UK Gambling Commission Esports Discussion Paper: No Threat, Pure Opportunity

Posted By Joss Wood on August 17, 2016 - Last Updated on January 22, 2018

[toc]The UK Gambling Commission (UKGC) has issued a discussion paper on “Virtual currencies, eSports and social gaming.”

The paper is available here.

Some industry commentators have expressed concerns that the paper could result in games such as Hearthstone being classified as gambling and tournament organizers required to obtain an expensive UKGC gambling license.

Furthermore, since the UKGC is an influential gaming regulator, its views could then be taken up by other regulators around the world, including in the US.

This analysis looks to be overly pessimistic. It is in parsing the text of the discussion paper and considering the intentions of the UKGC that a more positive view of the exercise can be found.

Reasons for the issue of the discussion paper

The UKGC states that it has issued the paper in response to:

  • The blurring of lines between some social gaming products and gambling.
  • Technological advances and the expansion of digital or virtual currencies resulting in some social gaming products offering facilities for gambling.
  • The growth in the market for gambling on esports.

The key concerns expressed in the paper

UKGC General Counsel Neil McArthur explains:

“Our key concern is to ensure that consumers are protected and that children and other vulnerable people are not harmed or exploited by gambling. This discussion paper brings to the fore some areas where we see real issues for regulation, player protection and the protection of children and young people.”

He then lists several specific concerns about esports skins which “can be used to gamble,” and the possible lack of understanding of UK legislation which means that an activity can be defined as gambling even if the player does not “stake or risk anything.”

The preamble to the discussion paper reminds readers about the definitions of gambling which lead to a license requirement. Under the UK law, gambling is defined as “betting, gaming or participating in a lottery.”

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The paper goes on to clarify what is meant by gaming:

“Gaming is defined in section 6 of the Act as playing a game of chance for a prize.”

The UKGC currently allows esports betting by licencees

Importantly, the paper has not been issued in advance of a decision to permit esports betting. This is already permitted for existing licensees, such as Betfair and Bet365.

The UKGC has expressed concerns about skin betting definitions. In short, if the skins can be traded for real money or for any item with a real value, then the UKGC has determined that this constitutes a form of gambling and operators facilitating the activity must obtain a gambling license.

The discussion paper specifically points out that:

“Where ‘skins’ are traded or are tradeable and can therefore act as a de facto virtual currency and facilities for gambling with those items are being offered, we consider that a licence is required.”

All of this is simply the existing policy of the UKGC. The discussion paper is not seeking to change any of these regulations.

It is instead looking for ways in which it can improve the existing regulations to better serve both players, the industry and the wider community.

Esports betting is no different from sports betting

The UKGC does not see any major differences between esports betting and other forms of betting on an event. This conclusion alone will be a valuable precedent for other national and state regulators who are or will be examining the issue.

“In the Commission’s view, the regulation of betting on eSports is no different from any other event upon which bets can be placed. As we see it, betting on eSports presents risks that need to be managed in a similar way to other forms of betting and gaming, including the risk of cheating and match fixing and the risk that people will gamble excessively.”

Where the UKGC wants input is in how the specific risks associated with esports betting can best be managed.

“We expect operators offering markets on eSports to manage the risks, including the risk that children and young people may try to bet on such events given the popularity of eSports with children and young people.”

UKGC wants advice on blurred boundaries

There are several areas where the UKGC is seeking input to clarify the boundaries between what is and is not a gambling activity. The two areas of most interest in esports are: competing for prizes and skin betting.

Competing for prizes

The UKGC distinguished between paying an entry fee for a skill game tournament which awards cash prizes and gambling. Organizing a chess tournament where players pay an entry fee and compete for prize money is not defined as gambling and the organizers do not need a gambling license.

The clear skill-based nature of all the main esports events such as CS:GO, Dota 2 or League of Legends puts them clearly in this category, and there is no real possibility that the UKGC will want to re-categorize them as gambling.

Where the UKGC does seek guidance is in tournaments where players can bet on themselves to win.

The UKGC sets out its initial position on the issue as:

“Given the definition of a betting intermediary, our preliminary view is that a person who is offering facilities for match ups, by introducing participants who bet against each other about who will win, is providing a service designed to facilitate the making or accepting of bets between others. If that is the case then the person offering those facilities may be acting as a betting intermediary and would need a licence.”

The UKGC wants help in clarifying the difference between a tournament entry fee and a wager:

“We can see, however, that drawing a clear distinction between arrangements that would in our view amount to acting as a betting intermediary and payment to participate in genuine competitive tournaments is not easy. In reaching a view on the question of whether a person is acting as a betting intermediary we would look at a number of factors, including the number of people involved in the competition (the more people participating in the contest tending towards tournament rather than match up).”

A heads up game between two players, who, for the sake of example, each put up $50 with the winner taking all, appears to be the dividing line between gambling and not gambling.

However, the UKGC’s position is not yet set. Anyone who wants to argue that this should not be classified as gambling can respond to the consultation and explain why.

In particular, it could be pointed out that in most fighting games such as Smite, tournaments consists of a series of heads up matches, just as in a chess tournament, and therefore it would be inconsistent to label them as gambling.

Skin gambling

The boundary in skin gambling has already been set to a certain extent. The UKGC maintains that:

“Where ‘skins’ are traded or are tradeable and can therefore act as a de facto virtual currency and facilities for gambling with those items are being offered, we consider that a licence is required.”

While the UKGC is looking for input on the issue, the industry should not fear that it will seek to regulate skin betting where prizes cannot be ultimately converted into money or a physical prize of monetary value.

The important precedent for this is the Commission’s attitude towards social gaming, which it has set out in a previous paper in January 2015. The UKGC says that its views have not changed since they were expressed in that paper:

“In paragraph 2.3 of our ‘Social Gaming’ paper we said:

‘[to] date, it has been accepted that winning additional spins/credits/tokens/chips (that can be acquired by the payment of real money) does not amount to a prize of money or money’s worth, which would make it licensable gambling’.”

Where the Commission is keeping a careful watch is on whether such prizes can ultimately be monetized.

“If, however, we discover that items are being traded or are tradeable or are being used as a de facto virtual currency then our view would be different.”

This position is likely to be the same for esports skins. As long as they cannot be monetized, then skin gambling will be treated in the same way as social casino or social online poker games, and no license will be required.

The blurred line is likely to be where items which can be bought for real money can be used as stakes for gambling. Even if the items can never be redeemed for real money, the UKGC could theoretically determine that they had a real value and that using them in a gambling type game would lead to the activity being classified as gambling for licensing purposes.

However, the UKGC adopts a risk-based position on adding to the regulatory burden. It is unlikely to choose to define such an activity as gambling unless it saw that there was a real risk to minors, or those at risk of problem gambling.

Clarifying and improving esports regulation is good for the industry

The final position paper which the UKGC will produce following the consultation will give esports industry participants, whether skin betting sites, tournament organizers or esports betting operators, much needed clarity about the legal position of their activities.

The UKGC is one gaming regulator that cannot be accused of overreach or the bureaucratic desire to expand its empire. Unless it sees a real need for regulatory oversight, it won’t bring more activities into its ambit than are necessary for consumer protection.

With a strong UK regulatory framework, influential with other regulators, the esports industry can develop secure in the knowledge that a sudden change of definition will not destroy millions of dollars of investment.

The closing date for responses to the consultation paper is September 30.

Image credit: Christian Mueller / Shutterstock.com

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Joss Wood

Joss Wood holds an English degree from the University of Birmingham and also earned a master’s degree in organizational development from the University of Manchester. Joss has a special focus on the international online gambling market, though he also writes extensively on US regulated markets, sports betting, and esports betting.

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