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Modern technology and innovation have blurred the lines of what can rightly be considered “gambling.”
Now, Washington State has joined regulators from 15 European jurisdictions, signing a declaration of concern regarding esports, video games and social gaming.
The group statement explains that the signatories share a number of common principles:
“ … including the need for gambling to be regulated to ensure high standards of integrity, fairness and consumer protection, in particular in relation to children.
Given these shared principles, we are increasingly concerned with the risks being posed by the blurring of lines between gambling and other forms of digital entertainment such as video gaming. Concerns in this area have manifested themselves in controversies relating to skin betting, loot boxes, social casino gaming and the use of gambling themed content within video games available to children.
Regulators identify in such emerging gaming products and services similar characteristics to those that led our respective legal frameworks and authorities to provide for the regulation of online gambling.”
Video games often provide players opportunities to upgrade their characters with “skins.” These may consist of more powerful weapons, better armor, or any other enhancement the creators think players might want.
Players can obtain these skins in a number of ways — by reaching new levels in the game, by chance or by in-game purchase.
Third-party operators that saw potential in this concept created websites allowing players to first exchange skins, and then to buy them outright. This led to the rise of skin betting where players could use skins to wager on games like roulette or enter prize drawings.
According to a report from Narus Advisors and Eilers & Krejcik Gaming, the average monthly projected skin wagering handle in 2016 was around $618 million.
The rapid rise of the industry faltered when Valve cracked down on the practice amid concerns of legal action. It wasn’t clear whether or not skin betting classifies as gambling.
In July 2016, the Valve Corporation put out a statement ordering gambling websites to stop using its Steam API. Shortly afterwards, the Washington State Gambling Commission (WSGC) ordered the company to take action:
“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.”
Since then, the skin gambling industry in the US has virtually shut down.
In a report issued in 2017, however, the UK Gambling Commission (UKGC) said it was prepared to authorize skin gambling for operators that applied for licensure. The UKGC drew a distinction between activities in which winnings could be converted into monetary value and those where this was not possible.
Only if the “gambling” activity could be converted into cash did the agency consider it gambling.
The newest statement appears to change this position — or at least expand it. Game activities demonstrating characteristics of gambling may now be sufficient to meet the regulatory definition.
There are several areas where video games can facilitate gambling-like activities without offering a prize of monetary value.
The defining characteristic of a loot box is that it contains surprise items of varying desirability. In other words, no matter how players obtain them, there is an element of chance in what they actually contain. This can encourage extra play, as players try to get the specific or rare items they seek.
The similarities to gambling behavior are fairly clear.
This becomes even more apparent in games such as Transformers: Earth Wars. Not only can loot boxes provide an in-game advantage, players can buy them with real money.
The Netherlands’ gambling regulator Kannspelautoriteit brought out new rules in June 2018 banning loot boxes with these characteristics. Operators that don’t comply face fines of up to €830,000 ($959,000).
Social gaming involves playing casino-type games for play money that cannot be redeemed. Typically, social gaming sites make money by selling additional chips to players so that they can play in bigger games.
Regulators are concerned that gambling behaviors are being encouraged even though no actual winnings are possible.
In March of this year, a District Court in Washington ruled that Churchill Downs’ Big Fish Casino constituted gambling. The court’s decision was largely based around the mechanism for transferring chips between customers.
A number of video games even offer players the chance to play gambling games or poker as part of the gameplay.
For both social gaming and in-game gambling, the worry is that children will learn gambling behaviors early. Those behaviors could potentially facilitate conversion to real-money gambling or create long-term, real-world problems.
Gambling regulators are reaching into an issue that runs deeper than the ones current laws address. The concern is that problem gambling behavior can result from some types of virtual gaming.
The flip side is that gambling in a safe environment could be beneficial in teaching young people how to do so responsibly.
The importance of the regulators’ statement is threefold:
The signatories to the declaration are: