Are Skill-Based or Pure-Skill Real Money Games Legal in the United States?

Skill-based, pure-skill, or simply real-money skill games are a hot new trend in the online gaming market. Games offered on mobile platforms like the iPhone and devices running the Android operating system are especially popular. Smartphones are everywhere, and in the United States alone an estimated 222 million people have smartphones, with 45 percent of that number being Apple’s iPhones. And, wagering money on games of skill has always been popular – from Mesopotamia, to Ancient Egypt and the Roman Empire, to your local pool hall.

Designing, distributing, and marketing real-money skill gaming apps is obviously a lucrative business model. But what are the legal and regulatory hurdles to distributing and marketing your product in the United States? There are many, and given that each of the 50 states has its own set of laws related to gaming and gambling, hiring experienced counsel is a must.

IMPORTANT – Real-money games of skill are still illegal in some U.S. states, even though they are not games of chance (such as traditional gambling like blackjack, roulette, or slots). A lot depends on the particulars of your app or game, but it is a mistake to assume that all skill games are automatically legal.

There are three main obstacles to distributing a real-money skill game in the U.S.:

  • First, to offer the game on a particular platform, the app must comply with the platform guidelines for apps. The Apple App Store and Google Play have their own sets of rules and guidelines that you will want to investigate and comply with. The app must pass the Apple or Google review process before it will be offered and if any subsequent changes must also pass muster or your app will be removed.
  • Second, the app must comply with the laws in the state where the app is offered. With geolocation technology, it is possible to limit app distribution and operation to certain locations, or at the very least restrict real-money gaming to jurisdictions where such gaming is allowed. Apple and Google both require that any real-money gaming app comply with local laws where the app is offered, have any required licenses, and be geographically restricted to those locations. Also, offering an app in a jurisdiction where it is illegal risks attention of local law enforcement or lawsuits to shut down your game.
  • Third, advertising the app or game on social media platforms like Facebook requires its own review process, including a legal opinion from qualified counsel regarding the legality of the app or game in jurisdictions throughout the United States. Facebook’s approval process also requires other information, including a “real money gaming questionnaire” and other data about your app or game.

Real-money games of skill vs. gambling

You may have heard that real-money games of skill – like darts, pool, puzzles – are not prohibited or regulated in the United States because they are not “gambling.” The reasoning goes that if the outcome depends on skill rather than chance, then it is not regulated under state gambling laws. This is false. Each of the 50 states have their own regulatory scheme for gambling and gaming, and while some states only regulate games where chance is the dominant factor (in other words, traditional gambling), not all do. Certain states define gambling without a reference to chance at all, and simply require that a person wager money for the possibility of winning money (without distinction as to whether chance or skill determines a winner). There are a few states that expressly regulate and prohibit real-money skill games. And, there are also states that include real-money skill games into their existing Internet gambling regulatory framework, meaning that real-money skill games need the same regulatory license as a traditional gambling game like slots or blackjack.

Using PayPal or other external payment systems

Developers also ask about payment platforms like PayPal or Venmo. What about clearing the dreaded 7995 merchant code and setting up an account to receive wagers and pay out winnings? Unfortunately, the Google Play Store and the Apple App Store force developers to funnel all purchases and transactions through their own Apple or Google payment mechanism, which subjects each transaction to a 30% fee. Apple is currently embroiled in a legal battle with Epic Games (makers of the Unreal Engine and Fortinite) over Epic’s attempt to circumvent Apple’s in-app purchase system and direct customers to the Epic store for a discount. Apple removed Fortnite from the App Store for this, as it violates Apple’s terms for developers and also deprives Apple of their 30% tariff on in-app purchases. Google is not yet quite so draconian, however they are tracking Apple and are implementing the same sort of restrictions in 2021. In other words, Google and Apple get to set the rules for distributing apps through their platforms. Browser-based games do not face the same sorts of restrictions, but they also lack the distribution network and compatibility guarantees of the app stores.

Have more questions? Do you need help getting your app through the Apple, Google, or Facebook review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2020 Artaev at Law PLLC. All rights reserved.

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