3. Gambling with in-game items and virtual currencies
• Where in-game items can be traded or exchanged for money or money's worth
outside a video game, they acquire a monetary value and are themselves
considered money or money's worth.
• Where facilities for gambling with tradable in-game items are offered to British
consumers a licence is required.
3.1 Many video games incorporate in-game items to improve the enjoyment and longevity of a
game and to provide an alternative means of monetising a game title beyond the traditional
up-front purchase price. Individual game mechanics vary, but generally in-game items are
acquired through gameplay (randomly or as a reward), exchanged between players or
purchased from the game's publisher with real money.
3.2 While in-game items vary in form across the diverse range of video game genres and titles,
in general they are integrated directly to complement the nature of a particular game.
Examples include an in-game currency, points, spells, equipment, and weapons or weapon
skins (skins).
3.3 The use of in-game items within video games is not a new development. They have long
been used as a means of demonstrating personal achievements by players and facilitating
progress within games. As modern video-gaming has become increasingly social in nature,
aided by the availability of technology such as open application programming interfaces
(APIs), the use of in-game items such as virtual currencies has created some concerning
by-products.
3.4 To address some confusion caused by the references to ‘virtual' and ‘digital' currencies in
our discussion paper we have included in the glossary to this paper the distinction we draw
between the two. This paper is only concerned with virtual currencies in the form of ingame
items, using our glossary definition.
3.5 In response to our discussion paper, representatives of the video game industry have
explained that in-game items are provided in a ‘closed loop' fashion, meaning they are not
intended to be exchanged for cash, either with the games providers, with other players or
with third parties. The networks via which games are accessed, are not designed to have
open functionality to facilitate users trading in-game items with each other for money. This
approach is underpinned by the terms and conditions governing the use of the networks.
Virtual currencies, eSports and social gaming
3.6 In spite of the policy and intent to avoid in-game items attaining a real world value, the
video game industry has acknowledged that users of their game networks are
‘occasionally' exploiting their open nature to offer players opportunities to buy and sell ingame
items.
3.7 Based on open source research, the volume, variety and sophistication of websites
advertising opportunities to exchange in-game items for cash, indicates that to term such
circumvention of regulation as ‘occasional' risks understating the extent of this issue.
3.8 In our view, the ability to convert in-game items into cash, or to trade them (for other items
of value), means they attain a real world value and become articles of money or money's
worth. Where facilities for gambling are offered using such items, a licence is required in
exactly the same manner as would be expected in circumstances where somebody uses or
receives casino chips as a method of payment for gambling, which can later be exchanged
for cash.
Gambling facilities
3.9 Since 2015, we have investigated a number of unlicensed websites providing facilities for
gambling using in-game items as methods for payment. As well as offering the opportunity
to exchange in-game items for cash or trading them, these websites have exploited the
open nature of video game networks to offer gambling facilities to players. Of particular
concern is the apparently indiscriminate provision and promotion of such websites and the
consequential evidence of harm experienced by children. It creates a situation where
children are readily able to able to access activities commonly accepted as being
appropriate only for adults in tightly regulated environments.
3.10 Tackling operators making gambling facilities available to children was identified in our
discussion paper as a priority. This principle has subsequently been demonstrated in the
successful criminal prosecution of the operators and advertisers of the FutGalaxy website.
The judgement of the Court in our view reflects society's intolerance of those who seek to
exploit children for their own personal gain. We commented on the outcome of the case:
”This was one of the most serious cases that has been investigated and prosecuted by
the Commission. Its gravity is reflected in the significant financial penalties imposed by
the Judge. The defendants knew that the site was used by children and that their
conduct was illegal but they turned a blind eye in order to achieve substantial profits.
The effect on children of online gambling was rightly described by the Court as ‘horrific'
and ‘serious'. All websites offering gambling facilities in Britain must be licensed; it is
the only way in which children and vulnerable people can be protected. This case
demonstrates that we will use the full range of our statutory powers to investigate and
prosecute individuals and companies who try to operate illegally."
3.11 The FutGalaxy case also exposed a common theme which is the significant role social
media plays in promoting these unlicensed gambling websites seeking to associate
themselves with video gaming. We have seen numerous examples of the misuse of video
sharing platforms, live streaming and/or social media platforms to promote unlicensed
gambling. Such activities are often conducted with little or no regard to the protection of the
young or vulnerable and in some more extreme examples have been exposed as
deliberately misleading, for example by showing implausible winning streaks later found to
be false, with the seeming intent to entice the audience to gamble.
Virtual currencies, eSports and social gaming
‘Skin' gambling
3.12 In our discussion paper we drew particular attention to the issue of ‘skins' given their status
as the predominant example of in-game item gambling. ‘Skins' are in-game items, used
within some of the most popular video game titles. They provide cosmetic alterations to a
player's weapons, avatar or equipment used in the game and are valued by reference to
their rarity, aesthetics, utility and popularity. Prices are subject to constant fluctuation and
typically range from under £10 to £300, but with particularly rare items being valued at over
£1,000.
3.13 Given the wholly unregulated nature of ‘skin' gambling websites, it is difficult to get
authoritative data on the scale of this black market in Great Britain. However, there is
evidence of a dramatic increase in the supply and use of ‘skin' gambling websites in the
first half of 2016. Following adverse publicity and some high-profile activity by large video
game developers the illegal supply of these gambling facilities was subject to disruption. A
number of websites withdrew gambling facilities or adapted their business models having
been warned about misappropriating the game publisher's intellectual property in
contravention of the network's terms of use.
3.14 The boom in ‘skin' gambling has attracted the attention of law enforcement and regulatory
bodies around the globe. As part of our work we have engaged with a number of domestic
and international regulators who share a common interest in protecting consumers, and
children in particular, by seeking to disrupt the provision of illegal gambling facilities.
3.15 We recognise that in the casino chip analogy invariably it is the same entity who controls
the activity, the gambling and the cash-out facility. Applying that to the case studies we
have explored in the video game industry we acknowledge that it is possible for these three
functions to be offered by three different parties. We have not seen any evidence to
suggest games publishers, developers or network operators are intentionally providing or
advertising unlicensed facilities for gambling or entering commercial agreements with those
who are unlawfully doing so.
3.16 However, we are strongly of the view that the video games industry should not be, or
perceived to be, passive to the exploitation of their player community by predatory third
parties. The significant risk of harm posed by these unregulated gambling websites, whilst
unintended, is nonetheless a by-product of the manner in which games have been
developed and in-game economies incorporated for commercial benefit. Despite there
being no evidence of any direct commercial benefit to games publishers from the illegal
gambling facilities, it is reasonable to infer that there is an indirect benefit from these
activities given that it is the games publishers who are the ultimate source of in-game items
acting as a de-facto central bank. Where a player loses their entire ‘skin' inventory having
staked them unsuccessfully on gambling activities, one option for them is to purchase new
‘skins' from the games publishers, either for use within the game or for further gambling
stakes.
Game mechanics
3.17 Away from the third party websites which are overtly gambling (offering betting, casino
games and lottery products) the ability to exchange in-game items for cash or trade on
secondary markets also risks drawing elements within games themselves into gambling
definitions. By way of example, one commonly used method for players to acquire in-game
items is through the purchase of keys from the games publisher to unlock ‘crates', ‘cases'
or ‘bundles' which contain an unknown quantity and value of in-game items as a prize. The
payment of a stake (key) for the opportunity to win a prize (in-game items) determined (or
presented as determined) at random bears a close resemblance, for instance, to the
playing of a gaming machine. Where there are readily accessible opportunities to cash in or
exchange those awarded in-game items for money or money's worth those elements of the
game are likely to be considered licensable gambling activities.
Virtual currencies, eSports and social gaming
3.18 Additional consumer protection in the form of gambling regulation, is required in
circumstances where players are being incentivised to participate in gambling style
activities through the provision of prizes of money or money's worth. Where prizes are
successfully restricted for use solely within the game, such in-game features would not be
licensable gambling, notwithstanding the elements of expenditure and chance.
Approach
3.19 An appropriately targeted and proportionate use of our regulatory or criminal powers will
require an assessment of the circumstances in a particular case. In particular we will
consider the scale and availability of unlicensed gambling facilities to British consumers,
the identification and location of the operator and the means or sources of payment
processing and advertising utilised. As indicated in the discussion paper, whilst any illegal
gambling requires a response, evidence of a risk of harm to children is and will remain a
significant aggravating factor.
3.20 Adopting a zero-tolerance approach to small scale or ad-hoc secondary markets for ingame
items (thereby bringing activities conducted in games themselves or on games
platforms within the definitions of gambling) may not be practical or proportionate to the
risks posed to the licensing objectives. The proximity of any facilities for gambling to the
means of exchanging items for cash, overt relationships between the two and/or the ease
with which such transactions are conducted, are likely to be the key considerations when
prioritising our enforcement activity. On occasions where serious concern exists under
those criteria we are clear that primary responsibility lies with those operating the
unlicensed gambling websites. However, we will also liaise with games publishers and/or
network operators who may unintentionally be enabling the criminal activity.
3.21 We are encouraged by the sentiments expressed, both individually and through
representative organisations of the video game industry, that it is committed to working with
us to prevent customers experiencing gambling-related harm through their platforms as
well. We agree that aside from the moral reasons for finding solutions there should also be
legal, commercial and reputational drivers. Reports of the estimated impact of the action
taken by one prominent game developer to crack down on misuse of their network during
2016 is, to us, a powerful indicator of the positive role network providers can play in
protecting their community of players.
3.22 Having demonstrated what can be achieved during 2016, we will be looking to engage
further with the video games industry to understand how these initial steps can develop into
effective and sustainable longer term solutions.
3.23 All interested parties should be clear, that where gambling facilities are offered to British
consumers, including with the use of in-game items that can be converted into cash or
traded (for items of value), a licence is required.
