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Virtual currencies, esports and social casino gaming – UK regulatory clarification

Posted on 16 March 2017 by Nick Nocton

Virtual currencies, eSports and social casino gaming – UK regulatory clarification

The Gambling Commission has published a position paper on Virtual currencies, esports and social casino gaming, following a consultation arising from its discussion paper of August 2016.  The position paper provides welcome clarification is most areas and suggests a pragmatic and collaborative approach, particularly with regard to the video gaming industry. However not all of the issues are straightforward.

The key conclusions are as follows:

  1. Licensed betting on esports

The Commission concludes that betting on esports (competitive video gaming), while not materially different from betting on other events, may involve heightened risks in comparison.  However it also asserts that the existing gambling regulatory framework, rigorously applied, is sufficient to mitigate the risks.

The Commission encourages stakeholders in the esports industry to recognise integrity risks and proactively to mitigate them by applying sports industry best practice, including governance structures addressing, inter alia, monitoring of betting markets, intelligence sharing, codes of conduct, effective disciplinary structures and player education.

  1. In-game items/skins

The Commission reiterates its view that where in-game items can be traded or exchanged for money or money's worth outside a game, they acquire monetary value, and that facilitating gambling with such tradable in-game items is a licensable activity.

The successful prosecution in the FutGalaxy case is highlighted as an example of the risks presented to children, in particular through the close connection between esports, gaming and social media channels, such as the promotion of third party "skin" gambling sites through social media platforms and video sharing sites.

The Commission expects games publishers and network operators to tackle exploitation of their player communities by "predatory third parties" who offer gambling using tradable in-game items (whilst acknowledging that publishers only make in-game items available in closed-loop economies which are not designed or intended to facilitate trading). 

Rather ominously, the Commission suggests that, whilst there is no evidence of direct benefit, game publishers may benefit indirectly from a proliferation of third party gambling facilities on the basis that the publisher can be seen as a de facto central bank for the in-game items. 

  1. Game mechanics

Where secondary markets exist for in-game items, the Commission notes that this can have knock-on effects for the host game itself, especially where that game includes gambling-style mechanics.  It cites the example of keys which are used to unlock crates containing in-game items of unknown (in-game) value, where the determination of the value is based on chance.  Where the in-game items are de facto tradable (even on an unauthorised basis) this may mean that the game itself involves gambling.

On the other hand, where prizes are "successfully restricted" for use solely within the game, such in-game features would not involve gambling.

In effect, the Commission puts the video gaming industry on notice that it will intervene where it feels the licensing objectives are at risk, in particular where children are at risk.  It will look at issues such as the proximity of the gaming to the facilities for exchanging the in-game items for monetary value, overt relationships between those providing each of the gaming and the facility to exchange the in-game items, and the ease with which the items can be exchanged.  In other words, games publishers and networks must be vigilant in policing their closed loop systems, and must distance themselves from (and seek to disrupt) those who offer means to exchange in-game items and/or gambling sites using such tradable items.

  1. Playing esports for a prize

The Commission notes that the Secretary of State has not yet designated esports as a sport for the purposes of section 6 of the Gambling Act 2005 (sports are exempted from the definition of "game of chance"), but does recognise that a wide variety of activities could be argued to include sporting elements.   At this stage the Commission will operate on the basis that esports are not so exempted but does propose a balanced approach to avoid disproportionate regulation. 

In this context, it appears to support a pragmatic approach to the assessment of whether a game is a game of skill or a game of chance, reducing the risk that an esports competition played for a prize, and based on an underlying game which involves limited elements of chance, might constitute (regulated) gaming.   The Commission seems most likely to adopt a pragmatic approach where there is no charge to participate in the competition.

On the other hand, the Commission stands by and elaborates on its suggestion that paid-for competitive skill gaming may constitute betting (on oneself to win) depending on the circumstances (e.g. in head-to-head match ups).

The Commission dismisses the suggestion that betting inherently requires a person to be hazarding a stake on the outcome of an event in which they are not themselves participating, although we note that there remains significant uncertainty regarding the circumstances in which the Commission thinks betting would be taking place.  A table of relevant factors is provided, but we would suggest that the Commission has not adequately addressed the legal distinction between a bet and a genuine contest of skill.

  1. Social casino gaming

The Commission remains interested in casino-style social games, but restates its view that there is no compelling case (at least not yet) for gambling regulation, provided that in-game items and loyalty points are not tradable (and therefore are not "money or money's worth").   The Commission will maintain a watching brief and warns that its willingness to refrain from enhanced regulation is predicated on the social casino industry maintaining socially responsible practices.

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