Regulatory
Skin Gambling
Definition
Skin gambling is wagering with cosmetic virtual items from video games, known as skins, such as weapon finishes in Counter-Strike, either as stakes or as prizes, usually on third-party websites outside regulated gambling. Skins can be traded and sold for real money, which gives them monetary value. Sites commonly offer bets on esports matches and casino-style games such as jackpots, coin flips and roulette, typically linking to players' accounts through the game platform's trading features.
In Great Britain, the Gambling Commission's position is that where in-game items can be cashed out or traded for money they can amount to money or money's worth, so offering gambling with them requires a licence. Its first criminal prosecution in this area concerned FutGalaxy.com, a site that let users gamble with FIFA Ultimate Team coins; in February 2017 its two directors pleaded guilty and were ordered to pay £174,000 and £91,000 in fines and costs. Regulators' main concern is children's access.
Key takeaways
- Skin gambling uses tradable cosmetic game items, which can be sold for real money, as stakes or prizes, mostly on unlicensed third-party sites.
- The Gambling Commission treats in-game items that can be cashed out as money's worth, so gambling with them needs a licence in Great Britain.
- Its first prosecution, over FutGalaxy.com, ended in February 2017 with fines and costs of £174,000 and £91,000 for the two directors.
- Valve said in July 2016 that using Steam to run a gambling business breaches its API and user agreements and sent cease and desist notices.
Why it matters
Skin gambling sits at the edge of the regulated market, but it shapes how regulators and lawmakers look at the whole industry. Its audience is young: in the FutGalaxy case the court was shown footage of a 12-year-old gambling on the site, and the judge called the offending very grave. Concern about underage gambling through game items is also why the Commission has kept loot boxes and other gambling-like game features under review.
The platforms have also been drawn in. In July 2016 Valve stated that using Steam to run a gambling business is not allowed by its API or user agreements and began sending cease and desist notices to skin gambling sites, which numbered over 40 by October 2016. That same month the Washington State Gambling Commission demanded that Valve explain how it complied with state gambling law and halt the transfer of Counter-Strike skins for gambling.
For licensed operators the issue is mainly one of boundaries. Esports betting products, affiliates and influencers that reach gaming audiences can be associated with skin sites, which brings reputational and marketing compliance risk. Because skins can be bought, traded and sold across borders, they can also move value outside the banking system, a concern for AML teams. Most skin sites are unlicensed operators, so enforcement falls to regulators, payment providers and game platforms rather than to licensing conditions.
Skin Gambling vs Loot box
| Skin Gambling | Loot box |
|---|---|
| Staking tradable game items, or winning them, on third-party sites. Where items can be cashed out, the Gambling Commission treats this as gambling that requires a licence. | A paid, chance-based item draw inside a game itself. The Gambling Commission has said that where items cannot be cashed out and stay within the game, it is unlikely to be a licensable gambling activity. |
The legal line in Great Britain turns on whether items are money or money's worth. Loot boxes can feed the item supply that skin gambling sites use, which is why the two are often discussed together.
The bottom line
Skin gambling uses tradable game items as gambling currency, mostly on unlicensed sites popular with young players. British law treats cash-convertible items as money's worth, the Gambling Commission has prosecuted, and Valve prohibits gambling businesses on Steam, but the activity persists at the edge of the regulated market.
Sources
- Two men convicted after offering illegal gambling parasitic upon popular FIFA computer game - Gambling Commission
- Loot boxes within video games - Gambling Commission
- State regulator orders Valve to halt CS:GO skin gambling through Steam - Steam News (Valve)
Frequently asked questions
What is skin gambling?
Skin gambling is betting with skins, the cosmetic items players collect in video games such as Counter-Strike. Because skins can be traded and sold for money, they work as a currency on third-party websites that offer bets on esports matches or casino-style games. Most of these sites are not licensed, and many have been accessible to children.
Is skin gambling legal in the UK?
Offering skin gambling to people in Great Britain without a Gambling Commission licence is illegal where the items can be converted into money or money's worth. The Commission brought its first prosecution in this area over FutGalaxy.com, whose two directors pleaded guilty in February 2017 and were ordered to pay £174,000 and £91,000 in fines and costs.
What is Valve's position on skin gambling?
Valve, which runs Steam and Counter-Strike, said in a July 2016 update that using Steam to run a gambling business is not allowed under its API or user agreements, and it sent cease and desist notices to skin gambling sites, more than 40 by October 2016. The Washington State Gambling Commission also pressed Valve that October to stop skins being transferred for gambling.
Skin gambling vs loot boxes: what is the difference?
A loot box is a paid, random reward bought inside a game. Skin gambling takes place on third-party sites, where skins are staked or won like money. In Great Britain the Gambling Commission has said loot boxes whose items cannot be cashed out are unlikely to be licensable gambling, whereas gambling with items that can be cashed out needs a licence.