Gambling Commission clarifies position on virtual currencies, eSports and social gaming

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Last week, the Gambling Commission launched a consultation on virtual currencies and 'in-game' items, gambling on eSports and social gaming, providing much needed clarity on its understanding of the extent to which these areas fall within its remit.

In the discussion paper, the Commission cited various factors as the driving forces behind such focus, all of which are rooted in fears over potential regulatory issues and player protection. More specifically, the Commission stated that the following developments had given it cause to shed further light on these areas:

1. the blurring of the lines between social gaming products and gambling;
2. technological developments and the expansion of virtual currencies leading to operators of some social games offering facilities for gambling; and
3. the growth in the market for gambling on eSports.

As well as promoting discussion with interested parties, the paper helpfully summarises the Commission's views on whether or not any of the above can constitute 'gambling' under the Gambling Act 2005 (the "Act") and hence require their regulation.

Virtual currencies and 'in game' items

The Commission re-iterates its view that digital currencies are 'money or money's worth' under the Act, as previously stated in its Crime LCCP Consultation in 2015. It states that any operator wishing to offer gambling facilities to customers in Great Britain, even if payment is in a digital currency, must hold a licence to do so.

The paper also states that the Commission is paying close attention to other in-game items, such as 'skins'. 'Skins' are a form of in-game item that provides aesthetic upgrades to a player's game play. The Commission states that a licence will be required where an operator offers facilities to gamble tradeable 'skins' which have a monetary value and can be converted into money, as they constitute a form of virtual currency. This confirmation follows in the wake of the Valve skins betting scandal in the US, where two class actions were filed against the Counter Strike : Global Offensive (CS:GO) video game developer, alleging that it was complicit in the operation and promotion of illegal gambling.

eSports

The Commission also focuses on betting on eSports (or competitive video-gaming). It confirms that, in its view, the regulation of betting on eSports is the same as betting on any other event. Whilst this is perhaps unsurprising, the Commission makes a minor distinction in this respect by citing the additional risk that children and young people may in particular try to bet on eSports given its popularity amongst their demographic.

Interestingly, the Commission also deals with the regulatory position of eSports players playing against one another (in 'match-ups') and betting on the outcome of such a match. The Commission states that:

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 Commission does, however, note the difficulty in distinguishing between acting in this way and merely offering a player the chance to pay to play in a competitive tournament. It states that, in establishing whether or not a betting intermediary licence will be required, it would consider various factors. This includes the number of people involved in the competition: the more people involved, the more likely it is to be a genuine competitive tournament rather than a match up.

The paper also highlights that the Commission is looking at the circumstances in which a player playing eSports for a prize may be using facilities for gambling where the game in question involves an element of chance. The Commission highlights games where the outcome is influenced by events determined by a random number generator (RNG) – it gives the example of card based games, where an RNG determines which cards are dealt to a player. Here it states that, where such games require a stake and offer a prize for winning, they would fall within the definition of 'gaming' under the Act.

For more on eSports generally, see the Olswang on eSports article hub.

Social gaming

The Commission re-iterates its focus on gambling-style social games (those that look and feel like traditional gambling) stating that these may need a licence if players are staking money and there is a prize of money or money's worth.

In its 2015 paper on Social Gaming, the Commission concluded that no further regulation was required on the social gaming sector stating 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". The Commission has subsequently confirmed this position, albeit clarifying that if they discover that items are being traded or are tradeable (or being used as a de factor virtual currency) a licence would be required.

Welcome clarity

Whilst the Commission has previously set out its position on virtual currencies and social gaming to an extent, the paper provides further confirmation and reasoning regarding its views on these areas. The Commission also provides welcome transparency as to the regulation of eSports gambling, which it has until now provided little firm guidance. With eSports of ever increasing popularity, this provides much needed certainty to operators looking to offer bets on eSports events, match-up style betting competitions and skins betting. The Commission's invitation for responses on the paper – the deadline for which is 30 September 2016 - may subsequently shed further light on its position in this respect.