Social Gaming and Gambling – An increasingly blurred border?

Written on 11 Aug 2016

The term ‘gaming’ means different things to different people. It can be used in a wide sense to refer to the playing of any game, but can also be used in a narrow sense to refer to the playing a game that involves gambling. Similarly, one sometimes hears the interactive entertainment industry referred to as the ‘gaming industry’, when this description would more accurately only be used to refer to the ‘gambling industry’. This confusion is not limited to terminology. Over recent years, it has become increasingly difficult to draw a clear distinction between games that constitute gambling (and therefore subject to gambling legislation) and games that are purely social games (and therefore fall outside the scope of gambling legislation).

Distinguishing gaming and gambling

In the UK, the relevant legislation is the Gambling Act 2005 (the GA). The GA defines “gaming” as playing a game of chance for a prize.

For this purpose, the most important element of this definition is the word “prize”. This is defined in the GA as meaning, “money or money’s worth”. The GA therefore recognises that a prize is wider than just money and will include anything that has a monetary value.

In a number of social games, players have an opportunity to win items other than money, typically some kind of virtual goods or in-game credits. The issue therefore is whether these virtual items might constitute a prize within the meaning of the GA and therefore bring the game into the regulatory scope of the GA.

Guidance from the Gambling Commission

In Great Britain the Gambling Commission has overall regulatory oversight for commercial gambling.

In January 2005 the Gambling Commission published a helpful note on Social Gaming (which you can find here). In this note, the Gambling Commission indicated that it accepts the view that winning additional virtual content is not a prize within the meaning of the GA. It added that it considers that this is the case even where that content can also be acquired by the payment of real money. However, the Gambling Commission also recognised that this view has not yet been tested in the courts.

In this note the Gambling Commission also made clear that its main focus in relation to social games related to gambling-style games (i.e. games that have the look and feel like traditional gambling) rather than other kinds of games such as strategy or puzzle games .

In June 2015 the Gambling Commission issued a press release stating that it does consider that a prize of bitcoins is a prize within the meaning of the GA. However, this is unsurprising given that bitcoins are as close as one can get to money.

What about the rest of Europe?

The position is made more challenging by the fact that there has been no harmonisation of gambling legislation across the EU. This is, in part at least, due to the different cultural attitudes to gambling in different EU countries; some have a fairly open approach and others are much more restrictive. However, a similar challenge in distinguishing social games and gambling arises in a number of other EU countries.

Lessons from the US

Without any direct guidance from the UK courts, it is useful to look to the US where there have been several class actions in which it has been argued that various social games contravene state anti-gambling laws. The games involved have not just been gambling-style games, but also strategy games.

The common feature of these games is the purchase of in-game currency for cash, the use of this in-game currency to win in-game items distributed by chance and the ability of players to realise the value of these items by selling their game account to another person on a secondary market (such as eBay).

In all of these actions, the courts have held that in-game items have no value if they cannot be “cashed out” in the game. The courts also held that the mere existence of a secondary market for game accounts was not itself sufficient to establish value for any particular in-game items. More importantly perhaps, the courts looked to the terms of use of the games. The courts noted that these terms of use prohibited the sale of accounts on secondary markets and felt that it would therefore be unreasonable for a game to constitute a gambling game on the basis of the unauthorised activities of some users.

Although the law in the US is different, these cases do provide some helpful support in distinguishing between social games and gambling games. They also illustrate the importance that terms of use can have. Equally, however, it is likely that the position would be different if a publisher was seen to condone the use of secondary markets or even did nothing to enforce the prohibitions in the terms of use.