Skin gambling

In video games, skin gambling is the use of virtual goods (known as "skins"), which are most commonly cosmetic elements that have no direct influence on gameplay, as virtual currency to bet on the outcome of professional matches. It primarily has occurred within the player community for the game Counter-Strike: Global Offensive by Valve Corporation, but practice of it exists in other game communities. Valve also runs the Steam marketplace which can be interfaced by third-parties to enable trading, buying, and selling of skins from players' Steam inventories for real-world or digital currency.

Valve added random skin rewards as part of an update to Counter-Strike: Global Offensive in 2013, believing that players would use these to trade with other players and bolster both the player community and its Steam marketplace. A number of websites were created to bypass monetary restrictions Valve set on the Steam marketplace to aid in high-value trading and allowing users to receive cash value for skins. Some of these sites subsequently added the ability to gamble on the results of professional matches with these skins, which in 2015 was estimated to handle around $2.3 billion of the virtual goods. These sites, along with Valve and various video game streamers, have come under scrutiny due to ethical and legal questions relating to gambling on sporting matches, underage gambling, undisclosed promotion, and outcome rigging. Discovery of evidence of such unethical practices was discovered in June 2016, and led to two formal lawsuits filed against these sites and Valve in the following month. Valve subsequently has taken steps to stop such sites from using Steam's interface for enabling gambling, leading many of these sites to close down.

Background

Counter-Strike: Global Offensive (CS:GO) is a team-based first-person shooter developed by Valve Corporation and Hidden Path Entertainment, released in 2012. The title itself was a stand-alone game built atop the Counter-Strike mod developed in 1999, and subsequently built out into a game series by Valve. Players in the game take the role of a terrorist or a counter-terrorist, with each team having a unique goal to complete before they are eliminated by the opposing team or before the timed round is completed; for example, the terrorist team may be required to plant and defend a bomb at a specific site, while the counter-terrorists must eliminate the terrorists before it can be planted, or disarm the bomb once it has been activated.

History

Skins as a virtual currency

The introduction of the Arms Deal update to CS:GO in August 2013 added cosmetic items termed "skins" into the personal computer versions of the game. Following the model they used for Team Fortress 2, Valve enabled players to be rewarded with random skin drops as they played matches which would be stored in their user inventory within Steam, Valve's software delivery and storefront client. Limited-time "souvenir" skins could also be earned by watching competitive CS:GO matches within the game or through a Twitch.tv account linked to a Steam account.[1] Unlike Team Fortress 2, the CS:GO skins do not have any direct impact on gameplay, only influencing the look of a player's weapon. Skins, unique to specific in-game weapons, are given several qualities, including a rarity that determines how often a player might acquire one by a random in-game drop just by playing the game or as in-game rewards, and an appearance quality related to how worn the gun appeared.[1][2]

These skins were added to try to unify and increase the player size of the community, who were split between CG:GO, Counter-Strike v1.6, and Counter-Strike: Source.[1] According to Valve's Kyle Davis, the introduction of skins to CS:GO was to encourage more players for the game by providing them free virtual items simply by playing the game which they could then use as part of the Steam Marketplace to trade with others, boosting the Marketplace's own economy.[3] Initially, Valve had considered skins that appeared as camouflage would be more desirable to help hide on some maps, but found there was more community interest in bright, colorful skins that made their weapons appear like paintball guns.[4] The addition of skins made the game attractive to expert players, as the skins could be taken as a kind of trophy, showing off to other players how serious of a player they were.[1]

Because of the rarity and other qualities, certain skins became highly sought-after by players. Skins became a form of virtual currency, with some items like special cosmetic knives worth thousands of United States dollars.[5][6] This virtual currency was further impacted by the game giving out "weapon cases" that would contain an unknown skin. A case, and discovery of that skin, could only be opened by purchasing a key in the in-game store for $2.49. At the same time, the most common skins that could be earned had a value far less than the cost of the key, so the player would effectively lose money if they bought a key and found a common skin.[7] Because of this, cases also became part of the virtual currency within CS:GO.[4]

CS:GO is not the first video game where players have traded, sold, or bought virtual in-game items, but the ease of accessing and transferring through the Steam Marketplace made it a successful virtual economy.[3] However, with increased monetary values placed on some skins, the Steam Marketplace became infeasible. The Steam Marketplace only allows sales up to $400, with all transactions subject to a 15% fee collected by Valve. Trades and purchases via the Steam Marketplace required players to add funds to their Steam Wallets to purchase skins from others, with those funds being placed in the Wallet of the seller; such funds could not be taken out as real-world money, as otherwise Valve would be regulated as a bank.[4] As the value of skins grew beyond these limits, new websites opened up that used the Steamworks application programming interface (API) to link players' inventory to these sites as to manage the trading of CS:GO skins while enabling these users to spend more and receive money through other online banking/payment sites like PayPal or using digital currency like BitCoin, and bypassing Valve's transaction fee.[4][8]

Skin gambling for CS:GO grew as the game became popular as an eSport, such as this Major League Gaming event in 2016

The player community for CS:GO grew quickly following the addition of skins, further enabled by the growth of streaming services like Twitch.tv. Valve promoted features into CS:GO that made it favorable for professional play (eSports), including sponsoring its own tournament.[9] Several teams arose from high-ranking players, creating viewing opportunities during tournaments; this was further enhanced by the ability for viewers to earn "spectator" skins simply by watching these matches.[1] Compared to League of Legends, one of the most-watched eSports in 2013,[10] CS:GO is considered an easier game for spectators to understand and follow, making it more attractive for viewing audiences.[11] Within a year of the Arms Deal update, CS:GO has seen a significant turnaround in player counts, and posed to be a major eSport.[9] More than eight million players played CS:GO by September 2015, and as of April 2016, CS:GO was one of the top five games watched on Twitch, peaking at more than 525,000 concurrent viewers during a championship round.[12] At the start of 2016, CS:GO was poised to be the largest growing eSport that year.[11][13]

Skin gambling

As CS:GO's popularity as an eSport grew with increased viewership, there also came a desire for players to bet and gamble on matches.[14] Outside of the United States, several sites arose to allow users to bet with direct cash funds on the result of matches from games like CS:GO.[15] Cash gambling on sports, including eSports, is banned within 46 American states and in some European countries.[16][17] However, American case law has determined that use of virtual goods for betting on the outcome of matches is legal and not covered under gambling laws. Companies like Blizzard Entertainment and Riot Games have made strong delineations between virtual currencies and real-money to stay within these prior rulings while offering betting on matches within their games using strictly-virtual funds.[17]

Some of the websites created to help with trading of CS:GO skins started offering mechanisms for gambling with skins, appearing to avoid the conflation with real-world currency. Players would bet one or more skins from their Steam inventory, which are then moved to an account managed by the gambling site. Upon winning, the player would be given back their skins and a distribution of the skins that the losing players had offered.[4][18] Jackpot-like sites were also introduced. Users can put their skins into the pot, which will end in one person winning. The higher total value, the more chance the user would have to win.[19] A few sites reduced the gambling to betting on the result of a single coin flip.[20] Some sites also offered unopened weapon crates for purchase with skins.[1] In combination with the gambling features, players could then trade skins they won for their cash value through these sites, or purchase skins with currency to gamble further.[4]

These sites have created a type of black market around CS:GO skins, generally unregulated by Valve.[3][21] The exact monetary values processed by these skin gambling sites are difficult to measure due to the opaqueness of the ownership. Eilers & Krejcik Gaming and Narus Advisors estimated that $2.3 billion in skins were used to bet on eSports in 2015,[3] and projected that $7.4 billion would be spent on skin gambling in 2016 and over $20 billion by 2020 if left unchecked.[17] Some individuals are estimated to have a cumulative worth of tens of millions of dollars of skins in their inventories.[22] The effect of CS:GO gambling is estimated by the Esports Betting Report as an "eight figure" number that feeds the overall area of professional eSports due to viewership and promotions related to the skin gambling.[20]

Other games

While skin gambling and the issues relating to it has been limited mostly to CS:GO, other games have also seen similar gambling using virtual goods. Valve's multiplayer online battle arena game Dota 2 uses cosmetic costumes and other skins for the playable characters as virtual currency, which have been both traded and used for eSports betting on similar or the same sites as for CS:GO. As drops of these costume elements are far more rare than in CS:GO, the gambling situation around them was not seen as egregious as CS:GO skin gambling, though does suffer from the same ethical and legal issues.[23] Team Fortress 2's virtual goods are also used on various gambling sites, to a lesser extant.[18]

Similar black markets and gambling sites exist for games in the FIFA series by Electronic Arts, starting with the FIFA Ultimate Team feature in FIFA 2013, where players would use virtual coins, purchased with real-world funds, to create a team based on real-world FIFA players. Though players are able to trade virtual athletes with another, the mechanisms of behind the coins and players has led to third-party gambling sites that operate on the same principle as CS:GO skin gambling.[24]

Eve Online, a persistent massively-multiplayer game which includes an in-game economy that is driven by players rather than its developers CCP Games, has had issues with virtual item gambling which imbalanced the player-driver economy. Notably, in an event called "World War Bee" in 2016, numerous players worked with an player-backrolled casino as to acquire enough in-game wealth and assets as to strip control from the reigning player faction in the game.[25] Following the conflict, players from the affected faction noted potential legal issues with this in-game casino that would run afoul of European gambling laws if minors were involved, as well as how they affected the game's balance beyond what CCP had envisioned. CCP discovered that alongside these casino, there was also virtual item gambling that involved real-world finances, practices that were against the game's terms of service. In October 2016, in anticipation of making Eve free-to-play, CCP altered their end-user license agreement terms to disallow any type of gambling using in-game assets,[26] and later banned the accounts of those involved in the gambling scheme, effectively seizing in-game currency estimated to be worth $620,000 in real monetary value.[27]

Issues and criticism

Prior to June 2016, skin gambling had come under criticism for several ethical issues related to the black market nature of skins. At the same time, it was recognized that skin gambling contributed greatly to the success of CS:GO as an eSport, but that it needed to be regulated to avoid some of these ethical issues.[16][28] Most of the subsequent discussion and action on skin gambling resulted from a video posted by YouTube user "HonorTheCall" in late June 2016. HonorTheCall had observed some allegations of questionable CG:GO promotion through his Call of Duty videos, and in searching in publicly-available information, discovered evidence of unethical practice by one gambling site, which he documented in this video; subsequently, several media outlets took the initial evidence and reported more in-depth on the matter.[29]

Skin gambling sites have attracted a number of malicious users. When roulette-like websites were created, browser extensions claiming to automatically bet for the user were actually malware designed to steal skins and coins.[30] The site which the malware was targeted at was called CSGODouble.[31]

While gambling using virtual items falls within acceptable practice in US case law, the fluidity between virtual goods and currency, enabled by the Steam Marketplace, makes it unclear if skin gambling is legal under US law and if Valve would be liable.[17] Further, the ease of accessibility of skin gambling websites has enabled underage gambling. Justin Carlson, the creator of a skin selling online marketplace website called SkinXchange, said underage gambling is a huge issue, and there were "countless times" where he's had to call parents to tell them their child had used their credit card to buy items. Carlson cites cases where underage users have bet hundreds or thousands of dollars, just to end up losing them on a betting or jackpot site.[16][20]

Many skin gambling sites do not explicitly declare who owns them and may be operated by offshore agencies, leading to issues involving transparency and promotion.[16] Some of these sites are located in offshore countries which do not have restrictions on gambling, putting them outside of law enforcement in some countries.[16] In early July 2016, the video posted by "HonorTheCall" led to the discovery that one gambling website, CSGO Lotto, was owned by two YouTube users, Trevor "Tmartn" Martin and Tom "Syndicate" Cassell and supported in equity by Josh "JoshOG" Beaver, none of whom disclosed this relationship on their videos while promoting this website to their subscribers, with some of this promotion paid for in the way of CS:GO skins. This practice was identified as conflicting with the Federal Trade Commission on promotional videos, though the owners have claimed they are operating within the law.[29][32] Valve subsequently blocked CSGO Lotto from the Steam services, but a few days later overturned that ban.[33] A similar situation was discovered for YouTube user PsiSyndicate, whom promoted the site SteamLoto without disclosure, while being paid for the promotion in rare skins.[34] One site, CSGO Wild, in announcing their closure in response to Valve's cease & desist letters (described below), revealed they had promoted members of FaZe Clan who had previously did not reveal this promotion on their videos. At least one member of FaZe Clan has since updated their video archives to include a message regarding their CSGO Wild promotion following this announcement.[35]

A further problem with these gambling sites were claims of rigging between some skin gambling sites and players. One site CS:GO Diamonds has admitted to providing at least one player with inside information to help make the resulting matches more exciting to draw viewers to the site.[17] In January 2015, Valve banned seven professional CS:GO players from the same team after finding evidence that they were match fixing in association with skin gambling site CS:GO Lounge during a major competition.[36] Further, Valve warned that professional CS:GO players and event organizers "should under no circumstances gamble on CS:GO matches, associate with high volume CS:GO gamblers, or deliver information to others that might influence their CS:GO bets", threatening to exclude players that may even be suspected of such interactions.[37] Despite this discovery, CS:GO Lounge continued to remain active, and later that year announced its sponsorship of a professional CS:GO team, raising questions of its legitimacy.[21]

Lawsuits and legal actions

In June 2016, Valve was sued in the American state of Connecticut by resident Michael John McLeod. The lawsuit cites "illegal gambling" issues "knowingly" created by Valve and three of the trading sites, CSGO Diamonds, CSGO Lounge and OPSkins, including potentially gambling by minors, stating that Valve not only provides the currency in the form of skins for gambling, but also profits from the resulting trades when such skins are won. McLeod's lawyers are seeking to treat this as a class-action lawsuit once proceedings begin.[38][39] Part of the suit asserted there were Racketeer Influenced and Corrupt Organizations Act (RICO) violations at play, requiring part of the suit to be heard at the Federal Circuit Court. The presiding judge ruled in favor of the defendants' motion to vacate this aspect of the case in October 2016, stating that "gambling losses are not sufficient injury to business or property for RICO standing". Further actions on this case may continue at state-level courts, along with appeals to this ruling.[40][41]

A second lawsuit, also filed as a class-action, was initiated against Valve, Martin, Cassel, and CSGO Lotto by a Florida mother in July 2016 shortly after the CSGO Lotto discovery. This suit states that Valve enables gambling by minors and users such as Martin and Cassel promote this, all considered illegal activities under federal racketeering laws and Florida consumer protection laws.[42]

Jasper Ward, a lead counsel in both cases, undertook the lawsuits due to his current involvement in the legal investigation into gambling issues with DraftKings and FanDuel, sites that allowed players to bet on fantasy teams. Ward stated that Valve "created and is profiting from an online gambling ecosystem that, because it is illegal and unregulated, harms consumers, many of whom are teenagers". Ward noted that, as of a July 6, 2016 interview, Valve had not issued a response to either case, and believed that the company's "public silence [...] is unconscionable", particularly in light of them unbanning CSGO Lotto.[33]

Shortly after the second lawsuit above, Valve's Erik Johnson stated in a July 13, 2016 letter to Gamasutra that they will demand the third-party sites that use Steam functionality to aid in gambling to cease their use of Steam in that manner, as their methods of connectivity and use go against Steam's acceptable use policy. Johnson also stated that Valve has no business relationships with these sites, and will pursue legal action if they continue to violate their service terms.[43] Valve followed by issuing several cease and desist letters on July 20, 2016 to 23 sites they believed involved in skin gambling that were inappropriately using their services, giving them ten days to discontinue use of the Steamworks API.[44] Another 20 sites were issued similar cease & desist notices by Valve on July 30, 2016.[45]

Twitch.tv warned its users on July 14, 2016 that streams depicting or promoting CS:GO gambling sites were a violation of its terms of service, which forbids streams that depict content which violates the terms of service of third-parties.[46] On July 19, 2016, Twitch banned "PhantomL0rd", the highest-viewed CS:GO player on Twitch with over 1.4 million subscribers, asserting the ban was for violating their terms of service, though did not clarify further for the specific reasons. This ban had followed a few days after yet-proven allegations regarding PhantomL0rd's connections to a skin gambling site were made public.[47][48]

In the wake of Valve's statement, several of the gambling sites either went dark, closed off the use of the site by United States residents, or formally announced their closure, such as CSGODouble.[49] Valve warned users that they should move any skins they have transferred to such sites back to their Steam inventory, while several affected sites have promised users they will automatically return skins in the near future.[17] One site, OPSkins, remained active, claiming in a statement that they were not a gambling site and do not believe Valve can take action against them.[49] CSGO Lounge had announced plans to obtain legal gambling licenses in the countries it plans to operate within, and restricting access to users from countries with these licenses.[50] However, by August 17, 2016, the site announced they were shutting down all virtual item gambling, offering users an opportunity to recover their virtual items, while shifting to a general eSports entertainment website.[51]

On October 5, 2016, the Washington State Gambling Commission (where Valve is headquartered) ordered the company to "immediately stop allowing the transfer" of skins for "gambling activities through the company’s Steam Platform", giving the company until October 14 to submit notice of compliance or otherwise face legal repercussions. The commission had previously contacted Valve in February over issues with the practice.[52] Valve's reply re-asserted it was not involved with these gambling sites and did nothing wrong under state law, further asserting that most of the Steam service features used by the gambling sites are primarily designed to be used to facilitate legal and acceptable practices for other users, and thus cannot directly shut down these services without impacting the bulk of other Steam accounts using the services legally. Valve continued that they have and will continue, in an offer of cooperation with the State, to identify those Steam accounts being used for gambling sites and shut them down due to violation of their end-user license agreement terms.[53]

In August 2016, the United Kingdom's gambling commission issued a position paper for public comment that includes concerns over eSports gambling using virtual items.[54] The Commission has started prosecution on two owners of a UK website that promoted virtual goods gambling around the FIFA games. The two have been criminally charged with advertising unlawful gambling and encouraging underage gambling.[55][56]

In 2016, Australian senator Nick Xenophon planned to introduce legislation that would classify games like CS:GO, Dota 2, and other games with virtual economies with the option to use real currency to buy items with random or different value (as in the CS:GO weapon cases) as games of chance. Under this proposed law, such games would be regulated under gambling laws, requiring them to carry clear warning labels and may be required to enforce age requirements to play. Xenophon stated that he believed these games "purport to be one thing" but are "morphing into full-on gambling and that itself is incredibly misleading and deceptive".[57]

Impact

The revelations of several problems with skin gambling during June and July 2016 highlighted the nature of gambling as a significant problem for eSports. Todd Harris of Hi-Rez Studios, a developer of several eSports games, believed that these events signaled the end of an era where eSports went mostly unregulated, requiring publishers and tournament operators to exert tighter control on their games to reduce gambling problems.[22] Psyonix, the developers of Rocket League, announced plans to bring a similar loot-drop and trading system to their game as with CS:GO, but purposely opted not to use the Steamworks API to manage player inventory, seeking to avoid a similar situation with gambling that happened with CS:GO.[58] In September 2016, Twitch announced plans to offer a virtual currency, known as "Stream+", to users of their platform which would as act as points within a loyalty program. The points can be earned by watching streams, and a user would be able to gambling on eSport matches with them.[59]

See also

References

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