The Future of Card Breaking and Repacks: Insights from California Litigation

This is the second in a series of client alerts examining legal developments in the trading card repack and card-breaking space. Our first alert, "The Chase Is On: Trading Card Repacks Face Growing Legal Scrutiny," provided an overview of the key legal risks. This alert takes a deeper look at the distinction between card breaking and card repacks, examines the pending Whatnot and Fanatics Live litigation, and offers practical compliance steps to differentiate their products in light of these claims.

When we published our first alert in August, we noted that legal scrutiny of repack products was moving from theoretical concern to active dispute. Now, nearly 70 Whatnot customers have filed arbitration demands alleging the platform's randomized card breaks and repack breaks violate California lottery and gambling laws, the federal RICO statute, and state consumer-protection standards. A separate qui tam lawsuit under the California False Claims Act, filed in July 2025 and recently unsealed, names both Whatnot and Fanatics Live, alleging the companies operate unlicensed box-break lotteries and have failed to pay required gambling taxes and obtain mandatory licenses. California's Department of Justice has declined to intervene in the qui tam action, but the plaintiffs may proceed on the government's behalf.

No arbitrator or court has ruled on whether randomized card breaks or repacks constitute illegal gambling. Whatnot has denied the allegations, stating that "gambling isn't allowed on Whatnot, and we strictly enforce this policy." These matters remain pending, and the outcomes are uncertain. But the theories of liability and the compliance gaps the complaints identify deserve attention from every operator in this space.

Because federal law largely defers to the states on gambling regulation, there is no single national definition of gambling. Instead, each of the fifty states applies its own statutory framework, meaning the legal risk profile for card breaks and repacks can vary significantly from one jurisdiction to the next. California is used here as an illustrative example because it is the jurisdiction at issue in the pending Whatnot and Fanatics Live litigation, but operators should be aware that other states may define gambling differently and impose distinct requirements.

Card Breaking and Card Repacks Are Not the Same Thing

Industry participants often use these terms interchangeably, but they describe different activities with different legal profiles.

Card breaking involves opening factory-sealed, manufacturer-issued product on a livestream. Participants buy a "spot," and a randomized tool, a wheel spin, dice roll, or digital selector, may assign each buyer a team, a player, a numbered slot, or a draft position. In the most common randomized formats, the buyer has no control over which team or player they receive.

Card repacks involve cards that were previously pulled from manufacturer-issued products and reassembled into new mystery packages by a third-party seller or distributor. Because the operator directly controls the contents, repacks raise distinct concerns around informational asymmetry: the seller may know which packages contain high-value cards.

In California, this distinction has direct statutory consequences. California Penal Code Section 319.3 defines a sports trading card "grab bag" as a sealed package containing sports trading cards removed from the manufacturer's original packaging. That definition squarely describes a repack product but does not appear to reach a manufacturer's original, factory-sealed pack. Legal challenges to card breaking using factory-sealed product must instead rely on the general three-element lottery test under California Penal Code Section 319—consideration, chance, and a prize—which applies more broadly but requires a more fact-intensive analysis. Other states may classify these products under different statutory schemes, and the outcome of such an analysis will depend on the applicable state’s legal framework.

Operators should understand which category their products fall into and assess their risk accordingly.

What the Complaints Actually Allege

We reviewed the arbitration demand against Whatnot in California and qui tam lawsuit and they identify several specific practices that operators should evaluate against their own businesses.

Randomized team assignment as the element of chance. The complaints frame randomized breaks as a game of chance, not a retail transaction: buyers are paying for a spot that gives them a random chance of receiving a desirable team, not purchasing identified goods. The complaints do not target all forms of breaking, they focus on formats where the buyer has no control over which team or player they receive.

Lack of consumer safeguards. The filings allege Whatnot operated for years without self-exclusion tools, enforceable spending limits, or addiction-support resources, protections that licensed gambling operators are required to provide. The complaints draw explicit comparisons to DraftKings and state-regulated casinos, arguing the platform creates a "carnival-like" environment that encourages compulsive spending.

Informational asymmetry and insider knowledge. The complaints allege that some sellers shared information about which repacks contained valuable cards with favored participants and engaged in shill bidding to inflate prices. These allegations highlight the unique risk that arises when the seller controls and knows the contents of a mystery product.

Failure to obtain licenses or pay gambling taxes. The qui tam action alleges that Whatnot and Fanatics Live knowingly failed to obtain mandatory gambling and business licenses and failed to pay required taxes, while profiting from what the complaint characterizes as an illicit enterprise.

The Regulatory Direction 

The trading card disputes are part of a broader enforcement trend against digital platforms that deliver varying outcomes in exchange for payment. Operators that wait for an adverse ruling before adapting their practices may find themselves responding to enforcement actions rather than preventing them. The time to evaluate your product design, disclosures, marketing, and consumer protections is now.

Should you have any questions regarding offering repack products, please do not hesitate to contact the authors: Don Lee at [email protected], Jason Hicks at [email protected], Glenn Light at [email protected], or Karl Rutledge at [email protected]. 
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This article is for informational purposes only and does not constitute legal advice. Because lottery and gaming laws vary significantly by jurisdiction, companies should consult qualified counsel before launching repack programs.