In recent years, the gaming industry has seen the rise of so-called "skin gambling" websites. Critics have been quick to raise red flags, citing the need for profound regulation and protective measures shielding children from such platforms. This bulletin explores the practice of skin gambling, including regulatory responses in Quebec and the rest of the world.
What is Skin Gambling?
In the video game industry, skin gambling refers to the use of virtual items, known as "skins", to bet on the outcome of professional eSports matches, jackpot-style games, as well as simpler forms of gambling such as roulette, blackjack and coin flip games. This market was estimated to be US$7.4 Billion in 2016.
The term "skin" results from the practical function of these virtual items, which consists of modifying the player's in-game appearance, whether through such player's weapons, equipment or costumes. Players can alternate between the standard designs of their in-game items and the "skins" of those items that they've acquired through gameplay, trading with other players, or online purchases. These "skins" do not have any effect on the usefulness of the weapon or piece of equipment; they are merely a cosmetic addition. There are many "skins" and there is a wide variety among them. Depending on the game played, certain "skins" may be rare and therefore more valuable to those who use/trade them.
"Skins" are created by game developers and made available to players (i) through the completion of in-game achievements, or (ii) for purchase through a marketplace managed by the game developer or publisher.
Issues with Skin Gambling
Because of the variety and relative rarity of certain skins, they have become an attractive alternative to cash or virtual currencies in the online gambling community. For example, the practice is popular within Valve Corporation's ("Valve") multiplayer first-person shooter game Counter-Strike: Global Offensive, but has also been seen in other games, such as Dota 2 and League of Legends. Illicit online gambling platforms have appeared which make use of Valve's Steam marketplace to facilitate buying, selling and trading of skins between players of such games for non-virtual money. The use of the Steam marketplace to enable skin trading as a form of currency for gambling violates the Steam marketplace's own terms of service[1].
Responses to the phenomenon of skin gambling have emerged from various sectors from a commercial and government perspective. One of the key mobilizing issues appears to be the impact of skin gambling on youth. Given the interest in video games among youth, there is fear that children and teens may be exposed to the practice of gambling. This in turn generates fears that it will lead to a higher potential for addiction and abuse among youth. Although it is difficult to measure the worldwide prevalence of skin gambling among youth, one British study has found that 11% of 11-16 year olds in Great Britain have placed bets using in-game items[2].
International Response and Criticism to Skin Gambling
Officials at the Washington State Gambling Commission (the lead gambling regulator in Valve's home state), have ordered Valve to "stop all transfers of in-game weapon skins for gambling purposes"[3]. Valve has been cooperative, and has informed the Commission that it has taken action against several skin betting websites by terminating their Steam accounts[4]. There has been no other formal legislative or regulatory response from lawmakers in the United States to provide a framework surrounding skin gambling.
Australian senator Nick Xenophon was one of the first legislators to sound the alarm on skin gambling, criticizing the lack of a firm regulatory stance within that country. Although Australia's Interactive Gambling Act 2001 prohibits most forms of online gambling, including the use of in-game items as the wager in a bet, many argue that such legislation is behind the times when it comes to addressing these issues[5]. Proponents of such view maintain that the Interactive Gambling Act 2001 was enacted before advancements in technology gave rise to the birth of skin gambling, and is therefore unsuited to properly regulate this emerging phenomenon.
Denmark is the most recent country to examine the practice of skin gambling. On February 6, 2018, Denmark's Spillemyndigheden regulatory agency won a court case forcing Danish ISPs to block access to 24 unauthorized gambling websites, including six eSports skin gambling websites. Although such sites were banned for failing to obtain permission from the Spillemyndigheden to operate as gambling platforms, the court noted that many regulators have expressed concern over skin gambling's popularity with underage gamers[6].
Skin Gambling in Canada
While Canadian federal and provincial governments have yet to directly target skin gambling, one new Quebec law poses an indirect threat to the practice. On May 18, 2016, Quebec's Bill 74[7] received royal assent from Quebec's National Assembly. Bill 74 was meant to amend Quebec's Consumer Protection Act[8] forcing ISPs to block access by Quebecers to Internet gambling sites that compete with Loto-Québec, the province's lottery operator. Arguably, such amendment to the Consumer Protection Act would target video games that include gambling-like components, whether embedded in the game's design or elicited by third parties. Bill 74 would require that ISPs make such sites unavailable in Quebec. Quebec was to become the second jurisdiction, after Denmark[9], to require ISPs to restrict access to online gambling platforms.
Following the enactment of Bill 74, the Canadian Wireless Telecommunications Association (the "CWTA"), representing Canadian ISP members, filed a motion in Quebec Superior Court alleging that Bill 74 promotes online censorship and is in violation of the Canadian Charter of Rights and Freedoms[10]. On July 18, 2018, the Quebec Superior Court rendered its decision in Association canadienne des télécommunications c. Procureure générale du Québec[11]. The Court considered the issues from the viewpoint of the constitutional division of powers between the federal and provincial governments. Restrictions on the content ISPs are allowed to diffuse fall squarely within the exclusive right of the federal government to legislate in telecommunications and criminal law matters[12]. The Court did not agree with the provincial government's contention that such restrictions should be put in place to ensure consumer protection and improve public health, both provincial competencies. As a result, the Court sided with the CWTA and declared the relevant provisions of Bill 74 to be unconstitutional.
The Quebec government has until August 23, 2018 to appeal the Superior Court's decision. Fasken will continue monitoring this case closely, with the hope that its conclusion will serve as a building block in understanding Canada's stance on skin gambling. For additional information, please contact Andrew C. Alleyne or Jonathan Raizenne.
[1] Section 2(g) of the Steam marketplace's subscriber agreement states: "[the user] may not use the Content and Services for any purpose other than the permitted access to Steam and [the user's] Subscriptions, and to make personal, non-commercial use of [the user's] Subscriptions […] [the user is] not entitled to: […] exploit the Content and Services or any of its parts for any commercial purpose". Steam Subscriber Agreement, online.
[2] Gambling Commission, "Young People and Gambling 2017: A Research Study Among 11-16 Year Olds in Great Britain", December 2017, at p 4.
[3] Jacob Wolf, Washington State Gambling Commission orders Valve to Stop Skins Gambling, online.
[4] Andy Chalk, Valve denies wrongdoing in skin gambling rumblings "no factual or legal support for these accusations", online.
[5] Catherine Armitage, "Nick Xenophon calls for curbs on teen gambling in eSports video games" The Sydney Morning Herald (July 30, 2016), online.
[6] Steven Stradbrooke, Denmark ISPs ordered to block online gambling domains, online.
[7] An Act respecting mainly the implementation of certain provisions of the Budget Speech of 26 March 2015 SQ 2016, c 7.
[8] CQLR c P-40.1.
[9] George Miller, Danish ISPs ordered to block online gambling domains, online.
[10] Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11.
[11] 2018 QCCS 3159.
[12] Ibid at para 165.
