Skin betting: profitable, but completely unregulated

Skin betting drives the majority of esports profits but is highly controversial due to concerns about under-age activity and a total lack of regulatory oversight, says by Ollie Ring.

CS:GO Lounge, the biggest skin betting site in the sector, has just announced that it will be closing all betting services, but events this summer have shone a light on a murky world of unregulated gambling and conflicted personalities.

Summer 2016 has been tumultuous for esports' much-maligned skin betting industry.

The premise and origins of skin betting are simple; gamers use items unboxed through Valve’s hugely popular esports hit Counter-Strike: Global Offensive (CS:GO) and Defence of the Ancients 2 (Dota 2) to gamble on their favourite teams.

Through the Steam online marketplace, each item has a monetary value depending on its rarity, with certain CS:GO cosmetics potentially worth thousands of pounds.

Whilst the initial craze came about through gambling on traditional esports fixtures, it grew to a stage where gamers could use Steam to gamble in a casino-type fashion in a completely unregulated environment.

In the latest “eSports and Gambling” report issued by Eilers and Krejcik Gaming, the skin gambling industry is estimated to be worth over US$7.4bn annually.

Rahul Sood, chief executive of high profile esports company Unikrn, warned at the eSports Betting Summit in May: “Punters on average are 14-year-olds and the sector should really think of getting its house in order.”

He also expressed shock at the lack of regulation in an industry that draws a lot more volume than other traditional betting sectors.

The first major rumbles of discontent came in June when a CS:GO player filed a lawsuit against Valve Corporation, stating Valve “knowingly allowed, supported, and/or sponsored illegal gambling by allowing millions of Americans to link their individual Steam accounts to third-party websites”.

Since then, popular YouTube sensation Ethan “h3h3” Klein has revealed that one of the largest CS:GO gambling sites, CS:GO Lotto, was owned by two extremely popular Twitch streamers and YouTube personalities, Trevor “TmarTn” Martin and Tom “ProSyndicate” Cassell.

Both ‘TmarTn’ and ‘ProSyndicate’ had released countless videos of them winning large sums on CS:GO Lotto and advocating use of the website. What followed were more lawsuits against Valve, Cassell and Martin from angered parents and punters alike.

The esports lawyer Ryan Morrison, who frequently runs Q&A sessions on internet forum Reddit, revealed in the aftermath that he had received more than 75 emails from people wishing to sue Trevor Martin.

Cease and desist Valve is notorious for its lack of communication and PR within the gaming community, but on 19 July, a cease and desist letter sent by the gaming giant to 23 prominent skin betting sites read as follows: “We are aware that you are operating one of the gambling sites listed below. You are using Steam accounts to conduct this business. Your use of Steam is subject to the terms of the Steam Subscriber Agreement (“SSA”). Under the SSA Steam and Steam services are licensed for persona, non-commercial use only.

"Your commercial use of Steam accounts is unlicensed and in violation of the SSA. You should immediately cease and desist further use of your Steam accounts for any commercial purposes. If you fail to do this within ten (10) days Valve will pursue all available remedies including without limitation terminating your accounts.”

The wording of the statement represents a clever workaround for Valve, which adresses the problem without directly eliminating the potential for future skin betting sites.

Many of the large skin betting sites are to continue limited operations in companies where eSports betting is legal.

CS:GO Lounge, the biggest skin betting site in the sector, has just announced that it would close down all betting services. Is also added that it would look to get licensed in countries where that is possible as it moves towards becoming a more ‘traditional’ (read, regulated) sportsbook.

It is clear that the industry still faces major challenges before it works in the same regulatory and corporate realm as traditional, licensed sportsbooks. A number of the websites listed on the original cease and desist letter have simply ignored the letter and could face lawsuits from Valve in coming weeks.

It is rumoured that a further 19 websites were included in a second ‘C&D’ letter, although this has not been confirmed. One of the main problems for esports remains the lack of age control, with the link between Steam account and age verification still easy to circumnavigate.

The sheer size of the esports industry, if analysts and research companies are correct, represents a clear opportunity, in particular in markets where betting traditionally operates under strict regulation or is forbidden.

The skin betting industry remains its high-risk, high-reward portfolio and until a regulator comes forth with clear guidelines or it is expressly banned, it looks set to remain that way for some time.