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Chris Grove

Overwatch Laying Groundwork For Integration Of Real-Money Fantasy Sports

July 12, 2017

As the Overwatch League moves closer to becoming a reality, Activision Blizzard is considering another step that would draw the esports title into an even closer parallel with stick-and-ball sports: Integration of real-money fantasy sports competitions.

That’s per a report from HeroesNeverDie.com.

“Fantasy has obviously proven to be something that fans love in traditional sports and are a great driver of engagement,” Overwatch League commissioner Nate Nazer told the site. “We’re definitely looking into something like that.”

Nazer ruled out integration of more traditional event-based wagering. But Overwatch matches are already a fixture at online sportsbooks – such as Pinnacle, Bet365, and Betway – that offer esports matches.

A state-by-state patchwork awaits

Should Activision Blizzard move from planning to execution, the company will be wading into a legally complex and fragmented market.

Major DFS operators offer real-money play in roughly 40 states. But the number of states that have explicitly legalized and regulated the activity (12 so far, with a few more en route) is just a fraction of that total.

Activision Blizzard will fact some interesting choices regarding which markets to serve and which to avoid.

The company will likely be incentivized to chart a comparatively cautious course given the relatively small size of the market and the substantial legal ambiguity that remains in states such as California, Florida, Illinois, and Texas.

The checkered history of fantasy esports

Play-for-free fantasy contests have long been a part of the esports landscape.

But the real-money vertical remained effectively dormant until early 2015, when two competitors – AlphaDraft and Vulcun – launched within weeks of one another.

Both sites exhibited significant organic growth through the first half of 2015.

That flash of potential led daily fantasy sports behemoth DraftKings into the fantasy esports waters in September of 2015. FanDuel followed the same month via acquisition of AlphaDraft.

But the fall was just as rapid as the rise.

DraftKings continues to offer limited fantasy esports contests. A number of smaller sites, most notably ESP.Bet, continue to offer fantasy-style esports wagering products.

To build or to partner?

Another open question for Activision Blizzard will be whether to build a product internally or to partner with an company to execute an external Overwatch fantasy sports platform.

Given the importance of engagement – as opposed to bottom-line revenue – from Activision Blizzard’s perspective, it seems most likely that we’ll see an internal, tightly integrated fantasy sports platform firmly under the company’s control.

Image credit: Tinxi / Shutterstock.com

U.S. Congressman Voices ‘Concern’ Over Skin Gambling, Says ‘Out Of Date’ Gambling Laws Leave Public Vulnerable

March 1, 2017

Skin gambling has made it onto the radar of the federal government.

That’s after US Congressman Frank Pallone, Jr. (D-NJ) issued a statement voicing concern regarding unregulated online gambling and underage betting in which he specifically singled out esports gambling and skin gambling.

Get a primer on the market for skin betting here. Our estimates put the total annual handle for skin gambling sites at north of $5 billion.

Pallone points finger at federal gambling law

“Gambling is taking new forms—from daily fantasy sports, to betting on e-sports, and even online casino games using virtual ‘skins’ instead of cash—that attempt to bypass the law,” Pallone said in the statement.

Pallone has been vocal on the issue of daily fantasy sports in the past, leading a Congressional hearing on the issue last May.

But today’s statement marks what appears to be his initial interest in skin gambling.

“Current federal gambling laws are hopelessly out of date, leaving the American public vulnerable to unscrupulous behavior. No matter the form of the games, we must ensure integrity, accountability, and basic consumer protections, including appropriate age limits, are in place.”

Issue crosses over into Pallone’s sports betting advocacy

Pallone’s reference to “out of date” federal gambling laws is no accident. It’s a direct link to the issue that is likely driving Pallone’s attention to daily fantasy sports and esports betting: regulated sports betting.

Currently, states are effectively prohibited from regulating sports betting due to a federal statute generally referred to as PASPA.

Background on PASPA here.

New Jersey has been waging a years-long battle with the federal government over the state’s right to introduce regulated sports betting, a battle that now sits before the Supreme Court.

There are regulated casinos in the state, along with regulated online casinos in New Jersey, but legislative attempts to introduce sports betting have been stymied by federal opposition.

Pallone has been an aggressive advocate for New Jersey on the issue, recently introducing legislation that would allow New Jersey to sidestep the PASPA prohibition.

Pallone may find skin gambling, a controversial subject that pushes a number of media buttons, an especially effective way to draw attention to his sports betting advocacy, meaning that additional statements – and possibly even a hearing – touching upon the topic are likely to follow.

Federal attention could have broader implications

Regardless of where Pallone heads next with the issue, the fact that skin gambling is now a part of the federal conversation may carry significant implications for any number of ongoing stories, including:

AlphaDraft To Stop Offering Fantasy Esports As Of October 21st

October 18, 2016

AlphaDraft will no longer offer real-money fantasy esports contests as of October 21st.

The announcement was made via an email to customers:

Two years ago, we set out to combine eSports with daily fantasy sports. In February 2015, our team launched AlphaDraft, bringing you daily and weekly fantasy eSports contests. What started with only a few eSports contests expanded along the way and we are very proud of the platform we built. However, as we continue to evaluate the eSports landscape, we are announcing today that we have made the difficult decision to stop offering fantasy eSports contests on AlphaDraft as of Friday, October 21, at the conclusion of the League of Legends World Championship. You can continue to play contests until this time.

As has always been the case, you can withdraw your funds at any time. Please contact [email protected] if you require any assistance. Thank you for being a part of this journey with us!

Best,

AlphaDraft Team

Site was purchased by FanDuel in 2015

AlphaDraft was purchased by FanDuel in September 2015, just weeks before a series of controversies and legal challenges upended the daily fantasy sports industry.

FanDuel’s purchase came as rival DraftKings moved aggressively into the esports space via sponsorship of multiple top-tier esports organizations.

Those sponsorships were later dropped, although DraftKings continues to offer esports contests.

AlphaDraft outlasted largest competitor

While a number of sites offer some form of fantasy esports, the largest name in the space during 2015 was Vulcun.

Vulcun suspended paid fantasy sports games in January of 2016, but continued to offer some forms of fantasy contests based on an internal Vulcun currency for several months before shuttering entirely in July.

Fantasy esports proved a challenging market

The trajectory of the fantasy esports market was brief and volatile:

  • Both AlphaDraft and Vulcun secured significant funding in early 2015, riding a wave of broader investor interested in daily fantasy sports.
  • Our early tracking of the sites suggested that both were acquiring users at a rapid clip on a relatively modest marketing budget. While player values at DFES sites seemed quite lower (due largely to low event velocity) than at DFS sites, player acquisition costs for DFES operators appeared to be a small fraction of similar costs for DraftKings and FanDuel.
  • DraftKings and FanDuel brought their marketing war to esports around September 2015, raising the prospect of a significant injection of marketing funds and mainstream exposure for the vertical.
  • DFES was then caught in the undertow of the legal, legislative, and cultural push back that paralyzed the DFS industry starting in October 2015.

CSGOFast Latest Skin Gambling Site To Shut Down In Wake Of Valve Crackdown

July 25, 2016

[colored_box color=”yellow”]Download a copy of our free white paper offering a comprehensive guide to the skin gambling market.[/colored_box]

CSGOFast is the latest skin betting site to shut down following the decision by Counter-Strike: Global Offensive (CS:GO) publisher Valve to target sites that allow players to gamble using digital items (skins) from CS:GO.

The announcement was made via the CSGOFast website. Players have until midnight on July 29 to cash out their balances on the site. Games will continue to run until that date.

Several targeted sites yet to act

CSGOFast was one of 23 sites named by Valve in a cease-and-desist letter issued last week.

The reaction from the named sites has been mixed to date. Some have closed their doors. Others have denied receiving the notice from Valve. Many have simply had no reaction.

We may start to see more sites follow the path of CSGOFast, which is apparently staying open for the maximum amount of time allotted by Valve’s request: 10 days from the issuance of the notice. We believe the notice was issued on July 19, which tracks with Fast’s announced shutdown date (July 29).

Following that period, Valve signaled its intent to “pursue all available remedies including without limitation the termination of your account.”

Given that account termination could wipe out the standing inventory of a skin gambling site, it’s a powerful threat for Valve to make.

CSGOFast not pivoting to new product

Unlike some other sites that have closed, or announced plans to close, in response to Valve’s new posture toward skin betting sites, CSGOFast does not appear to be planning to relaunch with an alternative product.

Their announcement indicates that the suspension is “indefinite” and makes no reference to plans for an alternative product in the works.

That’s in contrast to sites like CSGOBig and CSGOCrash, who both signaled plans to stay in business, albeit in a revised form.

The question of what kind of products such sites could offer while still remaining in compliance with Valve’s policies remains an open one.

The role of CSGOFast the in the skin betting market

Our research pegs CSGOFast as a major player in the market for jackpot skin betting games.

Such games are basically lotteries where players receive a number of tickets based on the value of the skins they deposit into the game. A winning ticket is generated and the holder receives all of the skins deposited into the game.

The vast majority of jackpot games are built around CS:GO skins. There are some sites where Dota 2 skins are wagered in a similar fashion, but the majority of Dota 2 betting occurs via sportsbook-style products.

CSGOFast also offered roulette-style and a rock-paper-scissors-style gambling games.

Prior to the decision to shut down, CSGOFast boasted of having paid some $200mm in prizes.

The full statement

Dear friends,

In light of the recent announcement from Valve CSGOFAST has decided to close operations on 29th of July 12 a.m. (midnight) on CET. After this date all bots will be stopped.

Players with coins on balance are encouraged to withdraw before this date. Roulette will remain open (for now) while we work to cash everyone out.

Thank you for being a part of this amazing project.

Sincerely,
Csgofast team.

23 Skin Gambling Sites, Spanning Casino And Sports Betting, Targeted With Cease And Desist From Valve

July 19, 2016

[colored_box color=”yellow”]Download a copy of our free white paper offering a comprehensive guide to the skin gambling market.[/colored_box]

Valve’s ongoing crackdown on skin gambling appears to span all types of products, including the popular skin-based esports betting site CSGO Lounge.

That’s per a copy of a cease and desist notice that appears to be from Valve, a notice that targets 23 individual skin betting sites.

ESBR has not been able to independently verify the authenticity of the letter, but it was also publicly posted by a major skin betting site.

That site, CSGOBig, posted the letter as part of an announcement regarding the site’s decision to “temporarily” shut down “to comply with Valve.”

Focus on “commercial use”

The letter (text below) centers around alleged violations of the Steam Subscriber Agreement concerning use of Steam accounts for commercial use.

The terms contain multiple prohibitions on commercial use of accounts, including under Section 2 (Licenses):

Steam and your Subscription(s) require the automatic download and installation of Content and Services onto your computer. Valve hereby grants, and you accept, a non-exclusive license and right, to use the Content and Services for your personal, non-commercial use (except where commercial use is expressly allowed herein or in the applicable Subscription Terms).

That specific language was absent from Valve’s initial announcement of the company’s decision to block skin gambling sites from utilizing the Steam platform.

It also raises the question of whether Valve’s action will extend to non-gambling businesses that utilize the Steam platform for commercial purposes.

All types of products targeted

The list of sites included in the cease and desist includes leaders in most major skin betting product categories.

The letter also answers a question that has been floating around the CS:GO community in the aftermath of Valve’s initial announcement: Would CS:GO Lounge be included in the crackdown?

Lounge is the clear market leader among skin-based sports betting sites, which is the largest segment of the overall market for skin betting.

Some speculated that Valve might draw a distinction between what is effectively a peer-to-peer betting system and the casino-style games offered by other skin gambling sites, especially given the apparent interplay between betting skins on esports matches and viewership.

Assuming CSGO Lounge complies, companies that offer cash-based esports betting could see a material spike in demand. Skin-based betting on esports matches is roughly six times the size of cash-based betting on esports in terms of total amount wagered.

Text of the letter

Dear Sirs:

Re: Violations of Steam Subscriber Agreement

We are aware that you are operating one of the gambling sites listed below. You are using Steam accounts to conduct this business. Your use of Steam is subject to the terms of the Steam Subscriber Agreement (“SSA”), http://store.steampowered.com/subscriber_agreement/. Under the SSA Steam and Steam services are licensed for personal, non-commercial use only. Your commercial use of Steam accounts is unlicensed and in violation of the SSA. You should immediately cease and desist further use of your Steam accounts for any commercial purpose. If you fail to do this within ten (10) days Valve will pursue all available remedies including without limitation terminating your accounts.

Karl Quackenbush

General Counsel, Valve Corp.

Sites included in the letter

  • CSGOLounge.com
  • CSGStrong.com
  • CSGODouble.com
  • CSGO500.com
  • CSGOCosmos.com
  • CSGOCasino.net
  • CSGO2x.com
  • CSGOHouse.com
  • CSGOatse.com
  • CSGODiamonds.com
  • SocietyLogin.com
  • Dota2Lounge.com
  • CSGOCrash.com
  • CSGOLotto.com
  • CSGOBig.com
  • CSGOFast.com
  • CSGOSweep.com
  • CSGOMassive.com
  • CSGOBattle.com
  • Skins2.com
  • CSGOPot.com
  • CSGOWild.com
  • Bets.gg

Where Esports Betting Goes Following Valve’s Crackdown On Skin Gambling

July 14, 2016

With a simple announcement yesterday, Valve appears to have gutted skin betting, the dominant product in the global market for esports gambling.

What are the ramifications for the broader esports gambling market?

So much depends on enforcement

The primary question behind any analysis is: How effective will Valve be at cutting off gambling activity flowing through the Steam platform (the mechanism that allows skins to move back and forth between players and gambling sites)?

There are really two questions packaged within that question:

How able is Valve to stem the flow?

As long as items can be moved from one account to another, the potential for a gambling product enabled by that transferability remains intact.

At this point, Valve doesn’t seem interested in eliminating trading altogether, putting the company in the perpetual position of reacting to new methods deployed by skin gambling sites attempting to work around the ban.

That doesn’t mean Valve is without power or leverage in this situation – they have ample amounts of both – but it does mean that a door remains open, however narrowly, to skin gambling facilitated by Steam.

How willing is Valve to stem the flow?   

Valve’s statement leaves open the question of how aggressive and proactive Valve will be when it comes to enforcement of the new policy: “We are going to start sending notices to these sites requesting they cease operations through Steam, and further pursue the matter as necessary,” the statement read.

Valve may simply be hoping for a soft landing, as a blunter crackdown could create significant disruptions (and loss of skins) for hundreds of thousands of customers, disruptions which those customers might blame on Valve.

However you read it, the fact remains that Valve has a spectrum of possible postures to choose from. The more relaxed their posture, the greater the chance that skin gambling persists in a meaningful, widespread form. The more aggressive Valve’s posture, the more underground skin gambling is likely to go.

Shutdowns will range from neat to not

One major skin gambling site has already announced plans for what appears will be an orderly shutdown. Another is inspiring a mild panic among players after going “down for maintenance.”

That theme of uncertainty will likely carry through the remainder of July as sites of all sizes assess their options following Valve’s announcement.

Unfortunately, there is a material chance that some number of sites will close without refunding full value to players (either by not returning deposited skins or by shuttering without allowing players to cash in internal currencies meant to be exchanged for skins).

Players impacted by such shutdowns will be left with little recourse, and we could easily see scandals similar to the TmarTn situation emerge as frustrated players attempt to zero in on the parties that profited from failed sites.

Esports cash gambling sites likely to see demand surge

By my estimate, skin gambling volumes are over ten times the volumes for cash gambling on esports.

Some of that gap comes down to variety. Skin gambling sites offer sports betting and casino-style games, while cash betting on esports is basically limited to sports betting.

But a significant part of the gap comes down to player preference. The relative ease of use, familiarity, and value proposition offered by skin gambling makes the format a superior choice to cash gambling for many gamblers in the esports community.

True as that may be, I still expect that, assuming major sites like CSGOLounge are forced to stop operating, cash betting sites like Unikrn and betway esports will see a major influx of customers in the weeks ahead.

Some form of skin gambling will persist

In the vast majority of worlds that emerge post-Valve’s decision, some form of skin gambling is likely to persist.

The demand for the product is proven, and significant. The profit potential is likewise established. And Valve has left some room (how much remains to be seen) for such sites to continue to operate.

The questions more come down to how large, and how public, said sites will be.

CSGOLotto Latest Skin Gambling Site At Center Of Controversy As ‘TmarTn’ Allegations Arise

July 4, 2016

CSGOLotto is the latest skin gambling site to come under fire from the competitive video gaming community following allegations that an owner of CSGOLotto promoted the site without revealing his financial interest in the company to viewers.

The accusations, leveled against Trevor “TmarTn” Martin, and material connecting Martin to CSGOLotto were first publicized on the YouTube channel of HonorTheCall.

Financial interest not revealed in promotional videos

At the heart of the controversy is a simple allegation that doesn’t seem to be in serious dispute at this stage: Martin recorded and published videos where promoted CSGOLotto without fully disclosing his financial connection to the site.

You can view an example here, and clips from other examples here and here. Martin appears to have removed or blocked access to videos connected to skin betting from his various social channels.

Following the video from HonorTheCall, Martin generally confirmed his ownership interest in CSGOLotto via a video and a Twitlonger post that has since been deleted. In both, Martin stressed that he had never hidden the fact that he had an ownership interest.

Regulations in several jurisdictions, including the U.S. and the U.K., require some level of disclosure when paid promotion is involved in online content, although the rules in question are often broad and involve case-by-case interpretation.

Unique game integrity issues

This story comes only weeks after a separate controversy involving a prominent figure in the esports community and promotion of a skin gambling site.

In mid-June, popular CS:GO streamer mOE, who had a disclosed promotional relationship with skin gambling site CSGODiamonds, revealed that Diamonds had provided him with game outcomes ahead of time in order to make mOE’s videos “more entertaining.”

CSGODiamonds is a house-banked virtual dice game where players compete against the house (not unlike craps). While providing mOE with advance knowledge of outcomes was troubling on several levels, that knowledge couldn’t have been used by mOE to gain any sort of advantage over other players.

CSGOLotto, on the other hand, is a game where players are competing against other players in a lottery-style game. Advance knowledge of outcomes in that scenario would provide an individual with a significant advantage at the expense of other players.

There is no evidence that Martin engaged in that specific behavior, but a site owner competing against other players in a lottery-style game naturally raises the question of what mechanisms were in place to prevent such abuse.

Connection to Team EnVyUs may raise stakes

Martin reportedly owns a small equity stake in Team EnVyUs. That’s the same team that made headlines earlier this year after securing financial backing from SierraMaya 360 and announcing related plans for a training center and esports venue in Charlotte, North Carolina.

EnVyUs isn’t the only esports organization to receive backing from a VC firm. But the organization’s high-profile nature and direct connections to both the investment community and local government could focus additional attention on this situation.

Team EnVyUs released a statement regarding Martin earlier today. Excerpt:

Trevor has never been involved in the operational or decision making process of our team or company. He is not a managing partner, does not sit on our board and has a very small, minority stake in the business that operates Team EnVyUs.

As a company and as managing partners, we have absolutely no involvement with or ties to CSGOLotto.com. Recently, a few of our CSGO players have been offered sponsorship with CSGOLotto.com among many other lottery driven or skin marketplace type web destinations on an individual basis. Our organization does not manage those relationships and have advised our players to avoid further relationships with any company that may be deemed as negligent by the vocal community.

We have always rejected lucrative offers from groups who operate unregulated marketplaces, lottery or wagering type properties and will continue to do so. At this time, we will fully cooperate with any publisher, partner or party we are engaged in business with in order to maintain this position we have dedicated ourselves to all along.

Read the whole statement here.

In a separate tweet, EnVyUs owner and Managing Director Mike Rufail called on Valve to cut off sites like CSGOLotto from the API for trading skins that underpins skin gambling sites. But Rufail drew a line between casino gambling sites like Lotto and sportsbook-style sites such as CSGOLounge:

Speaking of Valve, the company appeared to briefly institute a generic warning (“the URL you are attempting to log in to has been blocked by our moderators and staff. This site may be engaged in phishing, scamming, spamming, or delivering malware”) to users attempting to utilize Steam to log in to CSGOLotto.

I was able to log into the site using Steam without receiving the warning as of 1:30 p.m. PST on July 4.

How large is the skin gambling market?

I recently published an overview of the global market for esports gambling. Skin gambling is the dominant vertical, accounting for over $7bn in total item value wagered in 2016.

As the chart below shows, “jackpot” sites like CSGOLotto are one of the more popular game variants:

Skin-gambling-market-size

Scandal threatens to undermine viability of the market

Partially as a result of that popularity, skin gambling is increasingly registering on the mainstream radar. Gambling regulators in the U.K. are reportedly monitoring the issue, and a recent lawsuit seeking class-action status in the U.S. could be a precursor to additional attention on the legal front.

Situations such as the one involving CSGOLotto and Martin will no doubt fuel additional mainstream attention. But the more immediate impact will likely come on the consumer front. Mounting backlash from players could begin to erode demand for skin gambling, especially if similar revelations emerge around other sites.

That backlash could also impede the ability of skin gambling sites to acquire new customers if popular streamers (arguably the most effective marketing tool for skin gambling sites) start to become less willing to promote an activity as a result of popular opinion.

Is skin gambling illegal gambling?

It may be a more complicated question than most on either side would like to admit.

The first layer of complication arises from the fact that every country deals with gambling in a unique way. What may be considered gambling in one jurisdiction may not in another, and what’s required once something is defined as gambling also varies from jurisdiction to jurisdiction.

The second layer arises from the nature of skins. Do virtual items have value simply because they can be exchanged for money in certain circumstances on secondary markets? And, if skins do have value as a prize, does the wagering of skins constitute gambling given that skins can be readily acquired for free?

The answers to these questions will prove critical in jurisdictions such as the U.S., where much of the process for defining an activity as gambling hinges on the question of whether what’s being bet (and what’s being offered as a prize) is actually of a “thing of value.”

Those who argue that skin gambling may not constitute illegal gambling for the purpose of most U.S. state laws often point to a recent decision involving gambling within Games Of War. Background on the Mason V. Machine Zone decision here, text of the decision here. The decision is being appealed.

CSGO Wild: US Exit Was ‘On Our Own Accord,’ Alternative Product For US Customers Coming ‘Very Soon’

July 1, 2016

In a statement today via Twitter, skin gambling site CSGOWild offered some additional context regarding the site’s decision to block play from the United States.

Decision made unilaterally

In the immediate aftermath of Wild’s exit from the United States, some speculated that the decision was the result of pressure from Valve or from U.S. authorities.

That speculation was driven largely by the timing of Wild’s decision. Only a few days before Wild exited the U.S. market, a civil suit targeting Valve over alleged facilitation of skin gambling was filed in Connecticut.

Wild addressed that speculation in their statement:

New product for US market in the pipeline

The statement also indicated the Wild had plans to return to the U.S. market in the immediate future with an “alternative” product.

While the statement offered no additional specifics on the nature of the product, it seems reasonable to assume that the revised product would diverge from the main CSGOWild product in one or more of the following ways:

  1. Requiring some sort of age verification
  2. Removing the need to deposit skins in order to play
  3. Removing the ability to cash out from the site

The first change would help counter one of the most common criticisms leveled against skin betting sites, while the second and third would provide some additional buffer against accusations that skin gambling sites constitute illegal gambling.

Where skin gambling goes from here

Wild’s statement also contained something of a call to action for other skin gambling sites:

It’s unclear exactly what Wild would expect the outcome of that re-evaluation would be, or what would motivate other skin gambling sites to follow suit.

The skin gambling industry is currently unregulated and largely ad hoc. There is no central organization or trade group that could promulgate or enforce standards for skin gambling sites, and the relatively low overhead involved in launching a site would pose a significant challenge to the formation and operation of any such group.

Lawsuit Against Valve Over Skin Gambling Could Face Significant Hurdles

June 25, 2016

A recently-filed lawsuit that targets game developer Valve over the company’s alleged involvement in the skin gambling market may struggle to gain traction, according to legal experts.

The suit was first reported by Polygon. You can read the complaint here.

Read a brief primer on the market for skin gambling here.

Suit ‘likely to be dismissed’

“I’d call this lawsuit frivolous and say it is likely to be dismissed,” Jeff Ifrah of Ifrah Law, a firm with a specialist practice in online gambling, told ESBR.

“Whether or not skin betting is legal, this suit claims the consumer — who entered into a wager with his eyes open — was injured by Valve.”

“Valve created a platform for play,” Ifrah continued, “and on this platform, virtual items were played in a virtual world for virtual rewards. First, this doesn’t meet the standard for a RICO violation. Second, based on the recent Mason V. Machine Zone ruling in the Maryland courts, virtual gambling under those conditions is not illegal.”

Background on the Mason V. Machine Zone decision here, text of the decision here. The decision is being appealed.

The question of profit

Another issue that may play a pivotal role in the trajectory of the case is the question of whether or not Valve directly profits from activity at third-party sites where skins are gambled or sold.

The suit appears to allege at various points that Valve receives a direct cut of skin gambling transactions, at one point stating that Valve earns “a percentage of gambling proceeds on CS:GO through various websites and third parties.”

This is an inaccurate characterization.

When players gamble skins, the skins are transferred between the player and the skin gambling site using a “trade” function that allows players to send items to one another. There is no charge associated with the trade function on Valve’s marketplace.

Jasper Ward of Jones Ward, attorney for the plaintiff, contended that, direct cut or not, Valve is still profiting from skin gambling.

“Valve certainly profits from skin betting: they take a fee from selling the casino chips in the first place, and have directly benefited from the increased popularity, revenue and exposure of CS:GO because people bet on it,” said Ward.

Where responsibility for a virtual item ends

Another issue likely in play: How much responsibility does a product creator bear for the secondary usage of said product?

“It’s pretty easy to illustrate why Valve is unlikely to be held complicit in the sale and trading of skins,” said Jessica Feil of Ifrah Law.

“It’s the same as the government releasing currency – just because you release something legally doesn’t mean that you have to anticipate and expect to be held liable for all illegal uses that might flow from it.”

Ward sees the issue differently.

“I think a key difference between what Valve has created and normal in-game purchases is that, because of Valve-supported third-parties, consumers have the ability to cash out the skins for real money,” said Ward.

Handicapping the peripheral impacts

The question of the viability of the suit is only partially connected to the external impacts the existence of the suit might generate.

“Lawsuits like these also tend to attract the attention of lawmakers and regulators, which could become a source of concern for esports companies,” said Sports Illustrated legal analyst Michael McCann, who noted skins betting constitutes a largely unexplored frontier of the law.

The suit comes at a point in time where regulators in various jurisdictions – including the U.K., Italy, and Nevada – are confronting questions around esports betting.

The media attention the suit will generate could train a stronger spotlight on the market for skin gambling as those conversations progress.

You can read the full complaint here.

Will Green contributed to this article.

Massachusetts Eyes eSports: What Might Regulation Look Like?

November 12, 2015

James McHugh, former judge for the Massachusetts state court and active Massachusetts Gaming Commissioner, warned his fellow regulators on Thursday, October 29th that eSports is “lurking in the shadows.”

The remark was spoken at a meeting of the Massachusetts Gaming Commission during which most of his colleagues discussed how to handle daily fantasy sports sites. The largest daily fantasy operator in the country, DraftKings, is headquartered in their own jurisdiction in Boston – and coincidentally offers a fantasy eSports product.

Reports from earlier in 2015 state that McHugh was expected to have retired at the end of September. Although his retirement has at least been postponed, he may be choosing to speak out about the rapidly growing eSports market now so that his colleagues become aware of its existence before he leaves the Commission.

eSports will soon be mainstream

McHugh discussed several major corporations that have recently worked towards getting into eSports, including Amazon which purchased video game streaming giant Twitch and Turner Broadcasting which will begin holding and covering tournaments next year.

In a memo addressed to the rest of the commissioners, McHugh stated that while he is unable to guess the specific direction that the eSports industry moves in the future, it is clear that the size of the audience for events is increasing rapidly. It is therefore likely that wagering on these events also increases in the future, and that it’s an area which regulators should closely monitor as it develops.

While acknowledging that eSports events do not yet have a mainstream audience, McHugh believes that may change in 2016.

What will eSports regulation look like?

In many cases, eSports regulation is likely to follow the lead of traditional sports betting. The act of betting on a single match or on the result of a tournament is generally no different from betting on a single game or tournament in a physical sport.

There is typically no distinction with respect to regulation of sports betting based on the variance of the sport: a low-variance sport like tennis follows the same rules as a high-variance one like baseball. Similarly, the full spectrum of different eSports can be handled the same way even though there are tons of different games being played.

In the case of fantasy sports and fantasy eSports, the similarities are so strong again that separate regulation is unlikely to be needed – eSports can simply be regulated in the same manner as traditional sports.

There is, however, one interesting form of betting on eSports which is quite unlike anything that exists in the realm of traditional sports betting – wagering virtual items.

Regulating betting of virtual items

One common way for eSports fans to wager on events is by betting virtual goods. The most prominent example of this is the CSGO Lounge where users can bet items in Counter-Strike: Global Offensive on the outcomes of competitive matches.

Why might this be an issue for regulators? Because the items can be bought and sold for real money, and thus the argument that these virtual goods hold real world value is easy to make.

The difference between wagering $50 on the outcome of a Counter-Strike match and wagering a virtual item which can be bought/sold for roughly $50 may not be significant in the eyes of a state or federal regulator.

If the betting took place using items that could never be redeemed for actual cash, it would be ignored entirely because that would only be happening within the world of a video game. Once real money enters the picture, it becomes unlikely that regulators will turn a blind eye to the situation.

Currently, virtual good wagering flies under the radar of regulators. However, if the eSports betting market escalates in popularity at the rate that most analysts expect it to, the real-world value of the virtual items being wagered may get high enough to spark some interest.