Tag: real money skill games

Categories
sports law

Regulatory Crackdowns Are Reshaping Sports Wagering.

Regulatory uncertainty in emerging gaming markets has proven itself to be a double-edged sword. On one hand, unregulated gaming products that do not squarely fall into the definitions of “gambling” or regulated fantasy sports offer greater accessibility, innovative entertainment, and lower fees to their customers. Such products include skill-based games, play-to-earn video games, peer-to-peer social wagering, and pick’em-style fantasy sports (most prominently championed by Underdog Sports and PrizePicks). On the other hand, pick’em fantasy sports has recently been under fire, as a number of states have either outright banned pick’em fantasy sports or are currently investigating them.

Pick’em As a Popular Alternative to Traditional Fantasy

Pick’em style fantasy sports found success in appealing to the younger, more casual player. Instead of assembling a roster, managing a virtual salary cap, and engaging in time-consuming balancing of performance vs. cost, the pick’em format simply awards points based on correct predictions of a better outcome. For example, the pick’em format will ask participants to pick an over/under point total between two outcomes or which player will score more points. This simpler and more straightforward format has enjoyed rapid success due to its accessibility and entertainment factor. However, state regulators have also cracked down on the format due to its functional resemblance to proposition-style sports bets.

Regulators Have Cracked Down on Pick’em in Late 2023 and Early 2024

As of the date of this article, Arizona, Arkansas, Florida, Kansas, Maine, Michigan, Mississippi, New York, North Carolina, Virginia, and Wyoming have taken the position that pick’em fantasy sports offerings are illegal under state law. Wyoming (which legalized online sports betting in 2021) targeted leading pick’em operators PrizePicks and Underdog in July 2023 with cease-and-desist letters. High-profile regulatory actions followed in Florida, New York, and Michigan. Florida takes the position that fantasy sports have not been and are not allowed in the state. Michigan and New York have amended their daily fantasy sports administrative rules to prohibit “any contests that have the effect of mimicking betting on sports or that involve ‘prop bets’ or the effect of mimicking proposition selection.”

Other states joined the effort. California is currently in the process of investigating and opining on the legality of DFS in the state. Kansas became the latest state to issue cease-and-desist letters to at least six fantasy sports operators. Notably, despite having a well-articulated and public position on the legality of its offering, Underdog voluntarily left Kansas in September of 2023. PrizePicks continues to operate in Kansas.

After Florida targeted the three market leaders – Underdog, PrizePicks, and Betr – with cease-and-desist letters in September 2023, it appeared that the companies were eager to fight for and defend the legality of their offerings. This no longer seems to be the case and at least one operator (PrizePicks) just settled the New York State Gaming Commission’s allegations of illegal fantasy sports operations by agreeing to pay a fine of nearly $15 million and ceasing operations in New York.

While the settlement is limited to PrizePicks, its a potential blow to all the other pick’em operators, whose legal position has been that their products either operate within the boundaries of permissible fantasy sports or are not otherwise regulated by state law. As a side note, New York is unique in that the settlement with PrizePicks acknowledges the general legality of fantasy sports in New York pursuant to license. PrizePicks’ “wrongdoing” was ostensibly operating fantasy sports without a license (not that their pick’em product was per se illegal).

Novel Game Markets Remain Uncertain and Subject to Rapid Adverse Regulator Actions

In any case, the cascade of regulatory actions (and the speed with which investigations turned into cease-and-desist letters and subpoenas) highlights the uncertainty related to novel gaming products. For instance, PrizePicks operated in New York since 2019 under a “good-faith belief” (and presumably in reliance upon legal advice) that it did not need to obtain any sort of fantasy sports or other license from the state. PrizePicks likely relied on the common-sense conclusion that its offering was a game of skill and therefore unregulated under New York law. Yet PrizePicks had to essentially pay back all the revenue it made in New York and agree to exit the state.

Out of all the real-money gaming offerings in the market, skill-based real-money gaming still appears to be most accepted model. Skill-based real-money gaming involves players paying an entry fee and competing for a prize, with the outcome determined by the relative skill of the players as opposed to chance. Peer-to-peer social wagering leverages the skill-based aspect of predicting sports outcomes, but involves direct bettor-to-bettor competition as opposed to bets against the house.

While legally untested, the peer-to-peer model also appears to be more palatable to regulators, as Underdog Fantasy revised its player vs. house pick’em model to function as a peer-to-peer skill contest in Alabama, Mississippi, Tennessee, and Wyoming in response to collaboration with regulators in those states. Play-to-earn is a concept most associated with Web3.0 and video games where in-game assets have tangible out-of-game value. Interest in play-to-earn is surging, as the crypto markets recover and Bitcoin exceeds the $50,000 barrier.

As more states legalize gambling and especially sports betting, regulators are taking a closer look at potential competitors. Licensed heavyweights like DraftKings and FanDuel (and their lobbyists) are allegedly involved in bringing regulators’ attention to potential competitors, especially if those competitors are operating at higher margins due to lower regulatory costs.

A Detailed Legal Opinion is More Important Than Ever

The current regulatory environment in the United States highlights the importance of hiring experienced and knowledgable counsel as part of your team. What was permissible or at least tolerated by regulators a year ago may not be acceptable now. Further, more states are taking a position against unlicensed sports betting or fantasy products, even if those offerings are firmly grounded in sound legal arguments. Careful consideration, a legal opinion, and a detailed analysis are more important than ever to a successful launch, especially as payment processors, vendors, investors, and other third parties are going to be engaged in a lot more legal scrutiny.


The qualified and specialized attorneys at Artaev at Law PLLC know gaming law – email or call us to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2024 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

Skill-Based Gaming 2024: Demand For Innovation Amid Regulatory Uncertainty.

Photo by Oleksandr P on Pexels.com

Since the firm’s inception in 2020, Artaev at Law has worked extensively with companies offering real-money skill-based gaming in the U.S. and internationally. In 2024, the market continues to grow, transform, and gain both appeal and legitimacy as an entertainment alternative. Recently, FanDuel joined the competition with its FanDuel Faceoff app. Its entry into the space is notable because it is marks a gambling industry heavyweight’s entry into the niche space of skill-based real money gaming. FanDuel’s roots are in fantasy sports and the brand is currently well-positioned in the online gambling market, along with DraftKings and well-known casino brands like Caesars and MGM. In contrast, the skill-based real-money gaming market has historically been dominated by specialized developers like AviaGames (Pocket7), Papaya Games, and Game Taco (formerly known as Worldwinner). Many independent studios also used Skillz branding and platform for their own take on the “casual” and “social” gaming categories.

4 Takeaways for the Industry

So why do FanDuel and its Faceoff app matter to skill-based real-money gaming? A major gaming market player’s entry into the skill-based sector is a bellwether and indicative of broader market trends:

  1. Skill-based real-money gaming is alive and well. The market is far from saturated and is still ripe for innovative offerings that may appeal to different demographics. For example, sports-based and party-style games may draw younger male customers, as opposed to the traditional solitaire/bingo offerings that have historically targeted older, female players.
  2. Skill gaming may expand an existing entertainment brand. FanDuel is already associated with gambling and sports, but not necessarily skill-based word games or Wheel of Fortune. FanDuel Faceoff is another vertical to expand crossover appeal to existing customers, as well as to reach new demographics.
  3. Online gambling markets may be becoming stale and driving demand for alternative gaming entertainment. As more states legalize sports betting and casinos (including the ability to wager online), consumer resources are being spread thin across identical gambling products. Entertainment consumers may be looking for innovation instead of yet another sports book or slot machine. The recent uptick in Pick’em Style fantasy sports (and scrutiny of) offerings by companies like Underdog Sports and Prize Picks shows that consumers are interested in something different. Accordingly, skill-based gaming is an exciting opportunity for gaming (and entertainment) companies to differentiate themselves and cater to demand.
  4. Skill games can compliment and enhance your existing gaming or non-gaming product. Faceoff complements but does not replace FanDuel’s existing fantasy sports, sports betting, and casino gambling products, which are in different apps. Yet the login info is the same across the FanDuel universe. This strategy shows how existing entertainment brands can gamify (or further gamify) their products to expand their verticals. The interest in play-to-earn video games is just one example of the tremendous appeal and potential of game monetization.

Demand for Innovation Runs Into Regulatory Uncertainty

With Super Bowl LVIII and the interest in “novelty prop bets” on everything related to Taylor Swift, it is clear that there is consumer appetite for something new. Some companies, like the aforementioned PrizePicks and Underdog Sports, are offering their own spin on the existing DFS or fantasy sports models. Peer-to-peer marketplaces combine social elements with a decentralized “no-sports-book” mechanism. Even full-scale prediction markets that offer bets on world events and scientific achievement have manifested themselves as lucrative economic opportunities.

What is also clear is that state and federal regulators are still playing catch-up to market-driven innovation. Most gaming models are unlicensed, and rely on either the skill-based or fantasy sports exceptions to anti-gambling laws. Certain states have passed legislation targeting skill-based machines – for example, a few years ago Utah banned so-called “fringe gaming,” – but it is still uncertain whether the ban applies to software downloaded to a smartphone or only stand-alone machines. More recently, states like Michigan and New York have enacted new fantasy sports rules that prohibit player vs. house pick’em bets popularized by Underdog and PrizePicks. Adding to the confusion, each state defines and regulates gambling differently.

Accordingly, the experienced and knowledgable attorneys at Artaev at Law are here to help your skill game venture. Need a legal opinion to get your app approved? Onboarding with a payment processor? Need help navigating terms and conditions or a privacy policy? Contact Artaev at Law PLLC today for your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2024 Artaev at Law PLLC. All rights reserved.

Categories
sports law

The Surging Demand for Novelty Prop Betting in the United States: Is This an Opportunity for the Peer-to-Peer Model?

Photo by Pixabay on Pexels.com

With Super Bowl weekend in Las Vegas just around the corner, betting activity is reaching one the high points of the year. Nearly 68 million adults plan to bet on this year’s Super Bowl, an increase of 35% over last year, according to the American Gaming Association.

Super Bowl LVIII is generating an unprecedented interest in “novelty wagers” unrelated to the game, but related to Taylor Swift’s expected appearance.

But Super Bowl LVIII is not only notable for the matchup between the San Francisco 49ers and the Kansas City Chiefs. This year, there is unprecedented crossover interest due to pop star Taylor Swift’s much-publicized romantic involvement with Chiefs’ tight end Travis Kelce. Ms. Swift’s appearances at the Chiefs’ games throughout the regular season have generated a profound interest in the NFL from a younger female demographic that does not normally consume professional football (but does consume Ms. Swift’s music). In the betting world, this demographic convergence has also created an unprecedented interest in placing non-traditional “novelty bets” on Ms. Swift that are completely unrelated to the actual football game.

Unfortunately, if you want to bet on the outfit that Ms. Swift will wear, the color of her lipstick, or whether she will cry if the Chiefs lose, your options are limited. Due to state licensing rules, traditional physical sports books only allow action directly related to the football game. Online sports books that are available in a handful of states like New Jersey and Michigan likewise do not offer “novelty bets” on either Ms. Swift or anything else not directly related to the game (like the length of the national anthem).

Offshore betting options may be risky (or even illegal) for U.S. customers.

So are there options for customers interested in placing a $5 bet on over/under of how many times Ms. Swift will be shown on TV? The New York Times article cites to foreign websites Betonline.ag (an online gambling website based and licensed in Panama) and Betus.com (based in Costa Rica and licensed in Curacao) as examples of websites willing to take Taylor Swift-related wagers. However, their legality is uncertain at best. It is unclear how (or if) they comply with U.S. law and whether there are limitations or costs associated with payments going to and coming from abroad. As just one potential obstacle, the federal Unlawful Internet Gambling Enforcement Act of 2006 prohibits businesses from accepting payments in connection with unlawful internet gambling. Additionally, the federal Wire Act separately prohibits persons engaged in the business of betting or wagering from using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.

The emerging peer-to-peer model may offer a solution to limited U.S.-based “novelty bet” options.

One alternative emerging model to the traditional sports book is peer-to-peer social betting or P2P. The P2P model is related to European-style exchange betting and essentially eliminates the centralized sports book in favor of direct, player-to-player wagers. Instead of betting against the house and paying an integrated “vig” or “juice,” players propose or accept various bets from other users in the marketplace. Bets on P2P applications are fully customizable and allow players to use their relative skills (like sports knowledge, data analysis, and mathematics) to compete.

The customization aspect would technically allow for Taylor Swift-esqe novelty wagers that could not be offered by a traditional sports book. Certain topics are generally off-limits as a matter of either state or federal law – betting on elections, the stock market, and price of commodities is either expressly prohibited or already regulated by financial authorities. But entertainment prop bets are just one example of exciting possibilities with customizable peer-to-peer gaming. Another emerging trend is betting on actual skill contests in real-time – whether skateboarding or golf. P2P is no different than engaging with your friends, coworkers, or peers and making wagers in real life, except that the use of the internet (or apps) expands the potential social pool, helps keep track and organize multiple wagers, and ensures prompt wager settlement.

P2P is innovation that offers some of the same availability and skill-based advantages as DFS did when it first came out as a sports book alternative.

Peer-to-peer is a relative newcomer to the wagering markets dominated by licensed sports books and fantasy sports giants like DraftKings and FanDuel. Consequentially, much like fantasy sports around 2015 and 2016, the legality of P2P is being debated. When Daily Fantasy Sports (“DFS”) boomed and became a prevalent skill-based alternative to traditional sports betting, DFS offered many of the same advantages that peer-to-peer operators offer today – wider availability and skill-based gameplay for starters.

Accordingly, peer-to-peer or P2P wagering is an innovative, novel model that relies on the skill-based gaming argument, the social aspect, and the decentralized marketplace approach that removes the operators from the “business of betting or wagering.” Certainly peer-to-peer innovation can offer advantages to customers who are looking for a creative approach to a saturated traditional betting market, lower fees, and more gameplay options. And more “fun.” Betting on Taylor Swift at the Super Bowl without having to engage with an offshore website is just one of the exciting opportunities that might merit a look at a peer-to-peer operator in the United States.

Are you looking to launch your next gaming project? Do you need a legal opinion? The qualified and specialized attorneys of Artaev at Law stand ready to help.

Disclaimer: This article 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. The field of peer-to-peer betting and non-sports event wagering is novel and complex. Artaev at Law PLLC and its lawyers do not and cannot endorse the legality of any particular model, as each factual circumstance is unique and the application of the law remains unsettled in this emerging area.

© 2024 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

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

The skill-based real-money game sector continues to grow in 2024, and yes, skill games are generally legal under the laws of most states. Risking money on games of skill has always been popular – from Mesopotamia, to Ancient Egypt and the Roman Empire, to your local pool hall. Now, with the ubiquity of the smartphone and internet access, skill-based real-money gaming is a widely available form of entertainment. The setup is familiar – pay an entry fee for a chance to compete for a prize. Top score takes the prize. There is also no shortage to game variety, although skill-based solitaire, bingo, and a blackjack-solitaire hybrid called 21 Blitz account for the vast majority of players.

Designing, distributing, and marketing real-money skill gaming apps continues to be 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 nuances, 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.:

  • Second, the app must comply with state and federal law. Geolocation technology can be used to meet specific location requirements or restrictions. Additionally, Apple requires that any real-money gaming app comply with local laws where the app is offered, have the required licenses (or the aforementioned legal opinion), and be geographically restricted to those locations. Also, offering an app in a jurisdiction where it is illegal risks attention of local authorities or private litigation, which can result in fines, penalties, and closure of your particular game.
  • Third, as skill-based real-money gaming is unlicensed and unregulated, it is important to have robust terms and conditions and a privacy policy in place. These terms function as a contract between the gaming company and its customers, offering important rules and regulations, as well as disclaimers and liability limitations. Further, dispute resolution provisions like an arbitration clause and a class action waiver are important, but must be carefully tailored to be enforceable.

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 statutory definitions, laws, and regulations applicable to gambling. The states also differ on how much skill is required to exclude a particular game from the “gambling” category. Most states rely on the “predominance” test, where skill must predominate over the chance element. Other states use the “material element” test, where a game is considered gambling if chance is a “material” element in the outcome. A few states use the “any chance” test – where if there is any chance element present, the game is considered “gambling” and may not be offered without a license.

There is also a distinction between fantasy sports-type games and pure contest games on both the state and federal levels.

Payment Processors and Due Diligence

Payment processors – companies responsible for money-in and money-out of your app – also have their own set of due diligence requirement. Most reputable providers will require the legal opinion, copies of the terms and privacy policy, and even may require an internal anti-money laundering (“AML”) policy. Under federal law, financial institutions and certain high-risk businesses (such as casinos) must have AML policies in place. However, experienced counsel can also help with craft a policy that balances the payment processor’s standards with practical considerations and costs facing any starting-stage business.

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.

This article was originally published in 2020, but has since been updated to reflect current legal and regulatory developments in the skill-based gaming area.

© 2020 Artaev at Law PLLC. All rights reserved.

Are Cryptocurrency Games of Skill Legal in the United States?

Photo by Pixabay on Pexels.com

Real-money games of skill are unregulated and thus legal in the majority of the United States. While there are specific best practices for launching your project, games where skill is the predominant or material factor in deciding the winner are generally not considered prohibited gambling. With the rebound of cryptocurrency markets in 2024 and a renewed interest in NFTs, is it possible to launch a skill-based game that uses cryptocurrency as opposed to fiat?

The answer is yes, but there are several caveats, warnings, and areas to be aware of. Cryptocurrency is subject to a patchwork of state-by-state regulations, as well as overlapping oversight from federal regulatory bodies including the Securities and Exchange Commission (“SEC”) and the Commodities Futures Trading Commission (“CFTC”). However, the first consideration is whether the game is regulated as “gambling” under any state or federal laws.

Games of skill vs. games of chance

First, in any real-money game of skill, the initial and primary consideration is the effect of skill vs. chance. It does not matter whether the players are competing for fiat dollars, cryptocurrency, or gold bars. State anti-gambling laws generally require the wager and receipt of “something of value” – the definition is purposefully broad to ensure anti-gambling regulations cannot simply be evaded by substituting cash for gold, tokens, or something else of value. Clearly, cryptocurrency is something of value and therefore falls within the same regulatory framework as cash games.

In-game currencies and securities regulation

Second, cryptocurrency-based games are subject to some unique considerations and developing laws.

The Securities and Exchange Commission has taken a particular interest in cryptocurrency-based projects in the United States. Initial coin offerings (or ICOs) have been on the SEC’s radar since at least 2017. ICOs were essentially a way for companies to raise funds by selling self-created crypto tokens without complying with securities registration requirements. The SEC took (and continues to take) the position that where a crypto asset (whether it is token or an NFT) meets the definition of “investment contract,” the asset is a security and is subject to the regulatory and registration requirements of the Securities Act of 1933. Companies that sell unregistered securities face stiff penalties and injunctions from the government, as well as “disgorgement,” which is just another way of returning funds to the buyers.

If your cryptocurrency skill-based game uses a widely circulating coin like BTC or ETH or SOL, then you are in a better position because the SEC generally targets the issuers (not the users) of a particular crypto asset. However, if you are planning to launch your own in-game token for players to use as an entry fee and to receive as a prize, you need to ensure that the token has sufficient non-investment utility. In other words, a company may use its own in-game currency if the in-game currency is considered a “utility token” – meaning there must be a use outside speculation and expectation to profit from the efforts of others. If there is true “utility,” the token will not be considered a “security” under the Howey test. Such an analysis is complex, multi-faceted, and requires a legal opinion from qualified counsel.

Patchwork of state-level regulations

Certain states have also enacted various laws targeting the sale and exchange of virtual assets. Some have taken a light approach – for example, Michigan has updated its criminal code to include the definitions of cryptocurrency and Distributed Ledger Technology to ensure that the criminal statutes applicable to fraud, theft, and forgery include the new technological representations of value. See MCL 750.157m(c), (f). Other states, like New York, Florida, and Minnesota, have enacted licensing schemes with respect to virtual currency business activities and updated their money transmission laws.

Moreover, states have their own sets of securities laws. Those are not necessarily preempted or superseded by federal law. In other words, even if a crypto asset is a utility token under the Howey test and is not considered a security under federal law, a state regulator may come in and enforce state-level “blue sky” laws. As just one example, the state attorneys general of Alabama, Kentucky, New Jersey, and Texas recently coordinated an unregistered sale of securities enforcement action against Slotie.com, which was selling gamified NFTs that represented virtual plots of land in a Las Vegas-style gambling metaverse.

Gaming in 2024 is full of innovative possibilities, especially as the crypto markets rebound, government regulation across the world matures, and public interest in alternative assets increases. However, there are many legal considerations to evaluate. The qualified and specialized attorneys of Artaev at Law stand ready to help with your next project.

Disclaimer: This article 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.

© 2024 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

Skill-Based Gaming: What is a Legal Opinion? Why Do I Need One?

The rapid technological advancement (think blockchain and AI) that has occurred just over the past several years has shaken up many industries – and the gaming market is no exception. A sector once dominated by simple, coin-operated arcade machines has now evolved into a sprawling ecosystem of online platforms, mobile applications, and sophisticated consoles. One of the most exciting niche areas that have emerged within this landscape is skill-based real-money gaming. However, navigating this promising landscape requires a firm grasp of its legal complexities. Qualified legal opinions—official research memos penned and signed by an attorney—serve as an essential element in running a successful business operation.

Skill-Based Real-Money Gaming: The New(est) Frontier

In skill-based real-money gaming, players compete against each other, with the winner walking away with real money. It adds an enticing layer of competitiveness and reward to traditional gaming, elevating the stakes and making every play matter. However, the intersection of gaming and real-money transactions naturally introduces regulatory complexities. For instance, questions surrounding the legality of certain games under federal and state gambling laws, the liability of game developers, intellectual property rights, data protection, user agreements, and various other aspects of the law come into play. This is where qualified legal opinions become incredibly beneficial. Needless to say that a knowledgable and experienced gaming attorney can help with other aspects of your new venture – such as terms and conditions for your application.

The Power of Legal Opinions

A qualified legal opinion is an official research memo, thoroughly prepared and signed by a licensed attorney. These documents provide in-depth analysis and interpretation of legal matters, including regulatory compliance with various federal and state laws. They are effectively the attorney’s professional interpretation of the law regarding a particular matter. When dealing with vendors, suppliers, and potential investors in the skill-based real-money gaming industry, legal opinions are increasingly required. Additionally:

1. Risk Management: A legal opinion can help identify and mitigate potential legal risks before they turn into costly litigation. This proactive approach can save companies significant time, resources, and potential reputational damage.

2. Regulatory Compliance: Compliance with local, national, and international gaming regulations is critical. Qualified legal opinions can assist in deciphering these often complex rules and ensuring that your business is operating within legal bounds.

3. Contractual Relationships: Legal opinions offer assurances to potential partners and can also provide valuable insights into the contractual relationships with vendors and suppliers, offering clarity on obligations, rights, and potential areas of dispute.

4. Investor Confidence: For potential investors, a legal opinion represents an added layer of security. It assures them that the business they are considering investing in is legally sound and has taken steps to identify and mitigate potential legal risks.

Moving Forward with Confidence

Navigating the complex landscape of skill-based real-money gaming requires not just a vision but also a deep understanding of the applicable legal landscape. As such, obtaining a qualified legal opinion can be an essential step in successfully steering your business in this dynamic industry. At Artaev at Law PLLC, we are gaming law experts. We are committed to providing our clients with comprehensive and clear legal opinions to guide their decisions in the gaming industry. Our experienced attorneys have extensive knowledge of the regulatory and legal aspects of the gaming industry, allowing us to provide tailored advice to help you succeed. Remember, a legal opinion does not simply outline the law—it provides a roadmap for success.

Contact Artaev at Law PLLC today to set up your initial consultation.

The qualified and specialized attorneys at Artaev at Law PLLC know gaming law – email or call us to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2023 Artaev at Law PLLC. All rights reserved.

How to Advertise Real-Money Gaming on Meta in 2023: A Legal Opinion is Still Required.

Meta (formerly known as Facebook) remains an attractive forum for real-money gaming companies looking to advertise their skill-based gaming apps, esports, and fantasy sports offerings. However, Meta has a strict policy that requires an application and approval before any “online gaming” ads can run. The application form is convoluted and complex, and unless you have a gambling license from a state regulator, you will need to obtain a legal opinion from an experienced gaming attorney.

Artaev at Law PLLC has provided consulting, review, and legal opinions to gaming companies since 2020. We also have experience with the Meta/Facebook onboarding and application process. Before Meta’s overhaul of the process in August 2022, the application was much simpler than it is today. The advertiser disclosed their geographic target, acknowledged the requirement for geofencing and age compliance, and submitted a legal opinion that qualified their offering as a game of skill or other type of competition that does not require a gambling license. Now, the application process requires not only a selection of the proper jurisdictions from a drop down menu, it also requires the advertiser to choose which “category” is most appropriate for their game.

For example, when choosing the United States, Meta prompts the applicant to choose the states where the game will be offered. Clicking on a state gives a choice of the types of games that Meta considers available or “allows” in that state. This sublist is inconsistent and does not provide any context as to what types of games fall into each category. For example, selecting Texas gives the advertiser a single option to choose “sweepstakes.” But Texas courts have applied the “predominant factor test” to permit real-money games where skill predominates over chance in deciding the winner. The Texas legislature’s definition of “gambling” also contains an express exemption for “bona fide contest[s] for the determination of skill.” TX Penal Code 47.01. So, while Texas state law permits skill-based games that pass the predominant factor test, Meta’s drop down menu only allows “sweepstakes.”

Gaming companies must also select the protective measures that they implement to ensure compliance with their territorial restrictions and 18+ age policies. KYC checks may also be appropriate depending on the jurisdiction, but again, this is a requirement that varies by country and region. Smaller or startup companies often struggle with navigating the various requirements, but there are qualified third party administrator solutions that offer the necessary services for gaming industry participants.

Finally, unless your company has a gambling license from a state regulator, Meta requires a legal opinion from an experienced and qualified attorney regarding the legality of the game under a particular jurisdiction’s laws. For example, if a company is offering a mobile app game of skill in the United States, the legal opinion will need to address not only the application of federal anti-gambling laws (such as the Unlawful Internet Gambling Enforcement Act and the Wire Act), but also the individual states. Each state has its own definition of “gambling,” various exceptions, and judicially-crafted test (such as the predominance or the material element test) that must be applied to the game in question. Also, the laws can change from time to time and must be addressed, such as when Virginia adopted specific legislation regarding certain physical games of skill in 2022.

Once the application and the opinion are submitted, Meta’s initial process is to check the submission for completeness (do not forget screenshots of your landing page!) and send it off for outside counsel review. The review can take as little as 2 weeks or as long as 3 months, depending on the game and the volume of submissions. Before the August 2022 reforms, if the application was rejected, there would be a specific reason and explanation. This allowed advertisers to go back to fix and resubmit their application. Currently, Meta does not give a reason for rejecting a submission. The default message is that advertising of the particular game or app is “not supported.” This is particularly frustrating when an advertiser has waited for weeks or months, just to find out their game is “not supported.” There is no clear appeal process either, and the advertiser is left to guess at how to best resubmit their application – or whether to simply try running ads without prior authorization (which risks Meta disabling the ad account and page).

Advertising on Meta can be a powerful boost to your game’s audience, but it is also a complex process that requires a legal opinion from an experienced attorney. There are many aspects to navigating the various laws in play, as well as KYC, age-gating, and geolocation requirements that are more and more prevalent across the industry. Contact Artaev at Law PLLC today to set up your initial consultation.

The qualified and specialized attorneys at Artaev at Law PLLC know gaming law – email or call us to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2023 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

Are NFT Collectible Card Games Legal in the United States?

NFT collectible card games are generally legal within the United States, provided that developers and players comply with several key laws. Specifically, these games implicate securities regulations, anti-gambling laws, and tax issues. NFT collectible card games are a natural Web 3.0 extension of over-the-board card games like Magic: The Gathering and have drawn a lot of attention, including from Reddit co-founder Alex Ohanian. These games leverage Non-Fungible Tokens (NFTs) to create scarce and valuable digital cards that players can collect, trade, and use in gameplay. The idea is similar to play-to-earn games that attach real-world value to in-game digital assets. While lucrative from a business standpoint and fun to play, these games create potential legal issues for both players and developers alike.

Gameplay

Before analyzing where NFT collectible card games fit within a legal framework, one must first understand the games themselves. The basic concept is that players purchase or otherwise acquire packs of random cards (with preset rarity distributions) that can be used to play a board/table-top game and also have collector and secondary market value. NFT or “digital” collectible card games are based on the same concept – players purchase or “mint” a pack of cards that they can use to play a game, collect for their own enjoyment, or trade or sell on the secondary market. Of course, the NFT cards do not have a physical component and exist only on the particular blockchain. Integrating NFTs ensures immutable value to these assets, same as physical cards in the old-school table-top games.

Here is a brief overview of a few of the most popular NFT collectible card games:

  1. Gods Unchained

Theme: Gods Unchained is a strategic card game set in a mythological universe. Players become powerful gods battling for supremacy.

Rules: Players start by choosing a god, each with its unique powers and abilities. Next, they build a deck of 30 cards consisting of creatures, spells, and weapons. The game proceeds in turn-based rounds. Each player uses their cards to attack the opponent’s god, defend their own god, or manipulate the game board. The objective is to reduce the opponent’s god’s life points to zero. Gods Unchained utilizes the Ethereum blockchain to mint its cards as NFTs. Players can then trade or sell in various marketplaces.

  1. Splinterlands

Theme: Splinterlands is a fantasy-themed card game. Players summon creatures and cast spells to outwit their opponents in fast-paced battles.

Rules: First, players build a deck by choosing a Summoner and selecting a set of monsters from their card collection. Each card has unique abilities, attack and health points, and mana cost. During a match, players have a limited amount of mana, which they use to summon monsters and cast spells. Players compete in automated combat rounds, trying to defeat the opponent’s team of monsters. As with other NFT collectible card games, players can trade, rent, or sell the various NFT cards to other players.

  1. Skyweaver

Theme: Skyweaver is set in a rich, cosmic universe. Players engage in strategic battles using cards representing creatures, spells, and enchantments.

Rules: In Skyweaver, players initially assemble a deck of 20 cards from a diverse pool of over 500 unique cards. The game categorizes cards into various prisms, each with its unique playstyle and strategy. Players take turns playing cards from their hand. They use their hero’s mana to cast spells, summon creatures, and attach enchantments to other cards. The objective is to reduce the opponent’s hero’s life points to zero. Skyweaver mints cards as NFTs on the Ethereum blockchain, and players can buy, sell, or trade the NFTs on various platforms.

Other popular NFT Collectible card games include:

  • CryptoSpells
  • Dark Country
  • ChainGuardians
  • Sorare
  • Axie Infinity (Card-Battler)
  • Relentless (formerly known as Zombie Battleground)
  • War Riders
  • CryptoAssault
  • Ether Legends
  • Force of Will (FoW) NFT

Legality of NFT Collectible Card Games

Are these games are legal? NFTs, cryptocurrency, and blockchain technology in general have all attracted significant legal scrutiny. So, are NFT collectible card games legal within the United States? Short answer: it depends.

  1. Are the NFTs used in these collectible card games unregistered securities? I have previously written on the topic of whether play-to-earn games really just sell unregistered securities and it is certainly possible depending on how the particular game is structured. The Securities and Exchange Commission applies the 4-prong Howey investment contract test to any novel NFT/cryptocurrency offering, which is a balancing analysis that asks whether a particular scheme is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit, and (4) with the profits derived from the efforts of others. Generally, NFTs that represent digital assets like art, collectible cards, or virtual real estate do not qualify as securities under U.S. law, but this very question is currently being decided in private litigation between the holders of NBA Top Shots digital trading cards and their creator, Dapper Labs. Recently, a federal court denied Dapper Labs’s motion to dismiss, setting the stage for an in-depth court battle to determine the status of the NFTs under federal securities laws.
  2. Is an NFT collectible card game gambling? The question of whether trading cards and collectible cards are “gambling for kids” has been litigated since at least the 1980s when baseball card manufacturers had to defend against allegations of their purported use of gambling mechanics to sell their products. Courts have consistently held that plaintiffs get what they paid for – baseball cards – and suffer no damages from their “disappointment” in failing to get an ultra-rare chase card. More recent cases involving video game loot boxes suggest that the answer may depend on whether the NFTs are considered “things of value” under state gambling laws. In general, gambling is defined as risking something of value on an uncertain outcome to win a prize. A game where players wager real money or valuable NFTs on game outcomes could be subject to state and federal gambling regulations. To avoid a gambling classification, game developers should ensure that their games focus on strategy and skill-based gaming, and that players earn value through skill, rather than chance.
  3. Additionally, what are the tax implications of purchasing and selling NFT collectible card game assets? The IRS has indicated that it will apply a “look-through analysis” in determining how an NFT will be treated for tax purposes. In essence, the IRS is looking beyond the non-fungible token itself and considering the nature of the digital asset it represents. Consequently, the IRS may classify NFT cards as collectibles, which are subject to a higher capital gains tax rate than other property types. Aside from these tax implications for the players themselves, investors and NFT creators must also consider other tax implications of minting and obtaining NFTs.

Securities laws, anti-gambling regulations, and tax issues are all implicated in the rapidly evolving market of NFT collectible card games and digital gaming in general. Legal compliance is critical to not only avoid regulatory actions or tax penalties, but to also secure credible investors, banking, payment, and other technological partnerships.

The qualified and specialized attorneys at Artaev at Law PLLC know gaming and blockchain law – email or call us to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2023 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

Are Play-to-Earn Video Games Legal in the United States?

Are play-to-earn games legal? The answer depends on the specifics of the game. For many gaming developers, play-to-earn is a lucrative business model in 2023 and beyond. These games let players compete against other players (PvP) or against the the game itself (PvE) to earn rewards that have real-world value. For example, players may pay real money to buy in-game currency to purchase virtual gear or real estate, but players also have the option to redeem the in-game currency for real-world money. Players can trade resources or earn the in-game currency through gathering, completing tasks or quests, or other gameplay. However, any company looking at play-to-earn should retain an experienced gaming attorney to consult on their game. It may be an attractive business model, but any real-money gaming implicates multiple legal areas, including taxes, securities law, and both state and federal-level anti-gambling prohibitions.

Earning real-world cash for virtual goods or gameplay is not a new concept. In fact, the first generation of massively-multiplayer online roleplaying games (MMOs or MMORPGs) like Ultima Online, Runescape, and Everquest had robust real-money economies for in-game items. Resource “farming” – where one would gather virtual resources and then transfer them to another player for a real-world money payment – became even more popular with World of Warcraft and the next generation of the MMOs like EVE Online. However, the developers did not officially sanction these in-game economies. Anti-RMT (real-money trading) provisions are prevalent in most end-user license agreements. Real money components in video games may be too close to gambling, which is obviously problematic. Developers are generally reluctant to assume additional liability and risk associated with any real-money economic component.

Play-to-Earn is Hot, But Rife With Legal Pitfalls.

However, it is the end of 2022, and making money playing video games is a real and viable career choice. Esports and video game tournaments are mainstream events, with their own ESPN page, multi-million dollar teams, and celebrity-status professionals. Many colleges offer esports scholarships. Casual video game tournaments (Call of Duty, FIFA, Gran Tursimo) are also a thing. For the more casual gamer, there are also real-money skill-based games (timed solitaire, bingo, etc.) available on the web or from the App Store. Daily Fantasy Sports giants like DraftKings and FanDuel also offer skilled players an opportunity to win real money by drafting the best fantasy sports teams.

There are also a number of NFT-based collectible card games, horse racing simulators (like Zed.Run), and countless other permutations of games where players are able to own in-game assets that they can sell and trade like their real-world counterparts. This sector of the gaming economy continues to grow, as the relatively low cost of cryptocurrency makes entry a lot more accessible. Many players also see the current “bear” market as a prime opportunity to enter some of these projects at low cost and potentially see significant growth in their in-game assets as the economy rebounds.

Modern play-to-earn games are simply another variation of the real-money gaming business model. Developers in this space fully embrace the concept of a virtual economy and the ability to earn real-world compensation for game play. The most prominent example is Axie Infinity (a Pokemon-type trading, collecting, and battling game), which has integrated blockchain technology (crypto and NFTs). Investors around the world, including Mark Cuban, quickly embraced the play-to-earn gaming model. Even in the times of the “crypto winter,” Axie is still worth many millions of dollars.

Advertising and Onboarding May Require a Legal Opinion.

Any real-money gaming business (including play-to-earn) needs experienced gaming counsel to guide them through various compliance issues. Advertising a real-money game on social media and getting through Apple’s approval process on the App Store requires a legal opinion that the game is truly skill-based and not illegal gambling. Is your game structured so that they are providing a service to you in exchange for compensation? Depending on the nature of your game, you may have unintended labor law obligations and even tax filing (W-2 or 1099) obligations to the IRS and state tax authorities.

Make Sure Your Game is Not Selling Securities.

Another potential pitfall is with the Securities and Exchange Commission (“SEC”). When designing your game and reward system, you must make sure that you are not inadvertently marketing a security and violating federal law. Securities are not just traditional stocks and bonds. An “investment contract” is also a regulated security and broadly includes any scheme where individuals pay money with the expectation that their money will be invested and they will earn a return. In the cryptocurrency world, initial coin offerings (“ICOs”) face heavy SEC scrutiny, especially after several high-profile cryptocurrencies turned out to be pyramid schemes.

The “investment contract” analysis is highly specialized and requires a thorough legal opinion. Each game is different, the laws are quickly changing in this area, and regulatory agencies are especially sensitive to crypto-related businesses in light of the numerous 2022 failings, bankruptcies, and rug pulls – with FTX being only the most recent example.

Beware Tax and Other Regulations If Your Game Uses Cryptocurrency or Other Blockchain Tech.

Speaking of crypto, if you are utilizing cryptocurrencies, tokens, NFTs, or other blockchain technologies as part of your game, there are more legal issues in play. Tax reporting and tracking are essential because the IRS considers cryptocurrencies to be property subject to capital gains tax. Does the game involve any crypto staking? If so, is your company now considered a bank subject to the FDIC’s jurisdiction? Are you involved in the business of money transmission and required to be licensed in each state where you do business?

Despite the slow regulatory change in this area and continued lack of centralized regulation, this area remains in the public eye and something of continued interest to regulators.

The bottom line is whatever your game and whether you are a veteran or just starting out, an experienced gaming attorney is a necessary asset to your business team.

Contact Artaev at Law PLLC to set up your initial consultation. We are Michigan’s gaming law firm and we specialize in the unique concerns that you may encounter as a game developer.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, tax, or investment advice. Every situation is different and has its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

How to Advertise Real-Money Skill Games on Facebook in 2022: A Legal Opinion is Necessary.

Photo by Pixabay on Pexels.com

In August 2022, Facebook updated its real-money gaming and gambling advertising application process. The updated form streamlined some of the required information and still requires a legal opinion from a law firm. Additionally, Facebook requires details about protective measures like geo-location and KYC and detailed geographic targeting information, including states or territories being targeted. Skill-based gaming that awards real-money prizes is not considered gambling in a majority of the United States – but that conclusion requires a state-by-state legal analysis, as each state’s anti-gambling laws are different. Further, the laws change frequently in response to innovations like fantasy sports, legalization of online gambling, and the latest skill-based gaming tables.

Facebook considers all types of real-money gaming “restricted” content, meaning that Facebook must expressly approve your ad before it runs. Whether it is full-scale online casino gambling, poker, fantasy sports, or pure skill prize contests, the requirements are the same:

  • Ads that promote online gambling, and gaming where anything of monetary value (including cash or digital/virtual currencies, e.g. bitcoin) is required to play and anything of monetary value forms part of the prize, are only allowed with our prior written permission. This includes games where purchases are required to continue game play and/or provide advantage in winning prizes, in cases where the prize is of monetary value. Authorized advertisers must follow all applicable laws, including targeting their ads in accordance with legal requirements. At a minimum, ads may not be targeted to people under 18 years of age.

Clicking on “Apply for Permission” takes you to the recently updated Online Real Money Gaming Onboarding Application Form. Advertisers are asked to submit their ID numbers, ad account numbers, the name of their business, and to select whether they are an “operator,” “aggregator/affiliate,” or an “agent/intermediary.”

Facebook then asks the applicant to submit the URLs they are seeking to advertise. This is a particularly important part of the review process, as the review team and Facebook’s lawyers will closely look at the website to ensure legal compliance.

Next, the applicant must select the specific “protective measures” that they implement to gate access to their product:

  • Geo-blocking (gating) of the URL
  • Age-gating of the URL
  • Address verification software or process
  • KYC checks
  • Local cell phone number
  • National tax ID number
  • Any other measures, which must be specified

Applicants are then asked to select the country or countries that they targeting. Note that Facebook’s new rules allow only the following 36 countries to be targeted:

  • Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Columbia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, India, Ireland, Italy, Japan, Kenya, Mexico, Netherlands, Nigeria, Norway, Peru, Poland, Portugal, Romania, Serbia, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

Selecting a country is not enough. Applicants must then select the specific states or territories they are targeting. For example, selecting the United States requires the applicant to select the states in which they plan to advertise. Selecting some of the European or South American countries requires information about the specific type of gaming or gambling to be promoted.

The next question is “Do you require a gambling license?” If no, the advertiser is required to submit “a reasoned legal memo by a law firm attesting to the legality of the advertised gambling/gaming without a need for a license.” If you need such a legal opinion, contact Artaev at Law, as we have analyzed a number of skill-based games and have been providing “where is it legal” opinions to Facebook (and other platforms) since 2020.

What goes into a legal opinion? At a minimum, the legal opinion will set forth a legal analysis of each state’s applicable laws and regulations (including case law) that support skill-based gaming in that state. The legal opinion should also address the applicable federal statutes and explain why they do not prohibit the game in question. Also, the legal opinion needs to explain the particular game’s mechanisms, why the outcome is not determined by chance, and how the various laws apply or not apply to the game in question.

A lot depends on the specifics of your game – for example, is the game more like fantasy sports or a pure skill contest? Also, even the bigger companies in the skill-based gaming industry disagree on the states where their games are permitted. Many states are currently addressing unlicensed skill-based gaming and regulations are constantly changing. For example, Michigan recently passed comprehensive online casino legislation and in the course of enacting the sweeping gambling laws, Michigan also included licensing requirements for skill-based real-money games.

Facebook remains a powerful advertising medium. Access to that medium is not free nor easy, especially if you are advertising a “restricted” product like skill-based real-money gaming. Ultimately, Facebook and its legal teams determine what ads meet its advertising policies. To minimize the review time and increase your chances of an approval, contact the experienced gaming attorneys at Artaev at Law PLLC.

Have more questions? Do you need help getting your app through the Facebook review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com.

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.

© 2022 Artaev at Law PLLC. All rights reserved.

Are Real-Money Video Game Tournaments Legal?

Video games are quintessential contests of skill and online multiplayer modes are a must in most modern video games. And yes, playing skill video games for real money prizes is legal in the majority of U.S. states. Some of the most popular video games (Call of Duty, Fortnite, Magic: Arena, and others) frequently feature official in-game tournaments with real-money prizes for the top finishers. Fueled by the global popularity of esports, there is also a growing number of third-party esports tournament sites and apps. These third-party offerings are essentially on-demand, which means that there are always head-to-head challenges waiting and frequent “cash cups” with winners able to win a hundred dollars or even more.

Real-money game tournaments and contests serve as a more casual alternative to professional esports. Not everyone has the time (or the reflexes) to go pro or even compete at the collegiate level. But, you may be skilled enough to dominate your local group of friends at Call of Duty or FIFA and there are plenty of offerings to let you win real money prizes against online opponents. Some of the most innovative companies even integrate streaming (for example through Twitch) to add an exciting “audience” element to real money play. Anyone can feel like an esports pro. There is also a growing opportunity for market crossover, with streamers getting involved in real-money play and adding a whole new dimension to their entertainment potential, audience, and branding opportunities.

What kinds of legal issues will a contest or tournament organizer/developer encounter? As with any business, there are several distinct legal areas in play.

Esports competitions or tournaments are not expressly regulated or prohibited under U.S. federal or state law.

First, from a government regulation perspective, no states expressly prohibit esports or video game tournaments. However, there are several jurisdictions that prohibit any sort of real-money gaming. This is the case even if the game involves a pure contest of skill (even offline, like a hole-in-one contest). Accordingly, tournament organizers and app developers stay away from those restrictive jurisdictions.

In the remaining states, game contests, tournaments, and esports are not licensed under any sort of “gambling” or “fantasy sports” regulatory scheme. The largely unregulated market means that there are a number of service providers out there that disagree on where their product can be offered. Some are more conservative than others, but there is not a definitive list of where gaming competitions are legal or illegal. At least one state – Nevada – passed legislation to create an esports advisory board (within its Gaming Commission), to recommend best practices for maintaining integrity of esports competitions and related betting. According to Nevada lawmakers, they recognize the value in the esports competition industry and want to ensure Nevada remains an attractive investment environment for this burgeoning industry. At this time, the potential advisory committee is the closest any state has come to any sort of esports-specific legislation.

A lot depends on the specific competition and tournament model, as well as the types of games being played. For instance, are shuffled cards involved (Magic: The Gathering)? Or some other element of randomness (like team or opponent selection)? Are bots or AI players involved? How do all these elements interact and do they introduce a significant chance element that may affect the outcome? Does the randomness element render the game illegal “gambling”?

Third-party video game websites and apps implicate the intellectual property rights of the underlying game’s developers and may be subject to DMCA takedown notices or federal trademark lawsuits.

Second, esports competitions and tournaments do implicate intellectual property rights, specifically the rights of the game developers. A game’s developer (like Blizzard, Riot, or Epic) owns the copyrights in its games and underlying code. Third-party apps and websites operate without any sort of license from the developers, which may be a violation of copyright or trademark law. Disclaimers alone may not be enough – using game imagery, logos, or even gameplay footage may constitute copyright or trademark infringement. A player or streamer may be protected by the “fair use” copyright law exception, but a company that organizes and monetizes game tournaments is unlikely to prevail on this argument. At the same time, a properly run game tournament organizer may not have sufficient interaction with the game itself to violate IP rights. After all, the players are the ones playing. Each situation is highly fact-specific and there is certainly no bright line rule.

As real-money video game tournaments become more widespread, expect to see pushback from the game studios. At least one studio – Epic – has announced an aggressive stance towards third-party platforms that facilitate playing Epic’s games for real-money prizes (particularly Fortnite). However, as of the date of this article, no lawsuits have been filed.

Combining real-money tournaments with streaming is an attractive business model, but may involve complex licensing and contract issues.

Third, streaming tournaments and competitions, as well as partnering with known streamers, involves a number of contract law and licensing issues. Each streaming service has its own set of terms. Players (and organizers) streaming real-money game content must ensure that they are compliant with the terms or risk being banned from the platform. Further, who owns the streaming content? Normally, the creator has the intellectual property rights to their own content, but it is not so clear-cut when streaming a tournament or other organized contest. Tournament organizers should ensure that rights and expectations are clear from the outset, especially if a well-known esports streamer or player is involved. If the streamer is granting the organizer a license to showcase their gameplay, the license should at a minimum be in writing. Any royalties, cross-promotions, and sponsorships likewise need to be negotiated ahead of time. Even the best intentioned relationships go awry when money becomes involved.

For developers looking to launch a new esports or game tournament app or website, an experienced gaming attorney is a must-have. Artaev at Law has worked with a number of gaming companies from across the world and has the expertise you need. Reach out today to set up a meeting with Dan.

Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Categories
Uncategorized

In-App Purchases No Longer Mandatory for Developers: Federal Court Issues Injunction As Part of Epic v. Apple Ruling.

There is no question about Apple’s dominance in the smartphone market. The iPhone accounts for approximately 50% of all smartphones in the United States and there are an estimated 1 billion iPhones across the globe. For developers looking to distribute their apps or games to as many customers as possible, the Apple App Store is a must. Of course, Apple tightly controls access and requires developers to comply with Apple’s terms and policies, including with respect to customer payments. For real-money skill-game developers, the App Store is even more important because it is essentially the only way to get their product onto mobile phones. In May 2021, Google banned real-money skill games from its Play store. Setting aside sideloading (risky) and progressive web apps (not familiar to all), if you want real-money skill games on a smartphone, Apple is your only option.

One of the more controversial App Store rules is the 30% commission on all transactions. In essence, whether a developer sells their app for a one-time fee, offers a reoccurring subscription, or provides an option for in-app purchases, 30% of the payment goes to Apple. In the gaming market, this model is especially profitable in so-called “freemium” games, which are free to download and play, but offer players the option to unlock additional content, levels, and other upgrades for an additional fee. The insanely popular game Fortnite is a great example of a game that’s free to download and play, but brought an estimated $5.1 billion in revenue from cosmetic and other optional items in 2020 alone. In response to increased media and regulatory pressure (including outside the United States), Apple modified its rules to allow for a reduced commission of 15% for “small” businesses that make less than $1 million in annual revenue. Recently, Apple further amended its polices to allow certain “reader” apps like Netflix or Spotify to redirect their users to outside the app for additional payment and subscription options. The out-of-app payment option was added in direct response to laws passed in South Korea and Japan.

In the United States, the recent court decision in the Epic v. Apple antitrust lawsuit unlocked the out-of-app payment options for all. In early 2020, Epic (the owner and developer behind Fortnite) decided to deliberately circumvent Apple’s rules against out-of-app payment options and offer mobile players a discounted option to purchase in-game currency directly through Epic’s website. Apple predictably responded by pulling Fortnite from the App Store, and Epic sued, alleging anti-competitive behavior and violations of various federal and state antitrust laws. Apple countersued for breach of contract, accusing Epic of deliberately breaching the terms of the App Store agreement and diverting Apple’s share of app revenue.

After a 16-day trial, the United States Court for the Northern District of California issued a 185 page decision largely in Apple’s favor and ordered Epic to pay Apple $6 million in breach of contract damages. However, the Court also found that Apple’s “steering” provisions that prohibited developers from offering alternative out-of-app payment options violated California’s antitrust laws. The Court issued a permanent injunction that precludes Apple from implementing these “steering” provisions, leaving developers free to include buttons, external links, and “other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing.” The injunction will take effect on November 10, 2021.

What does this ruling mean for real-money skill-based game developers? It certainly opens up more options to direct customers to your external website, advertise promotional pricing, and innovate your business and pricing model without direct involvement from Apple. Additionally, the Epic v. Apple ruling also frees developers to communicate directly with customers through information obtained via the in-app registration process. At the same time, developer guideline 5.3.3 already prohibits in-app purchases from being used to “purchase credit or currency for use in conjunction with real money gaming of any kind.” In other words, real money skill games were treated like casino gambling apps and excluded from the in-app purchase mechanism. The Epic ruling simply means that all app developers will have access to a flexible business model and be able to determine how to best monetize their game without Apple dictating the business terms and imposing a mandatory 15-30% commission on revenue.

Nevertheless, real-money skill-based games remain subject to heightened review and scrutiny from Apple. Advertising through Facebook, Instagram, Twitter, etc., also requires a specialized (and sometimes lengthy) approval process. Skill-based real-money gaming operates in an unregulated area, and applicable laws and regulations change frequently. For example, the IRS recently signaled that it intends to tax daily fantasy sports wagers the same as sportsbook bets. Although DraftKings and FanDuel will likely fight the IRS’s interpretation of the Internal Revenue Code, any resulting ruling may impact the skill-gaming industry as well. Stay vigilant and retain an experienced gaming attorney to guide and consult your business the right way.


Have more questions? Do you need help getting your app through the 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.

© 2021 Artaev at Law PLLC. All rights reserved.

Exit mobile version