1 | European Gaming Lawyer | Spring Issue | 2017

eing a relatively recent development within the gaming and gambling industry, there are elements within the concept of skin gambling which require the

attention of regulators, operators and consumers alike. �is article seeks to discuss the constitutive elements of skin gambling and its prevalence amongst consumers, its place within the de�nition of gambling according to Maltese law and following this analysis, recomendations to the Malta Gaming Authority (MGA).

What are skins?In order to achieve a better understanding of skin gambling, it is pertinent to begin with the origin of the term within the gaming industry. It can be argued that the term ‘skin gambling’ traces its origins to Counter Strike: Global O�ensive (CS:GO), an electronic game developed by Valve Corporation which sees two teams of players earning points by virtually killing players from the opposing team. In order for one team to beat its opponents, players make use of virtual weapons such as AK47s and knives. In order to give the game a personal aspect, players may personalise the weapons used – for instance an AK47 is available in customary black, but players may also spice up their AK47s by making use of a ‘skin’ to have a camou�aged weapon available for use during the game. Skins are cosmetic items that can

be used in electronic games such as CS:GO, having the sole aim of altering the aesthetic appearance of a player’s in-game weapon, gear or avatar. It is worth mentioning that a skin does not improve the power or functionality of an in-game weapon but merely changes its aesthetic appearance.

�ere are various ways for players to acquire these skins. In CS:GO, players are awarded skins in-game whilst playing or through promotional events. �ey can also trade skins with other players through ‘Steam’, an online platform operated by Valve Corporation, third party platforms or purchase skins through available online marketplaces. �e rarer a particular skin is, the more valuable it is.

Another way in which players may acquire these skins is by purchasing keys to unlock cases which contain a quantity of various skins as a prize. �is model could be compared to casino slot machines since the game involves the purchasing of a key for the opportunity to win a number of skins as a prize. Acquired CS:GO skins are added to the player’s inventory on the Steam account.

Skin GamblingLike a casino chip, a skin can serve as a de-facto virtual currency which can be used for gambling purposes. Players may make use of skins acquired in one of the above mentioned methods to bet and place wagers and gamble. Several products allowing skin gambling are available, including roulette, sportsbook

Skin Gambling – A case for regulation in Malta

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by Alistair Facciol

European Gaming Lawyer | Spring Issue | 2017 | 1

and lotteries. Similar to the more traditional forms of gambling, players transfer their skins to the particular website o�ering skin gambling products in order to play these kind of games. In the eventuality that the player wins, the winnings given by the website are in the form of additional skins, which the player may then ‘withdraw’ back to the Steam account.

�ere is no arguing that the market for skin gambling is signi�cant. During 2016, it was estimated that $7.4bn worth of skins would be wagered worldwide across a wide spectrum of gambling products.1 However, these estimates are based on studies which do not take into consideration recent events within the gaming industry.

Recent EventsIn the US, the Washington State Gambling Commission (WSGC) was one of the �rst regulators to address skin gambling by taking legal action against Valve Corporation, alleging that Valve violated gambling laws by facilitating the use of skins for gambling via its Steam platform. �e WSGC is requesting the Court to order Valve to take all necessary actions to stop third party websites from making use of skins for gambling purposes through its platform. On their part, Valve Corporation argue that it is not engaged in the promotion of gambling and that it does not in any way facilitate gambling, arguing also that the operation of Steam and CS:GO is lawful under Washington law. Valve Corporation contends that as per its policy,

it sent cease and desist letters to gambling operators, conceding however that operators made use of bots in order to disguise gambling transactions. Proceedings are still under way.

In the UK, the UK Gambling Commission (UKGC) instituted proceedings against Craig Douglas and Dylan Rigby, owners of the website ‘FUTgalaxy’ which is based on the best-seller electronic game ‘FIFA’ developed by EA Sports. FUTgalaxy provides players with the opportunity to make use of the coins earned in FIFA (FUT Coins), which can then be exchanged on the website for the in-game currency FG credits to bet on events. FG credits can also be purchased in real currency. Players earn FUT Coins in FIFA by competing in and winning matches and completing tasks in the game’s Ultimate Team mode. �ese FUT coins earned in FIFA can then be converted to FG credits through FUTgalaxy in order to place bets on real events, a�er which players can convert the winnings back to FUT Coins. �e court heard how Douglas promoted the site to more than 1 million subscribers of his YouTube channel, including minors and speci�cally, how one 14-year-old boy lost around GBP586 in a day. Rigby was �ned by GBP174,000, whilst Douglas was �ned GBP91,000.

In March of this year, the UKGC issued a position paper on virtual currencies, eSports and social casino gaming.2 �e UKGC, dedicating a whole section to

gambling with in-game items and virtual currencies, explains how it is also the video game industry which acknowledges that even though in-game items, such as skins, were provided in a “closed-loop fashion”, “users of their game networks are occasionally exploiting their open nature to o�er players opportunities to buy and sell in-game items”.3 �e UKGC went on to clarify that this ability to convert skins into cash, and the ability to trade such skins for other items of value means that these skins attain a real world value and become “articles of money or money’s worth”.4 (�e UKGC went on to conclude that a licence is required in the same manner as the use of casino chips as a method of payment for gambling requires a license.

�e Isle of Man has addressed the situation by taking measures earlier this year to allow its licensees to o�er betting using virtual currencies, including skins, thereby placing such operators within a regulated framework. Earlier this year, the Norwegian Gaming Authority published a note by virtue of which skin gambling was legally placed within the de�nition of ‘gambling’ a�er reports of minors in Norway having spent considerable sums of money on such games. �e Authority concluded that a gaming site which allowed betting and winnings in skins was e�ectively an online casino, and that operators, apart from the state monopoly Norsk Tipping, faced sanctions if skin gambling were to be o�ered in Norway.

1 C Grove, Narus Advisors, ‘Understanding Skin Gambling’, July 2016.

2 UK Gambling Commission, ‘Virtual Currencies, eSports and Social Casino Gaming – Position Paper’, available at <http://www.gamblingcommission.gov.uk/PDF/Virtual-currencies-eSports-and-social-

casino-gaming.pdf>, accessed 22 March 2017.

3 ibid.

4 (no. 2).

| European Gaming Lawyer | Spring Issue | 2017

Skin Gambling – a Maltese perspectiveMalta’s Remote Gaming Regulations, (the ‘Regulations’), de�ne ‘gaming’ as an “agreement, scheme, or arrangement between two or more parties to play together at a game of chance in which a prize or reward consisting of money or some other item of value, worth, advantage, or opportunity is o�ered or can be won and become the property of the winner under de�ned conditions established for the purpose of the game”.5

�e Lotteries and other Games Act, (the “Act”), de�nes ‘game’ as being a game of chance and/or a game of chance and skill.6 A ‘game of chance’ is de�ned by the Act as “a game for money and, or prizes with a monetary value, the results of which are totally accidental”.7 A ‘game of chance and skill’ is de�ned as “a game for money and, or prizes with a monetary value, the results of which are not totally accidental but depend, to a certain extent, on the skill of the participant”.8 Both the Act and the Regulations prescribe that a licence is required in respect of these two scenarios.

In view of the fact that skins such as those used in CS:GO can be traded or converted into cash by means of virtual marketplaces and platforms, there exists a strong argument in favour of them attaining the status of an ‘item of value or worth’ for the purposes of the Regulations. Furthermore, in light of the fact that some, if not all, of these skins may be converted into cash,

one may also argue that these skins attain a monetary value. Consequently, it follows that websites o�ering skin gambling should require a license to operate as such.

Cases such as that of FUTgalaxy, which is mentioned above, demonstrate that in-game items are particularly attractive to minors who are especially drawn to video games such as CS:GO, FIFA and other similar games. �e UKGC commented in respect of FUTgalaxy that “the defendants knew that the site was used by children and that their conduct was illegal” 9 and how the defendants “turned a blind eye in order to achieve substantial pro�ts”.10 �e court, in this case, described the e�ect of gambling on children as ‘horri�c’ and ‘serious’ leading the UKGC to conclude that licensing websites o�ering skin gambling such as FUTgalaxy was the only way to protect minors and other vulnerable persons.

As has been demonstrated in this article, several jurisdictions are taking o�cial positions and issuing decisions in respect of skin gambling. �e Malta Gaming Authority has not taken a position yet. �ere is therefore a strong case to be made for the Malta Gaming Authority to give due attention to the topic of skin gambling, particularly a�er taking into consideration the e�ects it has on minors and other groups of vulnerable persons. Awareness should be raised and controls put in place to protect minors and vulnerable persons from the risks brought about by skin gambling.

�e Malta Gaming Authority should take the opportunity to place Malta, as a gambling jurisdiction and as one of the leading industry innovators of the past ��een years, back to the forefront of consumer protection and regulation, whilst clarifying the boundaries within which skin gambling providers are to operate.

Alistair Facciol is an Associate at Fenech & Fenech Advocates and has been practicing in the gaming and betting industry since 2011. He holds a Doctor of Laws degree from the University of Malta and is currently reading for a Master in Laws (Computer and Communications Law) degree from the Queen Mary University of London. Alistair is also

i nc d in di nt a as of Intellectual Property and ICT law, especially within the gaming sector and takes keen interest in new and upcoming trends and technologies. He can be reached by email: Alistair.facciol@fenlex.com

5 Regulation 2, ‘Remote Gaming Regulations’, SL 438.04 of the Laws of Malta.

6 Article 2, ‘Lotteries and other Games Act’, Chapter 438 of the Laws of Malta.

7 ibid.

8 ibid.

9 (no. 2).

10 ibid.