Written evidence submitted by the Gambling Commission
The immersive and addictive technologies inquiry
1 Executive summary
2.1 The Commission regulates commercial gambling in Great Britain in accordance with the Gambling Act 2005. We also regulate the National Lottery under the National Lottery etc. Act 1993.
2.2 Given our statutory remit we have confined our response to the inquiry’s questions on the links between gaming and gambling, and the challenges and opportunities associated with eSports and the gambling industry.
3 eSports
3.1 As live and competitive spectator events, eSports are an attractive proposition for licensed betting operators to offer bets on the outcome of matches, events and leagues. Although currently a small percentage of the British gambling market, the expanding range and volume of betting markets offered on eSports demonstrates industry confidence in the potential for further growth.
3.2 With the growth of betting on eSports and interest in this area, we are taking steps to improve the evidence base on the British market. Based on our regular online tracker survey of adults aged 18+ we found:
3.3 Whilst a headline participation rate of 7.6% appears high for a comparatively new mainstream gambling activity, it should be noted that this relates to those respondents who have ever bet on eSports, recent participation is around 3%.[3] Since the start of 2018 we have collected financial data from GB licensed online betting operators to help us quantify and track more accurately the size of the licensed eSports gambling market. Work is ongoing regarding the quality assurance of the data provided and we are yet to gather a full year’s data. However, for indicative purposes the total amount of gross gambling yield reported from eSports betting as of 06.12.18 was £2,367,798. For comparison purposes the total gross gambling yield for the GB gambling industry is £14.4bn (April 2017 – March 2018).
3.4 The most common concern expressed in relation to betting on eSports, is its potential attraction to under 18s. Whilst market research on the demographic of eSports audiences may challenge some preconceived ideas (est 73% of eSports ‘enthusiasts’ aged 20+[4]) it is unquestionably an activity that has a large following of children engaged in playing the underlying games casually, in events and competitions or by interacting with others on platforms which stream coverage of live play or associated activity.
3.5 This has raised concerns about the risk of children being exposed to or seeking to gamble on the outcome of eSports events. Anyone wishing to accept bets from GB customers on eSports must be licensed and regulated by the Gambling Commission and we note:
3.6 One area where it is possible eSports events may present a heightened risk to our objective that gambling is fair and crime free, is the integrity of events. There is an inherent risk that where large gambling markets (or prize pools) grow up around events, the risk of manipulation of participants or equipment increases.
3.7 Concern has been expressed in light of incidences of professional eSports participants ‘cheating’ in order to win or underperforming to deliberately lose. Our primary concern in either scenario, would be the impact on British consumers gambling on events later found to have been corrupted.
3.8 Maintaining public confidence in the integrity of eSports as an entertainment and betting event relies upon those seeking to benefit commercially from it, recognising the inherent integrity risks and proactively seeking to mitigate them by applying best practice from other sports.
3.9 To date we have not uncovered evidence that eSports events, available to British consumers to bet on or hosted in the UK, present a serious integrity risk. The licensed betting industry should however ensure it satisfies itself that competitions upon which markets are offered are effectively managed to mitigate the risk of corruption with its attendant consequences for their consumers.
3.10 We continue to work with those committed to raising awareness and addressing integrity risks within eSports including exploring memorandums of understanding where appropriate. Where risks materialise that threaten the fairness of betting on eSports events, we have powers to intervene, on a precautionary basis where necessary, to protect consumers.
4 Gambling with in-game items and ‘loot boxes’
4.1 Many video games incorporate in-game items to improve the enjoyment and longevity of a game and to provide an additional means of monetising a title beyond the up-front purchase price. Individual game mechanics vary, but generally in-game items are acquired through gameplay, exchanged between players or purchased from the game’s publisher.
4.2 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.
4.3 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. This intent is generally underpinned by the terms and conditions governing the use of the gaming platforms.
4.4 Despite the intent to avoid in-game items attaining a real-world value, the video game industry has acknowledged that users of certain game platforms are ‘occasionally’ exploiting their open nature to offer players opportunities to exchange in-game items for money.
4.5 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’ understates the extent of this issue for certain games.
4.6 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.
4.7 Since 2015, we have investigated a number of unlicensed websites providing facilities for gambling using in-game items as a method for payment. Of particular concern is the 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 access activities appropriate only for adults on regulated websites.
4.8 As part of our efforts to disrupt this form of illegal gambling we brought the first criminal prosecution of its kind against the operators and advertisers of the FutGalaxy website. 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.”
4.9 The FutGalaxy case 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 contrived, with the seeming intent to entice impressionable viewers to gamble.
4.10 ‘Skin’ gambling has been 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 in-game equipment 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.
4.11 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, in terms of the exposure of children to these types of illegal websites, our survey data on participation in gambling by 11-16 year olds found 3% of respondents said they had bet with in-game items on websites outside of video games or privately.
4.12 In our view the video games industry should not 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 relationship between games publishers and the illegal gambling facilities, it is reasonable to infer that there is an indirect benefit derived from these activities given they drive engagement with the game and it is the games publishers who are the ultimate source of in-game items acting as a de-facto central bank. Where a player gambles away their entire ‘skin’ inventory having staked them unsuccessfully on the illegal sites, one option for them is to purchase new ‘skins’ from the games publishers, either for use within the game or for further gambling.
Loot Boxes
4.13 Aside 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 risks drawing the mechanics for in-game purchases offered within games themselves, into the definitions of gambling.
4.14 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 ‘loot boxes’ which contain an unknown quantity and value of in-game items. 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 to the playing of a game of chance. The playing of a game of chance for a prize of money/money’s worth is gambling under UK law.
4.15 Our survey data found that 31% of 11-16 year olds have paid money or used in-game items to open loot boxes to get other in-game items. Where in-game items that are derived from loot boxes can be readily exchanged for cash, the loot boxes themselves are likely to fall within the definition of gambling. The greater the availability, scale and sophistication of secondary markets where in-game items can be sold, the stronger the case becomes that the in-game items are articles of money or money's worth.
4.16 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.
4.17 We are concerned that there are large video game companies who are failing to proactively enforce their own platform’s terms of use to prevent in-game items being readily exchanged for cash. Whilst technical challenges may exist, such companies should have the resource and creative talent to develop solutions and we consider they have a responsibility given these problems have arisen from the platform and eco-system for games that they have created in pursuit of commercial objectives.
4.18 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 gambling licence is required. Where video game providers do not wish to subject themselves to gambling regulation, they must ensure the games made available to British players are not configured in a manner which constitutes gambling under current statutory definitions.
Social casino games
4.19 Social games are played online or on mobile devices and have a social element to them. Typically, players play with or against their friends or other users through platforms, leader boards or compare progress through social media. The majority of social games follow the ‘freemium’ commercial model which allows users to access and play for free. The industry derives revenue from charging fees for extended play, special features or through advertising.
4.20 Social casino games are a sub-genre of social gaming which allow players to play casino style social games, based on real money versions of the games. Because there is no prize of money or money’s worth in these games, they are not currently subject to gambling regulation.
4.21 Concern has been expressed about the availability of such games to children, with 13% of 11-16 year olds reporting having ever played them. Concern arises from the mimicking of real money gambling and therefore the potential for similar harms associated with excessive play, expenditure or the consequences of exposing children to gambling style content. At present a number of these social casino games are available via app stores with an age rating of ‘PEGI 12’ (Google) and 12+ (Apple) and are described as incorporating frequent/intense simulated gambling.
4.22 We recognise the concerns that social casino gaming provokes when set against the robust public policy position preventing children from accessing traditional casino style gambling products. To date, our position not to advise Government of the need for gambling style regulation for social casino games has been predicated to a large extent on the industry maintaining a proactive and credible socially responsible approach. For a self-regulatory model to maintain wider public confidence we consider it is appropriate for the social casino industry and the platforms through which they are accessed to explore further steps to prevent access by children to their gambling style content.
4.23 We welcome the Committee’s interest in these areas and are happy to provide any further information which they may find useful in investigating these questions further.
January 2019
[1] https://www.gamblingcommission.gov.uk/news-action-and-statistics/news/2018/Blurred-lines-between-gambling-and-video-games.aspx
[2] https://www.gamblingcommission.gov.uk/PDF/Virtual-currencies-eSports-and-social-casino-gaming.pdf
[3] Due to the method of administration, online surveys tend to be skewed towards those who are more engaged online, and therefore more likely to bet on eSports. This figure could therefore be an over-estimate of the true population rate of eSports betting.
[4] 2016 Global eSports market report – Newzoo eSports