Valve Takes Another Swing At Closing Skin Betting: Team Fortress 2 Is In The Firing Line

Written By Joss Wood on January 31, 2017

[toc]After virtually shutting down the entire skin betting industry for CS:GO, the Valve Corporation is promising to shut down any accounts that offer similar services for Team Fortress 2 (TF2).

In a short statement Valve said:

“In July of last year we outlined our position on gambling web sites, specifically noting that Valve has no business relationship with these sites. At that time we also began blocking many CSGO gambling accounts. You can view the original post here.

More recently, some gambling web sites started leveraging TF2 items. Today we began the process of blocking TF2 gambling accounts as well. We recommend you don’t trade with these sites.”

Valve is under legal and political pressure to shut down skin gambling

Valve’s original “cease and desist” letter from July 2016 came in the wake of a series of skin betting scandals. But its awareness of possible legal risks was probably the bigger motivator.

In June 2016, Valve faced a class action lawsuit that a court dismissed in October 2016. However, further actions are likely.

The Washington State Gambling Commission (WSGC) rapidly followed up with its own version of a cease and desist letter:

“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.”

Valve’s legal counsel Liam Lavery wrote a detailed three-page rebuttal to the WSGC letter. In it, he legally distanced Valve from any possible legal action:

“Valve is not engaged in gambling or the promotion of gambling, and we do not “facilitate” gambling. The operation of Steam and CS:GO is lawful under Washington law. We were surprised and disappointed that the Commission chose to publicly accuse Valve of illegal activity and threaten our employees with criminal charges. There Is no factual or legal support for these accusations. Notwithstanding, as you know Valve has taken its own steps to discourage skins gambling on third party websites. We are open to further cooperation with the Commission.”

The steps that Valve has taken so far should be enough to mollify the WSGC. It shows Valve is continuing to take the issue seriously with its current action against TF2 gambling.

Skin gambling suffers from a lack of legal framework

The rise of the popularity of esports has been accompanied by a concomitant increase in skin gambling. In-game virtual items (skins) are used to make wagers on third-party websites.

The nature of the wagers varies enormously. Bottors can wager on major tournaments or use skins to play online roulette or enter raffles.

The size of the potential market can be judged from research conducted by ESBR and Narus Advisors. That research found that the largest CS:GO skin betting site, CSGOLounge, had taken in “103 million skins, or the USD equivalent of $1 billion in handle, in the first seven months of 2016.”

As an esports allied industry, skin gambling looked set for a bright future. But the Valve shutdown last July sharply reduced forecasts of its potential revenues.

Narus and Eilers and Krejcik Gaming have reduced their most bullish forecasts of the industry’s 2020 revenues from $22.6 billion to less than $1 billion.

The demand for skin gambling is there. What is missing is a legal and regulatory framework. Such a regime will enable the large game developers to permit skin gambling to exist.

A legal framework already exists in the UK

One of the most advanced regulatory jurisdictions in the world is that in the UK, where the UK Gambling Commission (UKGC) has already given deep consideration to skin gambling.

At the end of last July, the UKGC updated its regulations to cover the use of virtual currencies:

“Licensees, as part of their internal controls and financial accounting systems, must implement appropriate policies and procedures concerning the usage of cash and cash equivalents….”

The Commission was fully aware of the use of esports skins as cash equivalents, and within a month had released a discussion paperVirtual currencies, eSports and social gaming,” to raise the issues involved.

They made it clear 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.”

This was positive news for the skin gambling industry. A regulator in one of the world’s largest gambling markets is content to offer licenses for skin betting operators.

A major operator, a UK license and Valve could revive the industry

The skin betting industry has a chance to regain some of the ground it has lost. That opportunity: If a major operator, licensed in the UK, were to start discussions with Valve about putting a properly regulated CS:GO skin betting site into the market.

The possibility doesn’t look if it’s on the immediate horizon, but the top esports betting operators do like to surprise.

If Valve believes that the legal risks were covered, the more bullish forecasts of industry growth could still come to fruition.

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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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