Skin Gambling Suit Analysis
Esports Betting Report

Lawsuit Against Valve Over Skin Gambling Could Face Significant Hurdles

Skin Gambling
A recently-filed lawsuit that targets game developer Valve over the company’s alleged involvement in the skin gambling market may struggle to gain traction, according to legal experts.

The suit was first reported by Polygon. You can read the complaint here.

Read a brief primer on the market for skin gambling here.

Suit ‘likely to be dismissed’

“I’d call this lawsuit frivolous and say it is likely to be dismissed,” Jeff Ifrah of Ifrah Law, a firm with a specialist practice in online gambling, told ESBR.

“Whether or not skin betting is legal, this suit claims the consumer — who entered into a wager with his eyes open — was injured by Valve.”

“Valve created a platform for play,” Ifrah continued, “and on this platform, virtual items were played in a virtual world for virtual rewards. First, this doesn’t meet the standard for a RICO violation. Second, based on the recent Mason V. Machine Zone ruling in the Maryland courts, virtual gambling under those conditions is not illegal.”

Background on the Mason V. Machine Zone decision here, text of the decision here. The decision is being appealed.

The question of profit

Another issue that may play a pivotal role in the trajectory of the case is the question of whether or not Valve directly profits from activity at third-party sites where skins are gambled or sold.

The suit appears to allege at various points that Valve receives a direct cut of skin gambling transactions, at one point stating that Valve earns “a percentage of gambling proceeds on CS:GO through various websites and third parties.”

This is an inaccurate characterization.

When players gamble skins, the skins are transferred between the player and the skin gambling site using a “trade” function that allows players to send items to one another. There is no charge associated with the trade function on Valve’s marketplace.

Jasper Ward of Jones Ward, attorney for the plaintiff, contended that, direct cut or not, Valve is still profiting from skin gambling.

“Valve certainly profits from skin betting: they take a fee from selling the casino chips in the first place, and have directly benefited from the increased popularity, revenue and exposure of CS:GO because people bet on it,” said Ward.

Where responsibility for a virtual item ends

Another issue likely in play: How much responsibility does a product creator bear for the secondary usage of said product?

“It’s pretty easy to illustrate why Valve is unlikely to be held complicit in the sale and trading of skins,” said Jessica Feil of Ifrah Law.

“It’s the same as the government releasing currency – just because you release something legally doesn’t mean that you have to anticipate and expect to be held liable for all illegal uses that might flow from it.”

Ward sees the issue differently.

“I think a key difference between what Valve has created and normal in-game purchases is that, because of Valve-supported third-parties, consumers have the ability to cash out the skins for real money,” said Ward.

Handicapping the peripheral impacts

The question of the viability of the suit is only partially connected to the external impacts the existence of the suit might generate.

“Lawsuits like these also tend to attract the attention of lawmakers and regulators, which could become a source of concern for esports companies,” said Sports Illustrated legal analyst Michael McCann, who noted skins betting constitutes a largely unexplored frontier of the law.

The suit comes at a point in time where regulators in various jurisdictions – including the U.K., Italy, and Nevada – are confronting questions around esports betting.

The media attention the suit will generate could train a stronger spotlight on the market for skin gambling as those conversations progress.

You can read the full complaint here.

Will Green contributed to this article.

Sign Up For The Grove Report – US Online Gambling Industry Insights Delivered To Your Inbox:
Chris Grove
- Chris is the publisher of ESBR and a partner at NarusOps, a company that develops esports-related assets.