Virtual currencies, eSports and social gaming: some guidance and questions from the UK Gambling Commission

Background

The UK Gambling Commission has just published a helpful discussion paper in relation to virtual currencies, eSports and social gaming (which you can find here).

The Commission recognises that it may not fully understanding all of the issues involved and the paper sets out a number of questions to which it invites responses. This is a very positive step from the Commission and the industry should welcome and engage with this process. As the Commission points out, its under-standing of the issues ‘is key to enable us to adopt or advise Government on a model of effective and pro-portionate regulation’. It is therefore important that the industry ensures that the Commission does fully understand these issues. The closing date for responses is 30 September 2016.

What is gambling?

As the Commission recognises, it is not always easy to distinguish between activities that need to be licensed and those that do not. The paper provides a summary of how the relevant UK legislation (being the Gambling Act 2005) defines betting, gaming and a lottery, together with some helpful flowcharts designed to assist in determining whether a particular activity falls within one of the defined activities.

The Commission outlines its current thinking in relation to three key areas: gambling with virtual currencies and ‘in-game’ items, eSports and social gaming.

Gambling with virtual currencies and ‘in-game’ items

Digital currencies

The Commission reiterates its view that digital currencies such as Bitcoin are equivalent to real money and therefore gambling with a digital currency is the same as gambling with real money.

This is not surprising, particularly since in June 2015 the Commission issued a press release stating that it considered that a prize of Bitcoins is a prize within the meaning of the Gambling Act 2005. However, there have since been some suggestions that the Commission had changed its view on this point and the Commission clearly felt the need to dispel these suggestions.

In-game items

The Commission recognises the growth in both different forms of in-game items and also the different ways in which they can be used and says that this is something to which they are, ‘paying close attention’. Slightly curiously, the Commission then focusses ‘skins’, although uses this term quite widely to refer to ‘in-game items that provide aesthetic upgrades to a player’s game play’. Although the terminology used by the Commission is slightly odd, it is clear that the Commission is thinking of any form of virtual currency or in-game items.

The Commission say that where in-game items can be traded, then they are equivalent to a currency. It follows that where an operator provides a facility for gambling with these items, it will require a licence. The interesting point here is that the Commission indicates that by traded it is only thinking of trading that is facilitated or permitted by the game operator or platform (including through a third party platform). However, on that basis the mere existence of a secondary market for game accounts would not itself be sufficient. This reflects the approach that US courts have recently taken on this issue. It also underlines the important of ensuring that there are effective terms of use that prohibit the sale of game accounts on secondary markets and provide that players only have a non-transferable licence to use the digital content.

eSports

With suitable British understatement, the Commission states: ‘eSports present some particular challenges and risks for gambling regulation’.

Offering bets on eSports

The Commission underlines that from a regulatory perspective, betting on eSports is no different from betting on the outcome of any other event. It recognises that as with any form of betting and gaming, eSports carries risks of cheating, match fixing and excessive gambling. The Commission states that it expects operators of eSports to manage these risks appropriately.

The Commission also indicates that in this connection, operators of eSport platforms may have a particular challenge in relation to children and young people, given that there is probably a higher risk of children and young people wanting to participate in betting on eSports compared with other activates.

Offering facilities for players to bet on themselves

The Commission states that its preliminary view is that an organisation providing an intermediary facility allowing players to play against each other and bet on themselves to win is likely to be acting as a betting intermediary and therefore would need a licence. However, the Commission recognises the difficulty in distinguishing between this kind of activity and genuine tournaments where players pay to participate. One key factor will be the number of people participating; the more people involved then the more the activity will look like a tournament.

Social gaming

The Commission published a paper ‘Social Gaming’ back in January 2015 (which you can find here). The Commission reiterates the view it expressed in that paper that its primary interest in relation to social gaming is gambling-style games (i.e. games that have the look and feel like traditional gambling).

The Commission also reiterates its view that in general, winning additional virtual items is not a prize within the meaning of the Gambling Act 2005, even where those items can also be acquired by the payment of real money.

However, the Commission emphases that the position will be different if the virtual items can be traded or are being traded: ‘Operators offering games which use virtual items as a form of digital currencies in order to gamble will, in our view, need a licence.’ The implication is that it may not be enough for a game operator simply to prohibit the trading of virtual items; if an operator is facilitating or perhaps even not taking reasonable steps to try to prevent unauthorised trading, then that may attract the attention of the Commission.

The Commission’s approach to unlicensed gambling facilities

The Commission emphases that its approach to enforcement action in relation to these activities is the same as that in relation to any other activities. However, it underlines its concern to protect children and young people by adding: ‘Taking action against anyone offering facilities for gambling to children and young people is a particularly high priority for us.’

The Commission also points out that it has already been active in taking enforcement action. It states that it has written to ‘more than 100 unlicensed online gambling websites’ of which ‘a significant number’  were involved in the providing remote gambling facilities of the kind described in its paper. According to the Commission, most of these operators stopped offering their facilities following receipt of the letter, a ‘smaller number’  were the subject of payment blocking by payment providers and ‘the remainder are the subject of ongoing enforcement activity’.

Next steps

As mentioned above, the Commission is keen to hear from the industry and the feedback it receives is likely to have a significant role in shaping future regulation in this area. This is not an opportunity to be missed.