Good News For Skin Betting, As Isle of Man Amends Gaming Regulations To Allow It

[toc]The Isle of Man Gambling Supervision Commission (GSC) has issued amended gaming regulations that specifically allow skin betting. The change is in a package of amendments to the 2016 regulations that cover issues such as network licenses, testing certificates, and sub-licenses. The area that affects skin betting is covered by changes under the general heading of virtual currencies.

• The new regulations are available here.
• The guidance note is available here.

The guidance note issued alongside the amended regulations states baldly:

“It is now possible to open an account with an Isle of Man gambling operator by using anything which has a value in money’s worth.”

The note goes onto explain that this includes non-convertible virtual currencies:

“Non-convertible virtual currencies include virtual goods such as digital “skins” for avatars and weapons in video games and other digital objects that have functions in video games, as well as in-house game currencies that can be used within the game to buy such objects.”

Steve Brennan, chief executive officer at the GSC, commented:

“These new regulations respond to the changing regulatory environment both locally and internationally. With the removal of fees for network partners, a simplified test certificate procedure, a broadening of the services licence holders can offer to sub-licensees and the recognition of digital currency payments we have reduced unnecessary regulatory burdens and responded to technological advancements.”

Regulatory approval may restore skin betting’s growth trajectory

Skin betting is in what can only be described as a state of near collapse. That follows last year’s crackdown by Valve Corporation. Valve determined to distance itself from third party sites offering skin gambling through Valve’s Steam API. Scandals and court cases attracted the attention of the Washington State Gambling Commission. Valve responded forcefully to the WSGC’s intervention:

“As we have explained on multiple occasions, Valve is not engaged in gambling or the promotion of gambling, and we do not “facilitate” gambling.”

Valve’s primary game on which skin gambling was taking place is CS:GO. Narus Advisors estimated that by 2020, the total skin gambling market size could reach $19.7 billion. CS:GO would provide the lion’s share of revenues. After the crackdown, that base case estimate revised down to just $670 million. Valve and other game developers are naturally risk averse when it comes to perceptions that they may be facilitating unlawful gambling. Where their attitude may change is if skin gambling comes out of the dark. Valve might accept a fully regulated and legitimate form of gambling run by reputable operators. A big name regulated operator such as Bet365, or Pinnacle, could convince Valve to allow CS:GO skin betting alongside its existing esports betting offerings. If so, the skin betting industry could see growth well in excess of the reduced forecast. Two weeks ago Pinnacle tweeted that it took its 5 millionth wager on esports. That’s a staggering growth rate that would increase if it expanded its product line to include skin betting.

The IoM GSC is looking for growth

The latest amendments from the GSC reflect a mutual interest between gambling operators and the regulator. The IoM’s regulatory revenues as an offshore gaming regulator are under threat from the rise of national gaming regulations. The IoM lies close to the United Kingdom. However, it is itself an independent territory, and not a member of the European Union. Its future lies in finding a role that gambling operators value over and above the service provided by national regulators. Back in 2013, Economic Development Minister John Shimmin told parliament (paywall) that a “five year E-gaming Strategy, focusing on business diversification within the Island’s e-gaming sector, has now been developed in conjunction with the e-gaming sector.” The GSC has been looking at expanding geographically, particularly in Asia. But it has also been looking at new activities where it can offer itself as an international regulator. The latest approach to supporting virtual currencies such as Bitcoin, and opening up to skin betting, reflect the GSC’s need to sustain its business.

The US may not get into skin gambling, but Europe is open

Gambling is less of a politically charged issue in Europe than it is in the US. European regulators are already discussing how new gambling types such as daily fantasy sports. And esports betting can be brought into their regulatory frameworks. The UK has already established that skin gambling is classified as a gambling activity and subject to license by the UK Gambling Commission. Two weeks ago at the World Regulatory Briefing during the ICE Totally Gaming 2017 conference, UKGC CEO Sarah Harrison told attendees:

“We continue to be concerned about virtual currencies such as ‘in-game’ items, which can be used to gamble. We will be publishing a position paper on virtual currencies, eSports and social gaming, in the next few months.”

The UKGC is disposed to regulate skin betting in the same way as other gambling activities. But the new paper is likely to introduce additional protections. Such protections would counter the potentially higher risk of under-age gambling. Such additional measures may be the turning point for both reputable gambling operators and game developers to reconsider their position on skin gambling. The gradual inclusion of skin betting among the product verticals of the established regulated gambling industry looks to be the probable outcome of the confluence of interest between regulators and industry.