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The Gray Area of Esports and Skins Gambling

Credit: Marco Verch | CCNull

The Boom of Esports

Esports, short for electronic sports, are a vein of competitive sports where athletes compete in video games. Esport events normally take the form of organized multiplayer video game competitions between professional players who participate individually or as teams. The esports scene is largely split into two categories: games that imitate real-life sports such as FIFA, NBA 2K, NHL, and MLB the Show; and more traditional video games such as League of Legends, DOTA 2, and CS:GO. The tremendous popularity of these games, coupled with the proliferation of streaming platforms such as Youtube and Twitch, have turned esports into a billion-dollar industry. But as an industry based on competition, the rise of esports has been accompanied by a sub-industry all too familiar to traditional sports markets: betting.

Esports betting can be classified into four general categories: standard esports betting, skins betting, fantasy esports betting, and esports competition betting. Standard esports betting occurs when wagers are placed on the outcome of a match using real money, similar to traditional sports betting. Skins betting is when wagers are placed on games using in-game skins, typically through unregulated gambling websites. Fantasy esports betting is when fantasy sports sites, such as Draftkings, offer contests (similar to fantasy football) on their websites involving esports competitions. Finally, esports competition betting occurs when bettors place wagers on the results of a particular participant or competition.

Due to the Supreme Court’s abrogation of the Professional and Amateur Sports Protection Act of 1992, the legality of esports betting has been left to the states. This has resulted in a lack of uniformity in regard to esports betting. While a minority of states have resorted to illegalization, more have chosen to legalize. Ultimately, however, the majority of states have taken an ambiguous stance as their laws are unclear on the matter.

Regardless, esports betting has taken a firm hold in the industry and esports’ current landscape. Skins gambling, in particular, has grown to absurd heights, with CS:GO alone having a skin betting market of $4.6 billion in 2016. This metric was seven times greater than the total esports cash betting market of that same year, totaling $649 million. This is especially troubling because skins gambling is the one category of esports betting that is mostly unregulated, and the ambiguity of the law concerning skins gambling may bring about significant issues for young adults driven by impulse to participate through unregulated gambling websites.

What is Skins Gambling?

Skins are available inside video games primarily as items to customize the look of the character. They can either be earned as a reward or bought from a store within the game, sometimes for thousands of dollars. Players can trade skins with each other for virtual or real money, making them a form of virtual currency. Skins gambling has gained popularity at a rapid pace, especially among underage players. Players are betting on third-party websites using their skins rather than traditional currency and exchanging their winnings for cash. Similar to traditional sports, people bet on the outcome of esports matches on websites such as CS:GO Empire, Farmskins, and Gamdom. Players deposit skins to the betting site and use their deposited skins to gamble. If they win, they are paid in additional skins, which they can either cash out for real-life currency or request to be transferred back to their accounts.

The Legal Risks of Skins Gambling

The legality of skins gambling is largely a gray area. There is no direct answer as to whether or not it is legal. Two federal statutes offer insight into whether or not skins gambling is legal: the Unlawful Internet Gambling Enforcement Act (“UIGEA”) and the Wire Act. UIGEA prohibits businesses from accepting payment over the internet for a bet or wager that is otherwise unlawful under state law. Online gambling websites can only operate in a state that has legalized online gambling and must limit users to particular states. The Wire Act outlaws the use of wire devices, such as telephones and computers, to transmit bets or wagers on sporting events across state lines. This, however, does not apply to non-sports gambling. In order for online gambling websites to operate legally, they must do so only in particular states and cannot allow betting on sports across state lines.

The United States recognized esports as a sport in 2013. Thus, in order for a skins-gambling website to operate legally, it must heavily monitor its users and ensure there is no out-of-state gambling. Skins gambling websites are wildly unregulated, and typically gambling sites avoid penalties by pushing the notion that the “trading” or “depositing” of skins taking place on their websites is not gambling. Because there is technically no monetary return to the player, skins gambling is not defined as a gambling activity.

There is a large controversy over skins being a “thing of value” under United States law. United States case law typically suggests a “thing of value” must be cash or chips. In Mason v. Machine Zone, a Maryland federal judge ruled that in-game currency gambled in a video game was nothing more than a “whimsical undertaking” rather than a thing of value. 140 F. Supp. 3d 457, 469 (D. Md. 2015). However, there is a current argument that this is not the case. While skins gambling does not technically fit any existing legal definition of gambling, each skin is worth a certain amount of money and can be cashed in for that amount on gambling websites, similar to chips or other forms of gambling currency.

The Future of Skins Gambling

Esports and esports gambling are increasingly popular forms of entertainment in the United States. The increasing attraction to skins gambling within esports has brought about gray areas and uncharted territory in the world of online gambling regulations. It is doubtful that it will ever be entirely legal for players to gamble with skins; however, this niche form of gambling continues to thrive in the gray areas and remains a billion-dollar industry.

*The views expressed in this article do not represent the views of Santa Clara University.


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