
- Use of inside knowledge in repack products.
- Claims that top cards are selectively disclosed to preferred buyers.
Lesko argues that Whatnot’s lack of a regulatory framework comparable to that of licensed casinos allows the ability of its breakers to commit fraud to “skyrocket.”
Whatnot Rejects Allegations
Whatnot has strongly denied the claims, stating: “Gambling isn’t allowed on Whatnot, and we strictly enforce this policy.”
The company maintains that card breaks are a longstanding part of the collectibles market and represent a legitimate commerce format.
It also noted that breakers account for a small portion of its ecosystem, adding: “sellers who ‘break’ only make up 4% of sellers on our platform.”
Arbitration Strategy May Shape Outcome
Per Whatnot’s user agreement, the dispute is being handled through private arbitration rather than the courts.
Lesko emphasized that this limits transparency and may slow the process. Compared to court cases, where information is public, arbitration proceedings are the opposite, as “corporations do not like their issues litigated in the court of public opinion.”
He added that the process could take 12 to 18 months.
The case also highlights controversy around Whatnot’s updated arbitration clause, which plaintiffs argue may discourage future claims by increasing costs for consumers.
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