Virtual currencies, eSports and social gaming: a fresh look at the boundaries between gaming and gambling in the UK


Written on 16 December 2016

Introduction

A small but increasing number of games are based on, or incorporate, mechanics that have an appearance of gambling.  For example, some social games consist of a gambling style game, such as roulette; some PC and console games may contain mini gambling style games that are a small ancillary element within that game, such as a gaming machine within a building in the game.

This can give rise to a possibility that the game falls within the definition of gambling in the Gambling Act 2005 (GA 2005).  Under the GA 2005, providing facilities for gambling without a licence (or applicable exemption) is a criminal offence.

Commercial gambling in Great Britain is regulated by the Gambling Commission, an organisation that was established Under the GA 2005.  Unsurprisingly, the Gambling Commission has been paying increasingly close attention to games.

What is gambling?

Gambling covers three different activities; betting, gaming and participating in a lottery. The definitions in the GA 2005 of “betting”, “gaming” and “prize” and the related definitions are therefore key to determining whether or not a particular activity needs to be licensed.

For example, in the GA 2005, “gaming” is defined as playing a game of chance for a prize and “prize” means “money or money’s worth”.  This has raised the issue of whether a prize of virtual items within a game would be a “prize”.

2015 Gambling Commission paper

In January 2015 the Gambling Commission published a paper called ‘Social Gaming’ (here) in which it set out its views in relation to social games. The Gambling Commission stated that its interest is predominantly on gambling style games and on the point relating to virtual items, this paper stated the following:

“To date, it has been accepted that winning additional spins / credits / tokens / chips (that can also 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. However, this is untested in the courts and the uncertainty, and associated commercial and regulatory risk, is a useful deterrent to those thinking of pushing the boundary.”  (Section 2.3)

Since then however there have been two further developments. The first is the increasing significance of secondary markets for certain in-game items by which users of games are able to realise in-game items for cash (or use those in-game items as a form of digital currency). The second has been a significant growth in the market for gambling on eSports.

2016 Gambling Commission paper

In August 2016 the Gambling Commission published a further discussion paper called ‘Virtual currencies, eSports and social gaming’ (here). This paper outlines the Gambling Commission’s thinking on three activities; virtual currencies and ‘in-game’ items that can be used to gamble, gambling on eSports and social gaming.

In relation to eSports, the Gambling Commission noted that betting on eSports is no different from betting on any other event. However, the Gambling Commission highlighted a number of challenging issues and outlined its current thinking on these issues. In particular:

  • As with any other form of betting (and gaming), there are risks that need to be managed (such as cheating, match fixing and excessive gambling). However, there is a higher risk that children and young people may try to bet on eSport events.
  • A person who provides facilities for match ups (i.e. facilities for players to play against each other and win money or prizes (including where participants bet on themselves to win)) will be a “betting intermediary” (and therefore require a licence). Equally however, the Gambling Commission recognised the difficulty in distinguishing between arrangements that amount to acting as a betting intermediary and paying to participate in competitive tournaments.
  • A person participating in an eSport for a prize may be using facilities for gambling (meaning that the activity requires a licence).
  • Although the outcome of an eSport game will largely be determined by skill, it will generally contain some element of chance and the outcome of a number of eSport contests “will be influenced by events that are determined by a random number generator”.

On social gaming, the Gambling Commission reiterated the views it expressed in its paper on Social Gaming that winning “additional spins or credits or tokens” will not make an activity licensable, even if the item won can be acquired by the payment of real money.  However, it noted that the position will be different if items are being traded or are tradeable.

Future developments

The Gambling Commission invited responses to this paper and anticipated publishing a further paper on this subject by the end of 2016.

In the meantime, on 16 September 2016 the Gambling Commission announced that it has taken enforcement action against two individuals for alleged offences contrary to the GA 2005, involving the use of a virtual currency.  This is an area where we are likely to see a number of developments in 2017.

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*This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.