Aristocrat Leisure Limited shares tumble lower on legal worries

One of the worst performers on the Australian share market on Tuesday has been the Aristocrat Leisure Limited (ASX: ALL) share price.

At the time of writing the gaming technology company’s shares are down 4% to $23.15.

Why have Aristocrat Leisure’s shares tumbled lower today?

Investors have been hitting the sell button today after it emerged that an appeals court in the United States has overturned a lower court’s ruling which dismissed a case claiming that the company’s Big Fish Casino constituted illegal gambling under Washington state law.

The court release states that:

“In this appeal, we consider whether the virtual game platform “Big Fish Casino” constitutes illegal gambling under Washington law. Defendant-Appellee Churchill Downs, the game’s owner and operator, has made millions of dollars off of Big Fish Casino. However, despite collecting millions in revenue, Churchill Downs, like Captain Renault in Casablanca, purports to be shocked— shocked!—to find that Big Fish Casino could constitute illegal gambling. We are not. We therefore reverse the district court and hold that because Big Fish Casino’s virtual chips are a “thing of value,” Big Fish Casino constitutes illegal gambling under Washington law.”

What now?

This appeals court ruling means that this case can now go to trial, unless the company is able to successfully appeal the case to the Supreme Court, if it chooses to do so. There has been no word out of the company about whether it will do.

It is important to note that this is isolated to just one state in the United States, so if the company were not to appeal it or lost its appeal, it wouldn’t have a material impact on its business performance. Though, of course, if other states were to follow suit then that could change.

Should you buy the dip?

I think Aristocrat Leisure is a great business with strong long-term growth potential and would be a great investment option after today’s decline.

It certainly will be worth keeping a close eye on how this situation develops over the coming months, but for now I don’t believe there is any reason to be overly concerned.

I would pick Aristocrat Leisure ahead of rival Ainsworth Game Technology Limited (ASX: AGI).

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