This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Last month the Gambling Commission published a position paper on virtual currencies, eSports and social casino gaming. This follows a consultation undertaken in late 2016 which included the publication of a discussion paper to promote debate on a number of issues emerging from the development of interactive entertainment products, particularly video games. You can find our comments on this discussion paper here.
In general, the consultation conducted by the Gambling Commission has prompted the consolidation of the views previously presented by the Commission in its initial discussion paper, rather than signalling any significant modification in the application of the existing regulatory regime to these new developments in the industry. Consequently, there is little of surprise in the stance taken by the Commission in its latest position paper. Nevertheless, the paper is a useful restatement of the Commission's views and indicator of the areas most likely to be the focus of the Commission's scrutiny going forward.
Participation in eSports
From a regulatory perspective, the latest position paper confirms the conventional application of established legal and regulatory principles to participation in eSports. It further endorses the prevailing view that the underlying games for the majority of professional eSports events are inherently games of skill, yet calls out the specific areas of concern with respect to there being “chance” elements - in both the underlying game as well as the competition format of a particular eSports event. Useful distinctions are also set out in the Commission's guidance in terms of the factors to consider when determining whether participation in an eSports tournament falls outside the scope of a betting prize competition.
Betting on eSports
Responses to the consultation reinforced the Gambling Commission's view that betting on eSports is not unlike betting on any other 'event'; and is therefore not precluded from falling under the remit of the Gambling Act 2005.
Protection of children
In keeping with its licensing objective "to protect children and other vulnerable people from being harmed or exploited by gambling", the Gambling Commission's particular concern with the eSports sector lies in its particular appeal to children and the risk of this underage following being encouraged to gamble on eSports. Indeed, following its publication of its recent position paper, the Commission's press release sought to highlight to parents the risks posed by gambling associated with video games (particularly where such gambling is conducted with "skins", i.e. tradeable in-game items (such as decorative knives and guns etc) which acquire monetary value). Both Sarah Harrison, Gambling Commission CEO, and Tracey Crouch, Parliamentary Under-Secretary for the Department for Culture, Media and Sport, stress the need to ensure that sites which encourage people to gamble on popular video games are appropriately regulated. Ms Harrison's language was particularly strong in condemning such sites, referring to them as "parasites" and "presenting a clear and present danger to players, including kids".
Such a stance suggests that we may soon be seeing more prosecutions, such as that in the Fut Galaxy case. In that case, two men were found guilty of running an unlicensed gambling website, Fut Galaxy, which facilitated betting on the Fifa 17 video game. The seriousness with which this activity is being taken can be shown from the scale of the financial penalties (£164,000 and £91,000 respectively) imposed by the court on the individuals responsible.
Another particular concern which emerged from the Gambling Commission's consultation was the potential heightened integrity risk associated with eSports when compared with the integrity risk associated with traditional sports. The perception of this heightened risk arises from the fact that there is no overarching governing body for eSports. In the absence of such a governing body, the UKGC feels that it is those who benefit commercially from eSports who are most appropriately placed to apply, in a consistent way, best practice from other sports to maintain public confidence in the integrity of eSports events. While it will be welcome news to the eSports industry that the Gambling Commission does not itself propose to introduce tighter regulation, it may be interesting to see whether the Gambling Commission persists with this approach, especially if betting on eSports becomes more substantial (particularly if it grows disproportionately to the prizes available to players) and there are increasing concerns around integrity in eSports events.
Social gaming and the use of virtual currencies
When it launched its consultation last year, the Commission cited the development of the potential blurring of the lines between social gaming products and gambling, particularly given the expansion of the use of virtual currencies in social gaming.
Use of virtual currencies
Following the consultation, the Gambling Commission's view remains unchanged from the position set out in its discussion paper. Namely, that additional items (such as virtual currency, chips, spins or tokens) won in the course of participating in social gaming will not, be considered "money or money's worth" for the purposes of gambling legislation unless they can be converted into cash or traded for items of value.
Further regulation on social casino gaming?
Similarly, the Gambling Commission's view remains unchanged that there is currently not sufficient risk to justify the introduction of additional gambling regulation to address the social gaming sector. This view is largely based on the existing extensive consumer protection legislation applicable to this sector. The Commission did however leave open the possibility of introducing tighter regulation in the future in the event that it feels that the social casino sector fails to take sufficient steps to maintain a proactive and socially responsible approach.