2109/2016

eSports and Betting: the UK Regulator’s Initial View

 

eSports is growing at a rapid rate in terms of both commercial value and popularity across the globe. In 2015, eSports were estimated to have an audience of 160 million people and total prize funds for players exceeding $71 million. It is therefore unsurprising that both traditional (e.g. Pinnacle), and now specialist (e.g. Unikrn), betting operators offer markets on eSports, which although small in scale are significant in turnover.

 

This has inevitably attracted the attention of gambling regulators in a number of jurisdictions. In its Annual Report and Accounts 2015-16, the UK Gambling Commission (UKGC) stated that eSports betting (in their words an “emerging product”) would be a continuing future focus for them. Indeed, they have now published a discussion paper on ‘Virtual currencies, eSports and social gaming’ (the Discussion Paper).

 

The purpose of the Discussion Paper is to set, “out the Gambling Commission’s current thinking and approach to distinguishing between activities that need to be licensed and those that do not”. In other words, what activities in relation to eSports may constitute ‘Gambling’ within section 3 of the Gambling Act 2005 (the Act).

 

After all, the gaming sector evolves rapidly, principally due to advances in technology, and regulators such as the UKGC have to keep fully up-to-date with developments and constantly assess the risks of emerging gaming products in light of the relevant legislation.

 

Regulating betting on eSports

 

In a recent article we said that in order to properly address the regulatory issues arising from eSports betting the UKGC, and other national regulators, have to perform a risk assessment of the activity and this Discussion Paper forms part of that process.

 

The UKGC makes it very clear that from a regulatory perspective they view betting on eSports as no different from any other event upon which bets can be placed. As a result, the UKGC highlight the usual risks associated with any type of betting that needs to be assessed and managed by licensed operators (i.e. cheating, match-fixing, addiction etc.).

 

However, and quite rightly, the UKGC are expecting operators to have a heightened awareness to the risk that children and young people may try to bet on such events, given they are a large part of the target demographic for eSports. Consequently, they will have no hesitation in taking action against unlicensed operators who are making it possible for children to bet on eSports.

 

Not only are the UKGC concerned about the risks of betting being offered on eSports, they have also identified third party websites and companies facilitating ‘match-ups’ between players, whereby players bet against each other about who will win. From a regulatory perspective, the key question is whether these third parties are providing a service designed to facilitate the making or accepting of bets between others? If so, as would appear to be the case, this would fall within the Act’s definition of a “betting intermediary” and those entities would require a license. However, some caution has to be exercised by the UKGC in making a clear distinction between an entity which is seemingly acting as a betting intermediary, and those genuinely offering tournaments to participate in which require the payment of a fee.

 

Gambling using eSports ‘skins’

 

The latest development in the regulation of digital currencies and what constitutes consideration for gambling are so called 'skins' in eSports. Skins are digital items that can be won, traded, sold or used in computer games (e.g. weapons, clothing or other equipment). The position of the UKGC is that these constitute ‘money or money’s worth’ pursuant to s.6(5)(a) of the Act and therefore if accepted require an operating licence.

 

For the purposes of betting regulation, skins are simply a unit containing value which can be traded on a platform provided for by the game’s developer or distributor. These can then, in some circumstances, be used to bet or put stakes on casino style games. Therefore, they have a monetary value derived from the current market price, and can be converted into money. This has led the UKGC to consider that any facilities for gambling using skins requires a licence.

 

This comes in the wake of two class action lawsuits from the United States brought against an eSports game developer and the owners of a 3rd party gambling website. The lawsuits allege that the developer was complicit and knowingly allowed the operation and promotion of the illegal gambling of skins.

 

Responding to the Discussion Paper

 

Part of the reason for the UKGC releasing a discussion paper on these topics was to, “promote a discussion with interested parties, including operators, lawyers and regulators, about some other emerging issues which create issues for regulation and player protection.

 

To that end, in paragraph 7.4 of the Discussion Paper (page 8), the UKGC sets out questions in relation to each of the three areas inviting a response from those interested parties.

 

Responses need to be sent by email to UKGC by 30 September. A formal UKGC Position Paper will follow.

 

Ramparts can of course assist with drafting responses if these issues affect your own business or that of your clients, so please do not hesitate to contact our eSports regulatory expert Kevin Carpenter.

 

 

Kevin Carpenter
Consultant

email: kevincarpenter@ramparts.eu
tel: +44 (0)7920 441455

   

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