Having Skin in the Game – How Video Games are Entering the World of Gambling

Having Skin in the Game – How Video Games are Entering the World of Gambling

Gambling has accompanied sports-watching for hundreds of years. In Canada alone, it was reportedly estimated that $500 million are spent annually on provincially-regulated sports gambling. Similar gambling activities are now prevalent in digital arenas. Popular strategy video games, such as Starcraft and Dota 2, have given rise to the massive industry of eSports, or professional competitive video gaming. Much like how sports fans can bet on the outcome of a game or series, eSports fans can place online bets on the performance of individual gamers or teams.

Online gambling platforms, however, present a major regulatory problem. Gambling websites are often hosted in countries with lenient gambling regulations. This allows gamblers to skirt local prohibitions like cash gambling on sports events, which is banned in Canada and parts of the United States (US). In the eSports context, online gambling regulation is further complicated by the fact that not all betting sites use real money. Instead, they use in-game decorative items called skins as virtual currency for wagers. This is known as “skin gambling.”

But if there is no real money involved, is skin gambling technically gambling? The short answer is yes. Although the law on eSports gambling is still being developed, a recent case involving game developer, Valve, and their highly popular game, Counter-Strike: Global Offensive (CS:GO), illustrates the problems that arise when applying traditional gambling laws to eSports gambling.


What happened with Valve’s CS:GO?

In 2013, Valve released the “Arms Deal” Collection, a set of decorative skins that players could apply to their characters and in-game weapons in CS:GO. Many games release limited edition skins that are confined to the game. What made CS:GO skins unique was that they could be sold and traded amongst players outside of the game platform. This allowed players to use their skins like casino chips on third-party eSports gambling websites. A whopping $5 billion worth of skins were reportedly gambled worldwide in 2016. And what’s more, there were no age checks on any of these sites, which meant that minors could participate freely.

In June 2016, an action was reportedly brought against Valve by a US resident, alleging that Valve “knowingly allowed, supported, and/or sponsored illegal gambling.” Later that year, the Washington State Gambling Commission, which operates in the same state as Valve’s headquarters, demanded that Valve stop transferring CS:GO skins outside of the game environment. In response, Valve sent numerous cease-and-desist letters to stop online gambling sites from using their CS:GO skins. Unfortunately, this caused many gambling sites to go underground to avoid detection by Valve and other regulators.


The risks of skin gambling

Gambling is heavily regulated to protect minors and to promote responsible gambling. In Ontario, for example, section 3.8(1) of the Gaming Control Act requires strict standards for protecting players and their assets. But because skins are not real money, online gambling using these virtual currencies is relatively unregulated compared to traditional forms of online gambling. The use of virtual items as wagers also makes it difficult for children and parents to recognize skin gambling as actual gambling.

The role skin gambling plays in facilitating under-aged gambling was recently addressed in the United Kingdom (UK) when Craig Douglas and Dylan Rigby, owners of the gambling site FUTgalaxy, were reportedly prosecuted under the UK Gambling Act. FUTgalaxy held lotteries using in-game items from the FIFA soccer games developed by EA Sports. However, their site was unlicensed and, therefore, illegal under UK gambling law. In February 2017, Douglas and Rigby were severely fined for promoting FIFA lotteries on their respective YouTube channels and encouraging minors to gamble. The case focused on how the two defendants “turned a blind eye” to the use of their gambling site by children.


Are game developers liable?

While there is little question that gambling sites are responsible for facilitating skin gambling, it remains unclear whether game developers are also to blame. For example, in the FUTgalaxy case, only the owners of the gambling site were named in the lawsuit. But both gambling site owners and Valve were named in the CS:GO case.

An important consideration is the developer’s level of involvement. Game developers create skins to enhance a player’s in-game experience, not to create an external gambling market. So in that sense, only third-party gambling sites should be liable for their “parasitic” activity. But it has been argued that developers should be more pro-active in monitoring and preventing the use of their in-game items on gambling sites.


The future of eSports gambling

Unfortunately, the CS:GO case provides little guidance for future eSports gambling cases. It was dismissed from the US District Court for the Western District of Washington and sent to arbitration, as per Valve’s service agreement[1]. However, Valve recently made efforts to block the use of their game data for illegal gambling in another one of their games, Team Fortress 2.

Many questions have yet to be answered in this emerging area of gaming law. The UK Gambling Commission recently published a position paper following the FUTgalaxy case, where they take a strict stance against skin gambling. The good news is that, as the position paper reports, the video game industry is “committed to working with [the UK Gambling Commission] to prevent customers experiencing gambling-related harm through their platforms.”


Alexandria Chun is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.

[1] GG v Valve Corporation, 2017 WL 1210220.