4H Materials

What is the nature of skin betting?

Ivan Kurochkin: "What is the nature of skin betting?"
Skin betting, initiated in 2013 by Valve in their Global Offensive update, allows players to wager for in-game item upgrades or unique items. Initially intended to foster community interaction, recent trends suggest it's increasingly viewed as a form of gambling.

How can players get their skins?

Within different games, participants have different ways of obtaining skins: a) by playing the game; b) by trading with other players; c) by purchasing the required skin on different platforms; d) by obtaining it from the game's production company, etc.

Is skin betting a form of gambling?

The current trend is that skins are no longer just improvements to an item players want in their armory - now skins can act as currency. Thus, players using special platforms can deposit their skins to play with other participants. If a player wins a more expensive skin, he can use it in the game or sell the won skin to the platform or other participants, receiving a cash reward for it, which will be cashed in later. Skin betting regulation varies globally. The Netherlands regulates skin betting as gambling. France and Germany regulate skin betting as gambling in the case of exchanging winnings for real money. China strictly prohibits it. Many other countries have varying degrees of regulation or lack thereof.

Why is it important to talk about skin betting?

To date, it is possible to establish a fairly widespread use of players of such a type of betting as skin betting. So, based on research, the share of skin betting in comparison with other types of gambling is quite a large percentage.
Given the ability of players to play and communicate online with the help of special platforms, the number of players is growing, as a consequence, the number of bets on skins is growing (based on research in 2022, all varieties of skin betting brought a profit of more than $ 50 billion).
The trend in recent years has been that jurisdictions want to address the issue of skin betting regulation. To illustrate the relevance of this issue, as an example, we can cite the case of Counter-Strike 2 (developed by Valve) – after the release of the game, in April 2023, a deal was finalised to sell a skin for 400 thousand dollars. Even before the release of Counter-Strike 2 in early 2023, Valve updated its player behavior policy, where it explicitly prohibited any form of gambling on its platforms.

Regulation of skin betting by different jurisdictions

The regulation of skin betting in different jurisdictions can be divided into the following types: a) jurisdictions that do not consider skin betting as a form of gambling (Ukraine, France); b) jurisdictions that consider skin betting as a form of gambling (The Netherlands, Belgium); and c) jurisdictions that explicitly prohibit skin betting (China).
French regulator, Autorité Nationale des Jeux, in his report, concludes that loot boxes are not directly covered by the regulation of the Code of Homeland Security and the regulation of the online money and gambling sector, skin betting does not have all the elements of gambling. The Ukrainian regulator, KRAIL, has not made an opinion on the nature of skin betting, as a conclusion, skin betting is not gambling based on Ukrainian legislation. The Netherlands’ gambling regulator, Kansspelautoriteit, has issued two advice notes, one about esports betting and one about skin betting, declaring that both are illegal under current law. Skin betting is not fully defined by Belgium's gambling regulator, Kansspelcommissie, but as in the case of loot boxes, skin betting could be identified as gambling. China strictly prohibits skin betting.
Overall, the regulation of skin betting varies significantly across jurisdictions, ranging from non-recognition to outright prohibition, reflecting diverse interpretations of its legal status and potential risks associated with it.

What are the risks?

The proliferation of online gambling platforms has increased the number of players from different jurisdictions where skin betting is regulated differently. It is necessary to take into account the fact that the said players can take part in skin betting rather than create legal problems for the company in front of a particular jurisdiction (regulator). For example, the said company Valve has been sued many times due to violations of domestic regulations. Therefore, companies need to understand the domestic regulatory environment to avoid litigation and/or government sanctions.

Skin betting: prospects

Based on our material we can predict the trend of different jurisdictions to include skin betting in the sphere of gambling. We can identify the following reasons: a) the skin betting market is quite large and will continue to grow, the state needs to establish regulatory rules to generate additional revenue; b) the large involvement of players from all over the world, who come from different jurisdictions; c) the mechanics of skin betting are more similar to the mechanics of gambling; d) some jurisdictions have already recognised skin betting as a form of gambling. Accordingly, companies and platforms need to consider the prospects for skin betting in the context of gambling.