The founder of esports betting operator Luckbox said the UK Gambling Commission’s report finding issued that 11 percent of children surveyed had gambled with in-game items proved that action needed to be taken to prevent illegal activity in esports.
Lars Lien, the chief executive of the esports betting platform, said that there was “simply not enough understanding” among operators, marketing partners, service providers and game publishers that in offering skin betting they were actually breaking the law.
The commission has previously made it clear that it considers gambling with in-game items that have a real-world value is a licensable activity.
This was the first time the survey posed questions with regard to skin betting.
What we learned about kids and in-game item wagering
The survey also found that 45 percent of those surveyed were aware of the concept of skin betting. In terms of actual betting activity, the survey found an overwhelming skew towards boys betting in-game items, compared to just three percent of girls.
It also found that in-game betting activity was more common among the older cohorts, with 14 percent of 14-16-year-olds taking part in the activity. Incidence was also higher among those who had spent their own money on gambling in the past week (at 24 percent) and among those who had played online gambling games (30 percent).
Of the total 11 percent, more than a third had done so within the past seven days, 23 percent within one month and 41 percent more than a month ago.
Tim Miller, executive director at the UKGC, said it was clear that many children’s experiences of gambling-style activities are coming from the playground, game consoles or social media rather than the traditional sites of the bookmakers, the casino or the gambling website.
“That’s why it is essential that we work across industries and with parents so that together we can protect children and encourage those that choose to gamble in adulthood to do so safely.”
Regulators are catching up?
Luckbox’s Lien said the report suggested that gaming authorities are “finally catching up with what’s happening.” He added that it was “refreshing to see the regulators communicating their strong stance on these matters.”
“Many illegal sites have already been closed down and it is only a matter of time before the authorities are caught up with,” he said. “Being properly regulated and a responsible operator is the only way to become a successful and sustainable business in what is obviously a booming sector.”
Lien warned that skin betting had “opened the door” that unregulated operators could exploit.
“This has opened the door for lots of unregulated providers popping up to feed what is essentially a black market.”
He suggested that players of any age were not safe on such sites. “Skins betting is not the problem — illegal operators are.”
A licensed skin betting site
Lien said Luckbox – which is yet to launch – will accept skins for deposits and withdrawals. He said that the site will be fully licensed.
He confirmed in an email to Esports Betting Report the company will be licensed initially in the Isle of Man and that it will also apply elsewhere, including in the UK which Lien praised for taking a “strong stance” against the potential for illegal activity.
“We are working with multiple regulators in offering our thoughts on the future of the market, and we have had great mutual benefit from working with the Isle of Man Gaming Commission along the way,” Lien added.
“Skin betting was not possible when we initiated our project, but once the Isle of Man’s Gambling Supervision Commission understood what it was, they have been very receptive to our requests.
“In fact, some months after we discussed the implications and licensing regulations with them, it certainly appeared our feedback made a huge impact on how they now formally view this activity.”[show-table name=betway]
More action on in-game items?
The news of the propensity for young people to bet with in-game items is sure to increase pressure in the UK parliament for the government to take action. Within the past fortnight, the gambling minister Tracey Crouch has said that the issue of loot boxes in video games remains under review.
In the wake of the parliamentary questions, the UKGC issued a warning that it believed that when it came to loot boxes and other issues related to in-game items, there was a danger of lines becoming increasingly blurred.
Meanwhile, both Belgian and Netherlands gambling watchdogs have raised concerns in recent weeks regarding whether loot boxes are a gambling product that needs oversight. The issue is also under consideration in US jurisdictions.
Although I missed it the first time I read the letter, the site that I worked for and moderated, CSGOBattle.com, was named. The sites was essentially given ten days to shut down or disassociate itself from Steam’s network.
I jumped on the computer and opened up the site to see the chatroom busier than ever. Everyone had the same question for me: What was going to happen?
The backstory on skin gambling
Let’s wind back a little. CSGOBattle was a newcomer in a growing trend of skin betting. Users traded in their skins for virtual ‘coins’ which could then be gambled on the site and then withdrawn back into CS:GO skins.
It had been operating for a few months, but had only left its beta stage a few weeks prior and the site was plagued with bugs that were slowly being addressed. Additionally, players who held a balance in the beta were sitting on a waiting list to be refunded on the new site.
The site had just picked up a deal with a popular streamer and CS:GO merchandise company for the launch, so the management seemed much more interested in the endless waves of bets flowing in rather than addressing the issues. The attention was warranted; the site had been nearly completely reworked and it finally seemed as though the site was ready to compete with the biggest sites.
Despite knowing this, I never would have thought that the site, and for the most part the entire skin gambling scene, would be left in such a position of confusion and uncertainty.
The chain reaction for skin betting operators
The day after Valve verified it sent the letter, both the sites and their users began to consider what it could mean for everyone. The first word form CSGOBattle was that we’d “work something out.” Many of the other sites did the same and avoided making any kind of proper statement in the first few days.
But the lack of responses in the early stages didn’t stop users from taking the opportunity to withdraw everything they could from the sites. The stock of skins available for withdrawal began to run dry everywhere, and as the days progressed some of the sites began to officially begin encouraging user withdrawals.
What happened at CSGOBattle
At CSGOBattle, for better or worse, this wasn’t the case.
As luck would have it, the majority of the items in the withdrawal system had already been stuck for days because of a glitch in connecting to the trading bots. This left the account balances of everyone on the site currently worthless and in limbo. The users were understandably unhappy. However, this at least gave the owners some time to make a decision about what to do next.
The slight sense of optimism was continued roughly 48 hours after the letter. Then management finally made an informal announcement to the staff that they had been talking with CSGOWild and were working towards a way to continue the site. The moderators passed this down to the users and there seemed to be some calm.
But as the days progressed and the ten-day deadline loomed, some of the other sites began to indicate their closure and management fell completely silent.
In the final few days, the moderators began to independently accept that there wasn’t going to be a future for the site. Unlike some of the others, CSGOBattle had just used up all of its resources for its official release.
It became apparent, with some thought and discussion between us, that there was no way of continuing without yet another costly major rework. Furthermore, it didn’t seem as though we would have enough to mount any kind of legal defense if it came to it.
Given our size, it was likely not an option for the owners to ignore the US market entirely. I believe that it contributed for at least half of our bets, as we only had an English version of the site.
The end of skin betting as we knew it
This ultimately led to a dramatic shift in power towards the big players in the gambling scene. Larger sites were able to change their system, whilst forcing smaller ones out of the market completely because of their inability to pivot.
We began to tell users, against the request of the owners, that it was probably the end. The moderators each wrote a short explanation of the situation that asked the users to withdraw whatever they could, as some of the cheaper items in the market seemed to have become available again. We then repeated that message as much as we could to spread the word, but that came with the cost of dealing with the fury of the members as they heard the news.
As this was unofficial, we couldn’t do anything for the hundreds of people who couldn’t withdraw because of the errors. Nor could we help those still owed from the beta, which in one case was up to a thousand dollars. Some accepted the fact and moved on, but there was a sadness in seeing some of the users log on every hour and ask us if there was any news or anything we could do.
There never was.
The doors close
It neared the end of the week and I awoke one morning to see CSGOBattle with our maintenance error message:
“Something broke, so we’re fixing it… we’ll be right back.”
But below it the owner had left a farewell and it was clear that we would be one of the first to close its doors.
The Skype group we used for communication ended with a string of goodbyes from each moderator to the friends we’d made and then the notification that they had left the chat. I stayed until the end of the ten-day period but the owners never said a word to us after the closure, so I eventually left the group in good faith.
In retrospect, and in talking to some of the moderators, all seemed to be disappointed in how it ended. Even if the owners had wanted to let users withdraw, the nature of the letter presumably meant there was no flexibility in fixing the withdrawal issue so we could attempt a proper closure.
In the end it was seven days of confusion and frustration from members before we shut down, a trend that was reflected in many of the other sites as they followed suit.
The Esports Integrity Coalition (ESIC) has signed a memorandum of understanding (MoU) with the Malta Gaming Authority (MGA). It’s the third such agreement with global gambling authorities since the body was formed this time last year.
Under the terms of the agreement, the Maltese regulator will collaborate with operators which offer esports to provide information on suspicious betting patterns. It will also assist ESIC in investigating any potential insider betting on esports events and competitions.
Among the operators licensed in Malta is leading esports betting brand Betway.
ESIC allied with various jurisdictions
ESIC signed MoUs with the Nevada Gaming Control Board in March and with the UK Gambling Commission in late May.
Joseph Cuschieri, chairman of the MGA, said he was pleased to have signed the agreement with the integrity coalition. “Keeping abuse and crime out of sports betting is high on our agenda and the MGA will always be at the forefront to collaborate in such matters both locally and internationally,” he added.
Ian Smith, ESIC integrity commissioner, said an information-sharing mechanism had already been developed with the MGA. “Adding the experience and vital information of our other partners in the information exchange to the Authority’s intelligence database and vice versa will undoubtedly strengthen all our efforts considerably,” he said.
Smith told EsportsBettingReport.com that each new agreement worked to further aid the fight against those looking to take advantage of the nascent nature of the esports scene.
“With each agreement we paint betting fraudsters and match-fixers further and further into a corner,” he said.
Group highlights esports integrity
Giving an airing to the integrity message remains an important part of the task ahead, suggested Smith. “We continue our player education programme at LAN events and we speak at as many conferences and seminars as we can alongside recruiting more and more members into ESIC.”
One founding member of ESIC is Sportradar. Its head of esports, James Watson, welcomed the news regarding Malta. Watson said it was a another step towards protecting an ecosystem where there were still weaknesses around clarity and hierarchies.
“This kind of fragmented reality does suggest vulnerability to attack and difficulty in bringing about consensus,” he said. “That is why ESIC is so critical. It represents a bold intention to coordinate strategy and action in defence of esports integrity and ultimately reputation.”
Watson pointed out that Sportradar started working with ESIC from its inception and was the first company to provide bet monitoring to ESIC. Sportradar also launched the first of a series of match-fixing workshops to both players and teams at Intel Extreme Masters (IEM) tournament in Katowice, Poland last year.
Increased membership will expand the scope of ESIC
He added that ESIC’s capabilities as a body would only improve as it added “credible and important” stakeholders. One such is the publishers. Smith admitted that particularly when it comes to skin betting, they have a vital role to play to limit the “unfettered” activities of the recent past.
“I do think it’s becoming an issue again, but, to be fair to Valve, it’s a really hard thing to police and take action against. I’m not saying there’s not more they could do, but I think they’re reacting proportionately for now and the pressure’s mounting. It must be very frustrating for them.”
Another gambling regulator to hold discussions with ESIC is the Alderney Gambling Control Commission. Susan O’Leary, the chief executive of the commercial arm Alderney eGambling, said global gambling regulators could act as the policemen in particular areas.
“There needs to be a two-pronged approach,” she said. “The esports industry itself needs to have some kind of independent body to ensure the integrity of games, athletes, sponsorship agreements and so on, just as FIFA and others aim to keep a watching brief over international football.”
“This is not something the Alderney Gambling Control Commission can do, of course. However, they can regulate bookmakers wanting to offer bets on esports – both cash and skin betting – to ensure they are meeting the internationally-recognised gold standards expected of their licensees,” O’Leary remarked.
Esports industry heeded the call for more oversight
She added that this could “go a long way” to stamping out the issue of underage gambling, where esports faces “an uphill battle” because of skin betting.
Watson at Sportradar remains optimistic. He pointed out that bringing the MGA on board – and potentially other regulators globally – “speaks to ESIC’s focus.”
He noted that such moves were in line with various calls from public institutions to strengthen collaborations and information-sharing arrangements.
“Those who love esports should draw comfort from the fact that these stakeholders have heeded that call,” he concluded.
O’Leary from Alderney agreed. “It is important for regulators such as the Alderney Gambling Control Commission and stakeholders in the wider esports industry to work together to understand the challenges the sector presents, and how we can combine forces to ensure consumers remain protected,” she said.
The esports betting industry should recognize the creativity and innovation involved in unregulated skin betting and attempt to capture this organic enthusiasm. That’s according to panelists at the European eSports Conference held in London last week.
Don’t dismiss creativity by third-party esports sites
Skin betting hit the headlines last year when Valve, the publisher of Counter Strike: Global Offensive (CS:GO), issued cease-and-desist letters to third-party sites offering unregulated wagering on the game.
The letters had a chilling effect on the operators of these sites. But James Watson, head of esports at sports data and integrity provider Sportradar, warned against dismissing the creativity displayed by the third-party sites involved in unregulated activity.
“Esports, as an ecosystem, is generally very, very creative,” he said. “Some of the skin betting opportunities were actually quite clever ideas, in concept.”
He noted that if game publishers attempted to simply ignore the gambling already taking place on the games, it would only mean trouble for the future.
“If you just let the market develop ‘organically’ like this and let it do its own thing, the market is creative and they will develop things but unfortunately they won’t be able to cover off all eventualities,” he added. They will create problems as well.”
Skin betting got everyone by surpsise
The rise of skin-betting caught many within the esports industry off-guard. That’s according to Adam Savinson, head of esports at the online gambling operator Betway.
“It was esports fans coming together and creating something rather than taking something that already existed and building on it,” he told the audience. “The way that odds were shown on skin-betting websites were very different to traditional bookies because it was created by them and they didn’t have anything to base it off.”
However, the panel agreed the bookmakers are not too far behind in terms of innovation in their offerings.
“If you compare the esports offerings a year ago to now, for instance, it is so far ahead in terms of quality,” Savinson said.
Watson noted that Sportradar’s relatively new round-by-round betting on CS:GO was now the second most popular bet after the match result.
In-play betting and esports?
Much of the debate in the past year has been about the degree to which in-play betting – a mainstay of traditional sports betting – can makes its way into esports. Sportradar has teamed up with first ESL — and latterly DOJO Madness — to provide exclusive game data. Just last week Genius Sports similarly signed a deal with games platform provider FaceIt, which also runs the eSports Championships Series (ECS).
Watson said one of the key reasons behind the deals it has done is to limit the degree of latency involved in current streams.
“Betting companies take it for granted that traditional sports data is in real-time with a very minimal delay,” he said. “But in esports that isn’t really the case. You have ‘live’ matches where the broadcasts are delayed by tens of seconds or even minutes, and sometimes this will be the only source of data.”
Nevertheless, Moritz Maurer, head of esports at Genius, said the complexity of esports was clear from the data that surrounded it. In-play poses a “challenge,” he said. But the potential to involve the audience at a deeper level was clear.
“The rich data doesn’t exist in other sports – we extract right from the server,” he said. “The comprehensiveness is appealing and an additional level of engagement is possible. Besides the complexity, you have to see esports as being very quick. Lightning fast actions. This needs to be translated into the betting product.”
The multiple supplier issue
Savinson agreed and suggested there was already an existing pressure on operators to offer the complete product to customers. That would mean that they would need to look to multiple suppliers in order to give themselves the full coverage.
“A big issue with data is that suppliers can secure it exclusively,” he said. “That means that in order to offer the perfect product across the tournament calendar, an operator will eventually need to work with (both Sportradar and Genius Group). Operators will need to partner with whoever has the exclusive data.”
A problem arises, however, when the publisher of the game is unwilling to share their data. Savinson pointed to Riot Games’ refusal, to date, to sell the data rights to the League Championship Series (LCS).
“The industry will need to come up with innovative ways to get around this issue,” he said. “That poses issues that need to be thought about overall.”
Publishers have to deal with esports betting
The attitude of the publishers of esports games to betting was in the spotlight in March. That’s when Unikrn began offering odds on Rocket League. The games’ owner, Psyonix, said it did not condone gambling. Savinson said the issue of gambling on esports was one that the publishers will have to confront sooner rather than later.
“To come up with such a strong stance – to not condone betting – could make the problem worse. The way to make this work is to work with the betting operators and try and stop issues such as match-fixing.”
Maurer agreed. Psyonix was likely concerned about threats to the integrity of their game caused by perceived unregulated activity. But by ignoring the actual regulated activity “there is no control and there is no visibility over the engagement with your sport.”
Watson said the publishers – largely US-based concerns – “need to understand what we’re looking at a bit more.”
“They need to get their heads around the issue of gambling. Just understanding how betting mechanisms work, how licensing works. These things need to be dealt with first.”
The UK Gambling Commission issued a position paper this week on “Virtual currencies, esports and social casino gaming.”
The paper sets out how the UKGC will treat esports activities such as tournaments and skin gambling. It explains the factors it will consider to determine whether an activity requires a gambling license.
The paper is the final output following a consultation on the position paper that was issued in August 2016.
That opinion has been borne out by the final paper.
The top-line takeaway on esports from the UKGC
The UKGC’s general conclusion is that it can and should regulate esports betting. It can be handled in the same way as other gambling activities.
The paper is the first that any regulator has issued that sets out a practical, comprehensive approach to esports gambling regulation.
It is certain to an important source document for other regulators struggling to grapple with the same issue.
UKGC CEO Sarah Harrison said:
“Gambling on esports with in-game items is growing and we need to make sure all gambling is fair, safe, crime-free and protects the young and vulnerable.”
Parliamentary Under-Secretary for the Department for Culture, Media and Sport, Tracey Crouch, added:
“esports is a phenomenon that gets bigger every day and is enjoyed by millions, but it is a concern that there are unlicensed websites jumping on the back of popular video games and encouraging children to gamble.
Legislation is running behind technology
The central point behind the UKGC’s analysis is that the legal position regarding activities that are involved in the new esports industry is not clear.
Technology has run ahead of the law. The commission concluded it needed to set out a regulatory framework against a background of uncertainty:
“The interpretation of legislation is ultimately a matter for the courts, and in developing our response we have noted the lack of contemporary and directly applicable case law in some of these areas. This paper therefore seeks to balance an interpretation of the legal framework governing remote gambling in Great Britain with an assessment of where interactive entertainment has crossed, or is in danger of crossing boundaries into licensable gambling activities.”
What will the UKGC do?
To manage its responsibilities, the UKGC draws the following conclusions which constitute the key takeaways of the paper:
- Applying the existing regulatory framework allows for proportionate control of the risks associated with betting on esports.
- Maintaining public confidence in the integrity of esports as an entertainment and betting event relies upon those seeking to benefit commercially from it, applying the best practice available from other sports.
- Where in-game items or currencies which can be won, traded, sold, converted into cash or exchanged for items of value, under gambling legislation they are considered money or to have value equivalent to money.
- Whether participation in a video game for a prize requires a gambling license will be determined by reference to a number of factors, including how the outcome is determined and how the facilities for participation are arranged.
- It will focus on those activities which blur the lines between video/social games and gambling and present a risk to the licensing objectives. In particular, it will prioritize those made available to children, those involving expenditure and those presented as gambling or associated with traditional gambling.
The rest of the position paper relates these conclusions to specific areas of esports where there may be an element of gambling.
Esports betting research added to quarterly participation survey
In order to begin gathering a data set for esports gambling, the commission has added the subject to its regular participation surveys.
The first results show that:
- 8.5 percent of adults have place a bet on esports at some point their life
- 88 percent of these have bet with money
- 90 percent have bet with in-game items (skins)
- 78 percent have bet with both money and in-game items
- These are high numbers for a “relatively new mainstream gambling activity,” but the UKGC notes that the figure for “recent participation” is 3.1 percent.
The research also indicated that a comparatively high proportion of women engaged in sports betting. In all, 42 percent of bettors were female.
The UKGC said that is was reassured by the age profile of bettors where 25-34 year olds were most likely to bet on esports. Nonetheless, it remains concerned about the activity being particularly attractive to children.
Existing regulations are adequate for esports betting
The UKGC does not believe it needs to change the current regulatory framework to deal with esports:
“Although some respondents consider there may be heightened risks associated with esports betting compared with other betting events, our view is the existing regulatory framework, rigorously applied, is sufficient to mitigate these risks even where they do manifest themselves differently.”
Under-age gambling risks are a predominant concern
The commission paid attention to consultation responses that suggest esports betting and skin betting increase the risks of underage gambling. But it believes that the existing measures are sufficient to control the risk:
- We recognise that esports is an attractive activity for children to participate in and watch; however existing controls are in place to protect children from gambling harm.
- Licensees are required to have in place controls to prevent underage gambling. Age verification checks are integral to the compliance of licensed operators with regulatory requirements underpinned by a number of criminal offenses detailed in Part 4 of the Act.
- Specific regulation also exists for marketing both with and to children. Section 5 of our principal Code of Practice in LCCP details how marketing communications must not include a child or young person under 25 years old featuring gambling, unless specific conditions are met. Operators must also abide by relevant provisions of theCAP or BCAP codes, especially section 16 on children and young persons.
Esports integrity was raised as a concern by some consultation respondents. The UKGC acknowledged its awareness that there is no central governing body taking responsibility for match fairness.
The UKGC recommended that those benefiting from or organizing esports competitions should actively implement measures to address integrity issues. These include:
- Ongoing and rigorous assessment of integrity risks
- Arrangements for the monitoring of betting markets for suspicious activity
- Protocols for the receipt and dissemination of intelligence
- Establishment of a participant’s code of conduct. That includes rules on sports and betting integrity matters (e.g. rules on participants’ betting and availability of personal records)
- Effective investigation of allegations and availability of disciplinary sanctions to address misconduct
- Proactive player education programs on integrity risk
- Transparent and appropriate controls for circumstances in which companies with licensed gambling interests enter into commercial agreements with participants, teams or leagues.
Skin betting is gambling, but game developers must also take care
The UKGC made it clear that skin betting is an activity for which operators need a license:
“In our view, the ability to convert in-game items into cash, or to trade them (for other items of value), means they attain a real world value and become articles of money or money’s worth. Where facilities for gambling are offered using such items, a licence is required in exactly the same manner as would be expected in circumstances where somebody uses or receives casino chips as a method of payment for gambling, which can later be exchanged for cash.”
The UKGC identified three key areas of concern:
- Risks to children
- Third-party skin gambling
- In-game activities that might constitute gambling
Risks to children
The UKGC made much of its recent prosecution of the operators and advertisers of the FutGalaxy website. It warned that it had specific worries about skin gambling and its attractiveness to children.
The paper quotes from the FutGalaxy case ruling:
“The defendants knew that the site was used by children and that their conduct was illegal but they turned a blind eye in order to achieve substantial profits. The effect on children of online gambling was rightly described by the Court as ‘horrific’ and ‘serious’.”
In making its point, the UKGC is also explaining its philosophy that harm reduction is a key measure. The commission is reluctant to interfere with activities and unlikely to take action unless there is evidence of harm.
“We will focus on activities which present a risk to the licensing objectives. In particular, we will prioritise activities made available to children, those involving expenditure and those presented as gambling or associated with traditional gambling.”
Third party skin gambling: Developers retain responsibility
The commission acknowledged efforts that game developers have made in recent months to shut down skin gambling at third-party operators.
However, developers cannot simply ban the activity or make it a contravention of the terms and conditions. Those steps are not sufficient to evade responsibility.
“However, we are strongly of the view that the video games industry should not be, or perceived to be, passive to the exploitation of their player community by predatory third parties. The significant risk of harm posed by these unregulated gambling websites, whilst unintended, is nonetheless a by-product of the manner in which games have been developed and in-game economies incorporated for commercial benefit.”
The UKGC recognizes that game developers don’t obtain a direct benefit from third-party skin gambling. But it says that the developers do obtain an indirect benefit.
It uses the example of a player who loses all of his skins at a gambling site and then either:
- Buys more from the developer or
- Plays more in order to win them during the game.
In-game activities that might constitute gambling
Of immediate concern to game developers will be one warning in particular. The commission could consider some in-game activities to be gambling.
The UKGC gives an example in the paper. In some games, players can purchase a key or similar that unlocks a prize containing extra skins. Under some circumstances this could be gambling:
“The payment of a stake (key) for the opportunity to win a prize (in-game items) determined (or presented as determined) at random bears a close resemblance, for instance, to the playing of a gaming machine. Where there are readily accessible opportunities to cash in or exchange those awarded in-game items for money or money’s worth those elements of the game are likely to be considered licensable gambling activities.”
UKGC approach to illegal skin gambling
It is not the UKGC’s habit to act in a draconian way when it has identified its concerns.
The paper sets out the commission’s approach to dealing with skin gambling issues. That approach that involves assessment of risks and consultation.
In a veiled reference to the Valve crackdown, the commission recognizes the mitigating effect that developer actions can have:
“Reports of the estimated impact of the action taken by one prominent game developer to crack down on misuse of their network during 2016 is, to us, a powerful indicator of the positive role network providers can play in protecting their community of players.”
The commission admits that operating a “zero-tolerance” approach. Prosecuting all offenders is unlikely to work, nor would it be the most effective way of dealing with the issue.
Its preference is for game developers and betting operators to take ownership of the problem. The UKGC wants them to put in place their own measures for consumer protection.
This philosophy is visible throughout the position paper.
Where the commission identifies harmful activities, it will act forcefully, as in the case of FutGalaxy. Otherwise it seeks a process of dialogue to resolve problems before they pose real risks to consumers.
Participation in esports for a prize
The UKGC does not see the existing esports competitions in need of regulation. That’s good news for esports tournament organizers and competitors.
It accepts the argument of video game producers that such tournaments are contests of skill rather than games of chance. They are more akin to sport than gambling.
As games of skill, “the playing of esports for a prize would not be caught as gaming and in the absence of any other gambling-related issues would not fall within our remit. Our current assessment is that the majority of professional esport events would fall into this category.”
In this case the caveat is that the UKGC does not classify esports as sports.
It points out that that is a decision for the secretary of state, who has not made any determination. Therefore esports are not exempt from the Gambling Act definition of a game.
The act states that gambling is “playing a game of chance for a prize.”
It excludes traditional sports from the definition of “a game” but esports are not.
“Where we are alerted to or have concerns around a particular game we would expect to see evidence from the games publisher/creator which explains the mechanic of the game, the skill and chance elements and what player experience that collectively delivers.”
Competition formats can also introduce chance
The UKGC is reliant on a subjective test in making its categorization as to whether a tournament is gambling or not.
The Commission suggests that tournaments may cross over into the realm of chance if they include elements such as:
“the random assignment of individual competitors to teams, or the designation of characters, weapons or other key tools of variable effectiveness to different participants.”
Match-ups/bet on yourself
The issue becomes more starkly defined when considering esports tournament formats. In some, players play head to head or can bet on themselves. In a head-to-head match, the entry fee itself could involve a player betting on his own performance.
“Setting aside betting integrity rules, which routinely disbar participants from betting on themselves, if a professional sportsman staked money with a bookmaker, or through a betting exchange, on themselves to win a contest, that transaction would readily be recognised as a bet.”
Understanding the difference between a wager and a competition
The commission tries to help tournament organizers and game developers understand how the UKGC thinks about the issue. The position paper includes a graphic looking at all the factors that go into differentiating a wager from a competition.
- A wager is a “bilateral contract between two persons or groups of persons to win or forfeit stakes upon an outcome of doubtful issue.”
- A competition is an arrangement where a promoter agrees to award a prize(s) to competitors who carry out or best carry out a task laid down by them.
In a concluding point, the UKGC explains that it is not attempting to interfere with normal competition. It doesn’t want to set out hard and fast rules:
“A definitive set of objective tests intended to draw a clear boundary, whilst perhaps desirable for those seeking certainty, would not in our view prove sustainable or effective in tackling activities which may push boundaries either deliberately or inadvertently. In the majority of cases a common sense approach to arranging genuine competitive tournaments or providing facilities for individuals to come together to play eSports is unlikely to raise gambling-related questions.”
Skins are virtual items that people buy and trade in video games.
In the note, the NGA determines that skins in games like CS:GO constitute a virtual currency:
“Skins can normally not be exchanged for cash, but it is possible to take the skins out of the game and of other markets for buying and selling. There are separate online casinos where you can bet and win skins, and in such cases, skins a virtual currency that can be used for gambling. We have seen several examples of Norwegian children and young people who have spent thousands of money from this.”
It concludes that using such a virtual currency for gambling brings the activity within its jurisdiction.
“A gaming site that allows betting and pays out prizes in skins is in our view an online casino, and in Norway, only Norsk Tipping is allowed to offer online casino.”
Norway is following other European precedents
Norway is not the first European regulator to analyze skin betting.
As part of its argument, the NGA refers to the UK’s experience, where the UK Gambling Commission (UKGC) made a similar decision.
However, in Norway, there is no open licensing system for operators; the market is a state monopoly. Other examples:
- In the UK, skin gambling operators will be able to offer skin gambling legally. However, they acquire a gambling license from the UKGC.
- Most recently, the Isle of Man amended its regulations to allow skin betting under license.
- The Malta Gaming Authority is considering its own approach.
- The Dutch regulator also ruled that skin betting is gambling, and put out its own warning notice. Online gambling regulation (paywall) is slowly making its way through the process of implementation in the Netherlands, so no licenses are yet available and all online gambling is currently prohibited.
During 2017 other European regulators are likely to make their position clear on the issue.
Valve’s shutdown triggered the regulators’ interest
The publicity surrounding Valve’s shutdown of CS:GO skin betting in mid-2016 looks to have been the trigger that got euro-regulators interested in the skin betting issue.
The first regulator to jump on board in the US was the Washington State Gambling Commission. The WSGC sent Valve a cease and desist letter in October 2016.
The letter came after Valve had already sent its own letters to skin betting sites. That was at a time when a few still continued to operate.
Under-age gambling is driving skin gambling up the priority list
The regulatory interest stems from the fact that children play video games. The possibility of them enabling illegal gambling sends alarm bells to regulators.
In the UKGC’s report that discussed skin gambling, the authors determined the activity was fundamentally no different to other forms of gambling. It expressed concern that it might be especially attractive to children.
The NGA justified its decision partly on this basis. It quoted a study which showed the interest young people have in CS:GO:
“Media’s survey “Children and Media 2016” shows that 25% of Norwegian boys 15-16 years old playing the computer game “Counter Strike: Global Offensive.”
To back up the point the NGA points to its own experience:
“We have seen several examples of Norwegian children and young people who have spent thousands of money from this.”
Threats and opportunities for skin betting operators
The MGA, UKGC and Isle of Man Gaming Commission are all forward thinkers among regulators. They are providing the opportunity for skin gambling to develop into a legitimate part of the online gambling industry.
However, skin gambling remains in its infancy. More scandals or attempts to market to under-age players will bring the industry into disrepute–skin gambling could be killed in its tracks.
There is even a risk that the reputational risk could extend to licensed and regulated operators that offer esports betting on the same games. The general public may simply not see the difference between CS:GO skin betting and CS:GO betting.
The NGA ends its note by offering its own threat to skin betting operators:
“Stopping illegal betting has always been a priority at the Gaming Board, especially where games offer is aimed at children and young people. We will therefore examine the issues surrounding gambling with skins, and consider sanctions against operators who offer this in Norway.”
Five months after receiving a cease and desist letter from the Valve Corporation, CSGOLounge and DOTA2Lounge have announced that they will put in place a self-funded money refund program for users affected by the shutdown.
Owners ESforce and Borewick explained:
“After Valve had banned our bots with in-game items which belonged to the CSGOLounge and DOTA2Lounge users, ESforce and Borewik made a decision to refund the items with their own means.
The decision required a lot of time and work, and it is final.”
The company plans to start refunding frozen bot items no later than March 2017. The long lead time is explained as being result of working on “the technical side of the refund mechanism and legal aspects of the issue.”
$20,000 prize fund for virtual coin bets
In September, CSGOLounge reacted to the skin betting shutdown by introducing a new betting system using “Lounge” coins. The Facebook announcement said that:
“Users will now have the option to place Lounge Coins as a bet on csgolounge.”
The same message also gave preliminary indication of the planned refund program.
“We are working on a solution for items withdrawal, please stay tuned for upcoming updates.”
Alongside the money refund announcement, CSGOLounge has said that it will summarize the results of the new virtual coin bets and provide rewards for the most active users.
“The prize fund amounts to $20,000. Afterwards, coin balances will be set to their default condition on February 1, 2017.”
CSGO Lounge says it never directly profited from betting
The ESforce and Borewick announcement provides a few statements that distance CSGOLounge from any involvement in illegal betting.
“The CSGOLounge and DOTA2Lounge services have never had any tools for money input and output and never made profit as a betting platform. The only way to receive income was advertising.”
The user fee introduced in summer 2016 was explained as a response to a hacking attack on their Steam bots and designed “to defend our bots and recover lost items.”
The Washington State Gambling Commission has made its own determination that skin betting has led to illegal gambling.
At the beginning of October it sent a letter demanding that Valve stop the transfer of skins via its Steam API:
“The Gambling Commission expects Valve to take whatever actions are necessary to stop third party websites from using ‘skins’ for gambling through its Steam Platform system, including preventing these sites from using their accounts and ‘bots’ to facilitate gambling transactions.”
In August, CSGOLounge announced that it planned to seek regulatory approvals to continue its operations, and banned players from 18 countries, including the US, as it restructures its business.
The company is clearly trying to avoid being entangled in any future legal action regarding illegal betting so that it can create a viable business that is plainly operating within the law.
New Valve class action legal suit
Despite a federal court ruling in Valve’s favour over the class action filed three months ago, the company is not yet out of the legal woods.
A new action was filed just after Christmas, involving primarily the same lawyers who launched the first action. The first action failed after the judge ruled that “gambling losses are not sufficient injury to business or property for RICO (the Racketeer Influenced and Corrupt Organizations Act) standing.”
The new suit takes a different legal angle, but the demand is virtually the same:
“Restitution of all money wrongfully obtained by Valve Corp. through the alleged online gambling and a court order barring Valve Corp. from continuing to engage in the unlawful, unfair or deceptive practices complained of.”
The Valve Corporation is wealthy, and therefore vulnerable to such lawsuits.
The smaller skin betting operators such as CSGOLounge may not have the financial resources to make a class action worthwhile, but even so ESforce and Borewick are wise to emphasize their legal position that they were in no way involved in any form of illegal gambling.
The future for CSGOLounge
The money refund program may provide a clear exit from the previous business, allowing CSGOLounge to redefine itself and find a profitable business niche.
ESforce and Borewick said that they are taking the business in a new direction:
“We plan to further develop the service as a media resource for video game and eSports fans and also to introduce an encouragement system for our game ‘Virtual coin bets’ participants.”
There is no doubt that the skin gambling industry has been ruined by the scandals and abuses of early 2016 which ultimately led to Valve taking determined action.
Whether a viable skin betting industry can be salvaged remains doubtful, although the game developers are likely to retain the facility for players to buy and exchange skins because their customers want it.
Amazon’s new game and Twitch’s new virtual currency were launched after the skin betting issues came to prominence. They clearly want to satisfy the large demand for in-game betting, either for real money or as social gaming.
What remains uncertain is the level of skin trading restrictions that game owners, distributors and broadcasters will impose to ensure that they remain within the law.
The fantasy sports industry has spent 2016 in significant flux following increased regulatory scrutiny, intense legislative lobbying, potential criminal probes, and ultimately waning growth.
The shifting landscape has not spared fantasy esports. The two largest operators, Vulcun and AlphaDraft, have shuttered despite each attracting multi-million dollar investment rounds last year.
One website, EsportsPools, is still offering daily fantasy esports, and has no plans of stopping.
The site’s founder, Scott Burton, spoke to ESBR about the challenges facing the industry, how fantasy can serve as a compliment to broader esports betting, and the benefits of esports being a truly global game.
ESBR: Yours is one of the last fantasy esports sites still standing. Why is that?
Scott Burton: We’ve always had a different sort of approach to what we were doing. We had our site live prior to Vulcun and AlphaDraft, and esports betting is actually the path we’ve been on. We were previously an offshore licensed betting company, but for traditional sports.
In 2014 we decided to shift our focus to esports exclusively, and actually decided to start with a fantasy site at that time. That way, we knew we could put something out that didn’t require licensing in a lot of places, until we tested the market and saw whether there was an appetite for things like betting and fantasy around esports.
ESBR: Why was fantasy the market entry point for you as opposed to other forms of betting?
Burton: There’s quite a burden to getting your license. We wanted something that wasn’t going to require us to go through the cost and effort of getting a license, but still could give us a sense of whether [betting] would support esports and viewers.
We knew we could test monetization in some areas, and once we were satisfied, we’d go back to the route of… adding the more traditional style betting stuff.
ESBR: Should we expect, then, a more traditional betting product from ESportsPools in the future?
Burton: At the beginning of next year we plan to introduce the rest of our products, so that will be betting and some additional game play around esports. We’ve been fairly public since the beginning that that’s where we’ll be heading.
Betting will be our main focus. Fantasy will still be there. We’ll have community aspects as well—forums, embedded streams, an esports news aggregator for content.
ESBR: What format of esports betting are we talking about, here? Cash? Bitcoin? Virtual coins? Skins?
Burton: We’ll actually have the ability to do all of the above. There will be cash betting. We will have alternative currencies like Bitcoin.
We’ve always had a focus around the virtual goods and skins. I know there’s some flux in the industry around that, but we would have the ability to do that if we chose to, and if we had support.
ESBR: Even if you have the functionality to offer skin betting, though, you still need the consent of game developers, no? Valve, for example, recently sent cease and desist letters to websites that used its API for commercial purposes, like skin betting.
Do the risks of delving into skin betting outweigh the rewards?
Burton: Potentially, which is why we have the ability to either use them or not. Nowhere in Valve’s cease and desists is there anything anti-gambling, necessarily. They’re going into the terms of service of the API.
It doesn’t have to be Valve or Counter-Strike: Global Offensive skins. I know they had that letter recently from Washington state and they responded recently to Washington state. That was an interesting response. But we’re only going to operate in places that allow and have approved our activity, and we’re looking for the support of publishers.
I think there’s potential opportunity with other game publishers, and other items, as well as the fact that we will be fully licensed. We have full KYC in place, so we do, age, identity and location verification.
I think one of the bigger issues is around a lot of those sites not being regulated, not trying to block underage users from getting in, not having any transparency behind the scenes and who you can go to if you have complaints. All of those things will be in place for us, which I think would open up some opportunities to reengage with virtual currencies in the future.
ESBR: What type of license would allow you to run skin betting, and in what jurisdictions?
Burton: If you look from the regulatory side to what recently came out of the UK Gambling Commission, I think the regulators are quite open to it if it’s managed properly. We wouldn’t offer any type of betting in the US.
ESBR: Are you in talks with game developers to get their consent on a skin betting or virtual betting product?
Burton: That’s one thing I can’t talk about at the moment.
ESBR: What countries does ESportsPools expect to be running betting in next year?
Burton: We’ve talked to a number of different jurisdictions and regulators. Really it’s not about that it’s skins or virtual goods, it’s that it’s a currency. It could be Bitcoin, or anything that’s non-cash.
As long as you’re following anti-money laundering, counter-terrorism financing rules and have all the KYC in place, you’re going to get a positive response from most jurisdictions. Some of them are writing new legislation now.
A lot of sites have a misconception that because they deal in virtual goods, they don’t need to be licensed, because it’s not real money. But as soon as you can show a real-money value, which you can clearly show for skins, it doesn’t matter what currency you’re using.
ESBR: Do you expect to see jurisdictions like the UK, the Netherlands, France or elsewhere coming up with a regulations that use the words “skin betting” in them, or at least address a host of new betting-related currencies?
Burton: I think you’ll see some other countries and gaming commissions come out with laws that cover it. I don’t know whether you’ll see it specifically say “skins,” but I think you’ll see laws that say something like, “cash or cash-like equivalents” for a number of things, that would include skins.
ESBR: In light of other major fantasy esports sites shutting down recently, and in light of your move toward esports betting, does fantasy esports have a future, both for your company and in general?
Burton: It does, but it’s complimentary. We always thought that if this was going to be a space we could be in and there was a market, it would be betting. That’s where the money is going to be made. We still think fantasy and other game play is a nice complimentary product to a betting site. We have no intention of abandoning fantasy, but ultimately betting is going to drive us going forward.
EBSR: Of the game titles you offer contests across, which is the most popular?
Burton: Counter-Strike is our most popular title, currently. When we put out our first testing in 2014 we started with CS:GO. Vulcun and AlphaDraft first started with League of Legends, and then DraftKings came on with League. We also give away a lot of skins, so you can enter for free and win skins. We also do cash as well, where that’s legal.
We found we have much more activity when we’re giving away skins versus giving away cash. Even if you could win more cash value than skins value, people could like the skins better. We like the economy around CS:GO and Dota 2, and we liked that there was already some evidence of betting activity around that space more so than others.
EBSR: Skins are not only more convenient for players to bet with, but your average 18-year-old gamer could be more likely to have disposable skin income than disposable cash income. In the wake of the crackdown on skin betting, do you feel you’ll be able to attract this core contingent of young, mostly CS:GO and Dota 2 players, to a cash-based product?
Burton: It’s one of the concerns you would have going through this. We have a pretty significant user base now, and I would say 80 percent of the users we have are over 18. So I think most will have the ability to get payments into our system and will start to get more into cash betting.
I think it’s very early days for these people. There’s going to be an education process. It’s not going to be the sportsbook guys coming over. It’s more about a high volume of micro-transactions, and in-play stuff, and trying to convert slowly. We don’t expect to have the same numbers as a sportsbook at all.
ESBR: Speaking of micro-transactions, many of your fantasy prize pools at this time are small as well, around $15 or $25 total. In the era of million-dollar prize pools, why is a small number like that an effective target point for you guys to hit? Are players more receptive to perhaps a less risky, smaller buy-in?
Burton: We are going to be increasing those. What we have now is more proof-of-concept and testing conversions and getting some payments in jurisdictions where we’re allowed and getting some data points. We’re really saving most of our efforts for marketing and prize pools for when we get the full product out there.
We find the lower entry fees seem to do better and [players] tend to come back more often, playing multiple times in a day or a week. Another part of it is financing for us. We don’t want to blow too much of it before we’ve got the ability to fully monetize and convert.
ESBR: You mentioned you don’t offer betting in the US. Do you believe esports betting will have a place in the upcoming, broader sports betting regulatory effort in the US in 2017?
Burton: The thing we liked about esports is that it’s a truly global product. It’s all over the world. It fit well with us being a company that’s focused outside of North America.
So, from a European focus, with esports betting, we thought it was better to be early in an emerging market than to offer traditional sports betting and be small in an old, established one.
From a US focus, we’ve kind of ignored it almost the whole life of this company. You can’t bet in the US online outside of Nevada. Sports betting legality still seems far away, and if it does come I think it’s going to be messy.
Valve Corporation has formally responded to the regulatory agency investigating its proximity to and alleged enabling of skin betting, and has insisted it does not facilitate gambling—legal or illegal.
Valve counsel Liam Lavery wrote in a three-page letter to the Washington State Gambling Commission that the operation of its Steam API, which unlicensed third-party gambling sites use to facilitate casino and sportsbook-style betting, is lawful under Washington state law.
Techraptor posted the letter Monday night. It is available here.
The WSGC had originally ordered Valve to respond by Oct. 14, and told the company to stop allowing the transfer of skins, which are virtual in-game items, via Steam.
Valve questions legal basis for WSGC’s demand
Lavery asked the commission to provide it with a specific law that it was violating, and said Valve did not understand the “legal and factual reasoning” supporting the commission’s position.
He also said he was unsure of how the WSGC expected it to shutter illegal gambling.
In the following sentence, however, the letter alluded to one way of doing this: shutting down Steam entirely.
“The commissions (sic) main argument seemed to be, ‘Valve could stop this, so it should.’ We do not want to turn off the Steam services,” Lavery wrote.
Valve reiterates lack of financial, promotional connection with skin sites
Lavery wrote that Valve is aware that websites offer gambling propositions “outside of Steam and, we believe, outside of the United States,” and that those websites may accept skins “as wagers from other users.”
He told the WSGC that Valve neither receives revenue from these sites nor promotes them.
The comments echoed the only public comment the company has made regarding skin gambling this year, which came in mid-July when it posted a note on Steam itself threatening action against gambling sites that continued to use Steam.
On Tuesday, Lavery wrote that skin gambling sites utilize the API in two ways.
The first is in using it to facilitate the transfer of skins. This can occur between two players trading skins, or it can happen between two players buying or selling skins for Steam Wallet funds, which constitute Steam’s virtual currency to use in its marketplace.
(Another method of transferring skins, between a player and a trade bot, allows an automated bot to trade skins to a player as payout for winning a gambling bet. Steam’s API prohibits this.)
The second way, Lavery said, is by facilitating Steam authentication. This allows users to identify themselves by their Steam credentials without having to give that website their personal information. Many other tech companies also employ this “OpenID” system.
“None of these activities are illegal in Washington or any other jurisdiction, and we do not believe the commission contends to the contrary” Lavery wrote.
But the WSGC did not ask if Valve made money off of, or partnered with, these sites. Nor did it ask if third-party sites’ use of Steam was legal. It asked that Valve stop facilitating the use of skins for gambling through Steam.
Valve says it’s not necessarily able to identify all bot accounts
Lavery noted that Valve has taken several steps to address the use of skins. He cited a July note that threatened action against Steam accounts that violated its user agreement, and the two cease and desist letters it sent later that month to 42 skin gambling sites.
But Lavery characterized the extent and scope of the problem as too vast for Valve to control.
“We do not know all the skins gambling sites that may exist or may be newly created, and we are not always able to identify the ‘bot’ accounts that particular skins gambling sites may use to effectuate trades,” his letter read.
“Cleverly designed bots can be indistinguishable from real users performing legitimate trades.”
Despite Lavery and Valve’s confusion over how to comply with the WSGC, the letter concludes by describing yet another way the game maker can do just that.
Lavery appeared to address the potential identification of bots based on the gambling site in connection with which they were used to facilitate trades.
“Valve can enforce its user agreement against the Steam accounts of skins gambling sites, where we can identify the site and identify the corresponding account. In fact, we would be happy to cooperate with the commission, if it is able to identify more skins gambling sites that are illegal in Washington,” Lavery said.
This policing of skin gambling sites could require significant time and legwork, and it’s unclear if the WSGC would identify the sites for Valve as the game maker appeared to ask.
Either way, it could foreshadow a potential way forward in combatting skin gambling not just in Washington, but all over the US.
Effect of the C&D letters was muted at best
A few of the sites in Valve’s July cease and desist letters reported trade bots being banned, but the majority either voluntarily shut down or brazenly kept running.
Those letters noted that the sites in receipt were gambling sites, and told the sites to stop utilizing its API for any commercial purposes. The C&Ds did not specify gambling (legal or illegal) as the specific use it was referring to.
After the letters were sent, Valve’s apparent enforcement of its own user agreement came to a halt. Now, the problem of skin gambling is growing for Valve, regulators, and others, not shrinking.
Three months after Valve sent its C&Ds, roughly half of the sites it ordered to shut down were still operating commercial gaming or gambling products using Steam and CS:GO skins.
Just in the time since the WSGC sent its Oct. 5 C&D letter, at least four new skin gambling websites have launched:
As many as 100 skin gambling sites are believed to be in existence.
Do not expect swift action to Valve’s response
Sources close to the investigation have indicated that regardless of the content of Valve’s response or non-response, it will likely proceed with especial caution. The timetable could be reflective of a slower, step-by-step approach that’s already underscored the WSGC’s investigation so far.
Despite the WSGC saying that Valve’s communication and cooperation broke down soon after the February meetings with Lavery, and despite the skin gambling industry growing over the first half of 2016, it wasn’t until Sept. 27 that the WSGC sent a blunt letter to Valve CEO Gabe Newell.
That letter threatened search and seizure of gambling-related property. While that specific action still appears unlikely, it would require time-consuming preparation, the cooperation of other law enforcement agencies, and possibly the securing of a warrant.
Following the February meetings, further attempts to contact Lavery and the corporation were not successful, according to the commission.
That account contrasts with Lavery’s letter, which alludes to conversations ongoing between both parties for 18 months, since April 2015. Lavery wrote that Valve and the WSGC last spoke on Oct. 3, two days before the WSGC send its cease and desist notice.
The WSGC could also be looking to other game developers’ reaction to the third-party use of in-game items as guidance.
Last week, game maker CCP changed the in-game license agreement for its game Eve to prevent items from being bought and sold, with the aim of discouraging skin gambling.
Another reason the process could take inordinate time is the makeup of Washington state’s gambling laws, which are among the most expansive and rigorous in the nation.
A two-part response
WSGC Executive Director David Trujillo expressed disappointment at the company missing the initial deadline. The game maker first responded to the WSGC on Friday in a brief email, in which it said it needed until Monday, Oct. 17, to prepare everything it needed for its full response.
“I am disappointed that Valve Corporation missed Friday’s deadline, but encouraged that they have committed to responding today. I look forward to reviewing their response in detail,” Trujillo said Monday, before Valve’s full response came through.
“The type of approach Valve decides to take will be very important,” said WSGC Commissioner Chris Stearns on Monday in regards to the investigation.
Stearns’ remark could foreshadow the wide-open nature of the investigation, and the special and detailed scrutiny the commission is giving to Valve’s response.
The same sources that spoke to the potential timetable of the investigation characterized Valve’s response prior to Monday’s letter as “extremely cavalier.”
The WSGC did not respond to comment Tuesday morning following Valve’s full letter, but said in a statement it was considering Valve’s response to see if it satisfactorily addressed its concerns.
The commission said it will “continue to evaluate its options” regarding the violation of Washington’s gambling laws.
On Oct. 12, CCP announced that it was making changes to its End User License Agreement (EULA) to prevent its in-game assets from being bought and sold.
CCP owns the Eve series of games which offer play in a science fiction universe.
According to the EULA:
“You may not transfer, sell or auction, or buy or accept any offer to transfer, sell or auction (or offer to do any of the foregoing), any content appearing within the Game environment, including without limitation characters, character attributes, items, currency, and objects, other than via a permitted Character Transfer as described in section 3 above.
You may not encourage or induce any other person to participate in such a prohibited transaction. You may not use, transfer or assign any game assets for games of chance operated by third parties.”
The aim of the new rules is to prevent Eve users from engaging in any form of gambling – skin betting – via third party websites.
The blog post from CCP explains:
“In short, this addition to the EVE Online EULA means that as of the launch of EVE Online: Ascension, players will be prohibited from using in game assets and currency, as well as the EVE IP, to take part in or promote gambling services or other games of chance that are operated by third parties.”
The new EULA will come into force on Nov. 8, coinciding with the launch of new game EVE Online: Ascension.
CCP has already taken action against IWANTISK and EVE Casino
In a demonstration of the will to enforce its opposition to skin gambling using its game assets, CCP said that it had already shut down third party site IWANTISK’s in-game access.
It has also confiscated all ISK and assets “after extensive and exhaustive investigation has brought forward compelling evidence of large-scale Real Money Trading.”
CCP said that “those involved” had had their accounts permanently suspended.
IWANTISK has made an angry reply threatening legal action.
CCP has also shut down Eve Casino “in game” and implemented the same confiscation “after multiple and sustained breaches of our Developer License Agreement.”
Eve players who have used the two third party services will not be reimbursed their “outstanding ISK or asset balances.”
Other operators have been given a warning
There is a stark warning for any other third parties:
“In the run-up to November 8th, all services that offer any form of third party gambling of this nature are required to wind down their operations.
During the time from this announcement until the release of EVE Online: Ascension, our security team will be closely monitoring all these in game entities to ensure that no illicit behavior occurs, and that any movement of in game assets and currency remains in line with our current EULA and Terms of Service.”
CCP allowed an exemption for the Alliance Tournament
The Eve Alliance Tournament XIV, which began on Oct. 1 and finished on Oc. 16, was granted a small exemption to the new policy.
“Given that the Alliance Tournament is currently ongoing, we are aware that some players may have outstanding wagers on alliances who are competing with other third party services who have not been subject to account action and/or ISK and asset confiscation.
These third party services are free to finalize these wagers over the course of the weekend given that they have not broken our rules, but must wind down operations in an orderly fashion before 11:00 UTC on Tuesday November 8th, 2016.”
The wider threat to skin gambling
ESBR’s Will Green has written an exhaustive analysis listing the gambling sites which have closed, varied their business model, or ignored the directive from Valve. He has also produced what is currently the definitive short guide to skin gambling for Narus Advisors.
The report, “Skins In The Game: The size of esports skin betting in 2016, its convoluted closure, and how it could shape the future of esports wagering,” is available to download for free here.
Following the Valve shutdown, Narus Advisors and Eilers & Krejcik Gaming reduced their projections of skin gambling’s global handle in 2020 from almost $20 billion to less than $1 billion.
CCP is following Valve’s example, in what looks like the beginning of a trend which may spread to all major game makers. If so, we could be seeing the start of the end of the skin gambling industry.
Regulatory risk sharply reduces skin gambling upside for game makers
Skin gambling can only happen if game makers enable skins, whether in-game artifacts or frequent player “coins,” to be traded outside of their game.
As the UK Gambling Commission (UKGC) has pointed out, should such transactions have a financial value where the stakes and winnings from skin gambling can be monetized, then as far as they are concerned the activity becomes classified as gambling.
The UKGC makes the clear distinction that in-game currencies and artifacts that can be monetized change the essentials of the activity from social gaming to real money gambling and therefore necessitate a license and all that that entails.
The Dutch regulator, Kansspelautoriteit has issued a similar warning, and US legislators are becoming involved now. The Washington State Gambling Commission has directed Valve to stop the transfer of skins via its Steam API, or face possible criminal charges.
Game makers have no desire to clash with regulators over an activity which has only a limited upside potential for them, so the easy option is to ban third party gambling and make whatever technical changes are needed to keep any gambling on a social basis.
The new game from Amazon which allows in-game betting, Breakaway, uses Twitch’s new virtual currency Stream+.
Although details have not yet been promulgated, it is now inevitable that Twitch will make sure that the use of its currency does not bring it into the realms of real money gambling regulation.
Reputation risk may be even more important
One of the bigger issues faced by game makers is that the use of their skins for gambling brings with it a serious reputation risk.
The whole Valve/skin gambling furor appeared to begin with a series of skin betting scandals. In a market without any oversight or regulation, these self-inflicted wounds were foreseeable.
In addition, third party sites have been accused of inducing underage gambling. Such accusations produce an unacceptable reputation risk for game developers.
Gaming executives have no need to take such risks and unless they can see a real financial upside in real money gambling, are going to steer well clear of any imputations that they are encouraging gambling, especially in children.
It is difficult to see how skin gambling can survive in this environment, other than as a social activity practiced within a single game or platform.