Law and Legislation GETTING REAL: WHAT THE SKIN BETTING LAWSUITS COULD MEAN FOR SOCIAL GAMING Faced with several lawsuits, CS:GO developer Valve has acted decisively to The plaintiff claimed the casino element of stop third-party sites offering skin betting, but if the courts now hold that skins Game of War was illegal gambling. The court have “real-world” value, the entire skins system—and all similar gaming— disagreed and held that the game itself was could be at risk, writes Jessica A. Feil of Ifrah Law. not a gambling “machine” as defined in the state statutes. While the holding focused on eSports is the new, burgeoning, competitive The social gaming cases and the physical mechanics of the game, the tone video game industry. Starting with popular virtual prizes of the opinion stressed the difference between video games for home play, now there are In four recent social gaming cases, plaintiffs real-world and virtual goods. According to international tournaments and professional sued various mobile social game creators for the court, the virtual goods have no real value leagues organized around the games. But losses due to alleged illegal gambling. Yet, in except to enhance gameplay. Further, the with growth comes legal challenges. One all of these cases, the courts have sided with ability to sell the items on an unsanctioned major game creator, Valve Corporation, has the game creators. The grounds for dismissal secondary market did not establish a real- been named as a defendant in three putative in these cases illuminate a similar theme: world value for the virtual items. class action lawsuits. The crux of these cases courts are reluctant to impose “real world” Another case, Kater v. Churchill Downs, is whether the “skins” that players win in value on virtual winnings. reached the same result as Machine Zone. their games are “things of value” as typically In Mason v. Machine Zone, the plaintiff Churchill Downs operates Big Fish Casino, understood in the gambling context. The sued Machine Zone, maker of Game of which is a free-to-play casino mobile app. skins started as a fun add-on to the game War: Fire Age, for violations of various state Within the app, players can purchase extra experience, but have now become the basis laws prohibiting gambling. Game of War is chips with real money. However, using real for an online gambling industry run by third- a mobile app that allows players to create money was not required, as players received party websites. a virtual empire. Within the game, players new chips for free every day. Further, the While there is no case law or legislation obtain virtual “gold” through completing chips could never be cashed in for real- directly on point, similar issues have been tasks, and players can also purchase gold world prizes. Nonetheless, an unauthorized addressed in the social gaming context. with real money if they so choose. The gold secondary market had developed where The social gaming cases were making can be used at a variety of in-game activities, players sold the virtual chips for real money. progress with several rulings drawing the including a casino. The in-game casino The court held that the chips the players distinction between virtual currency and offered virtual prizes that enhanced further won were not “things of value” because they real-world currency. The courts had sided gameplay. Although there was no real world were purely virtual prizes that only extended with the game operators and dismissed monetary value on the virtual gold or casino game play—there was never a chance for cases premised on illegal gambling laws. prizes, an unauthorized secondary market the player to cash out within the game. The However, the Valve lawsuits threaten to had sprung up where some players sold their court refused to consider the monetary value unravel this progress. virtual tokens for real money. established on the secondary market because 10 | iGamingBusiness North America | Issue 26 | August/September 2016 Law and Legislation doing so would reward plaintiffs for violating When Valve began releasing skins for an audience that often skews towards a the game’s terms of service. its games, their platform used an open very young demographic. In fact, two of Two other cases, Soto v. Sky Union and API to allow players to trade skins among the lawsuits against Valve specifically are Phillips v. Double Down Interactive, have themselves as an enhancement to their brought by parents of minors who engaged garnered similar results. The Sky Union case personal gaming. With access to an open in skin gambling. Given the larger potential was very similar to Machine Zone, as players API, skin gambling websites quickly evolved. monetary losses and perception of targeting spent virtual currency at a slot machine On these sites, players could wager their of children, there has been a more significant contained within a game-of-skill mobile app. skins to win better ones on casino-style public outcry over skin gambling. In holding that there was no illegal gambling, games and then cash out for real money In light of the lawsuits, Valve has begun the court stated that the “players may be on separate third-party marketplaces. to make changes. The company issued a ecstatic when they win rare [virtual prizes], but Valve, although not expressly promoting or cease-and-desist letter to 23 skin gambling these items have no measurable value. They supporting the gambling, did nothing to stop sites, ordering them to shut down—most are therefore not prizes under the statue.” In the sites even though they ran afoul of Valve’s have complied. Valve has also closed their the Double Down case, which involved a free- terms of service. API. These remedial measures show that the to-play casino mobile app, the court noted that The plaintiffs in the cases against Valve company is serious about preserving their unlike a real world casino, there is no winner claim that the skins have a real-world value business and enforcing their terms of service. or loser when a player purchases tokens in a determined by the third-party marketplace. Although Valve is reforming its operations, the lawsuits are still pending. Gamers “While the courts were quick to turn a skeptical love to extol the value of their skins, but legally, it is better if the courts continue eye to the virtual prizes in the social gaming cases, with the skepticism demonstrated in the social gaming cases. If the courts hold that there is no assurance the same would happen in skins are things of value, the entire skins Valve’s case.” system—and all similar gaming—could be at risk. A case law conflict between social virtual game. The player loses the money at Further, because these sites could not exist gaming and eSports would be daunting for the time of purchase and can only win virtual without the open API and Valve (at least) future game creators and operators. Without prizes, not real money. Further, the game looking the other way, Valve allegedly clarity in the law, there is little guidance operator never has a stake in the outcome of had implicitly sanctioned skin gambling. for developers to follow as they create new the game, so they are never a “winner” like a In contrast, the social gaming operators products. Fortunately, Valve appreciates the real world casino. had actively enforced their terms of seriousness of this moment and has followed service and regularly sought to shut down the lead of the social games by moving to Skin betting lawsuits threaten to upend unauthorized marketplaces. actively enforce its terms of service. social gaming’s progress While the courts were quick to turn a Right now, the players and operators will These four big victories for online gaming skeptical eye to the virtual prizes in the social have to wait out the lawsuits—and enjoy skins were almost for naught. Three different gaming cases, there is no assurance the only within the video games. class action lawsuits were filed against Valve same would happen in Valve’s case. In the Corporation within a six-week period, and social gaming cases, players lost relatively each of these lawsuits allege that Valve is small amounts of money—typically in the supporting unlawful online gambling in the hundreds of dollars. However, a single Jessica A. Feil is an associate at Ifrah Law, in Washington form of skin gambling. Skins are in-game skin can sell for hundreds or thousands D.C. Her practice focuses on tokens that give video game players the ability of dollars. Moreover, the gambling sites iGaming and white collar criminal to move through games more efficiently. seemingly target an underage market. defense. She graduated from the The skins can take the form of special Some of the operators have millions of Case Western Reserve University School of Law weapons, potions, or strength enhancements, followers on YouTube or other social media and worked as an Assistant Prosecuting Attorney in Cuyahoga County, Ohio prior to joining Ifrah Law. depending on the video game. outlets where they promote gambling to iGamingBusiness North America | Issue 26 | August/September 2016 | 11 .