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Business Law Essentials for the Modern Video Game Company.

As a game developer, unless you are working on the new Ace Attorney game, law and lawyers are the last thing on your mind. But no matter how high-tech, innovative, and cutting-edge your product, video games and mobile apps are still a business and there are industry-specific legal areas to consider. Doing it right will protect your investment and ensure that your business grows in the right direction with minimum risk and liability. Artaev at Law specializes in legal issues facing video game and mobile app developers and also has extensive general business experience to help you run your company the right way.

The Fundamentals.

1. Form Your Corporation or LLC.

When starting your business, the first thing to do is to form a business entity. It is important to choose the right type of entity depending on your future goals and needs in mind. For example, if you are planning to solicit investors and venture capital, a Delaware corporation is likely your best option. In other situations, a limited liability company (“LLC”) may be a simpler approach, but at the same time may create unintended tax consequences in the future if you decided to merge, reorganize, or consolidate your company with others. Whatever form you choose, incorporation is critical for all business owners because it creates a separate business entity with its assets and liabilities independent of its owners. A formal business organization also helps address important governance, financial, and succession issues right at the outset.

To officially form your company, you file articles of incorporation (or organization) in the state where you want to be registered. An experienced business attorney can advise you on the right type of entity, as well as the advantages and disadvantages of incorporating in various states (i.e. should you form a Delaware corporation?) Every state requires an initial registration fee, an in-state registered agent to serve as your official point of contact, as well as an annual filing and renewal fee to keep your company current and in good standing.

2. Have an Attorney Draft Your Bylaws or Operating Agreement.

The next step is to have an attorney draft the bylaws or operating agreement. This internal governance document is absolutely critical. It spells out who owns the company, how decisions are made, how money is distributed, how shares are transferred, what happens if an owner dies, and many other important considerations. Even if you are a one-person business, the bylaws or articles of organization are still necessary when you want to open a bank account, obtain a business loan, sell all or part of your business, and otherwise ensure that you are running your business the right way. Having formal documents and procedures, as well as keeping written records of corporate meetings are also critical to maintaining the corporate form for liability protection purposes. Aggressive creditors have successfully argued that a business that does not observe such formalities is a “sham” and that a court should “pierce the corporate veil” to allow them access to an owner’s personal assets.

3. Separate Your Business Money and Assets.

Maintaining a separate bank account and finances for your business is another vital step. Virtually all business problems are linked to money. A separate business finance setup (including a bank account) avoids commingling personal and business funds, which is another circumstance that could expose you to liability. Further, failing to separate business and personal expenses and properly account for distributions creates a very difficult and unpredictable tax situation at the end of the year. For example, if you use personal credit cards for business expenses, make sure to keep records and promptly and accurately reimburse yourself. Also, if you apply for an SBA or other loan, make sure that the loan is disbursed to your business account and not to your own personal account (yes, this actually happened with one of my clients). Otherwise, you are creating an accounting, tax, and legal nightmare – and risking an IRS audit.

Make sure to reserve adequate money for income taxes from any operational income. Also, state and federal taxes must be paid on a quarterly estimated basis, since as a business owner there is no employer automatically withholding taxes from your paycheck. If you have employees, you will need to make sure to pay the appropriate payroll, worker’s compensation, and unemployment taxes. If you do not have employees, self-employment tax is still something that must be calculated and paid periodically.

Finally, on cryptocurrency or “crypto.” If you are planning on using crypto as part of your business, there is a whole separate set of considerations. The IRS considers crypto taxable property, including stablecoins. Taking payment in crypto may be innovative and position your business as “high-tech,” but there are obstacles to using crypto instead of fiat currency in running your business. For example, even if a vendor allows you to pay them for goods or services in crypto, each transaction is a taxable event. The IRS considers you to have sold crypto and incurred capital gains tax liability each and every time. There are also state and federal laws that preclude you from paying wages in crypto, but bonuses and other discretionary pay are another story. Crypto may have promising implications for the future, but there are many practical obstacles for business owners interested in integrating crypto into their day-to-day business.

Intellectual Property.

Intellectual property or IP law is of paramount importance to game developers and designers. On one hand, you want to protect your own creations and inventions against unscrupulous competitors seeking to copy your product. On the other hand, you have to be able to protect yourself from others’ IP claims, including DMCA copyright takedown notices and cease-and-desist letters.

Intellectual property generally consists of three main categories: (1) patent; (2) copyright; and (3) trademarks.

1. Patents.

Patents are most often associated with scientific discoveries and mechanical devices. In the video game context, a so-called utility patent may be available to protect a game’s unique mechanics or a specific gameplay methodology. The protected design must be unique and non-obvious. But patents do not protect the code itself, the game concept, or idea. For example, Skillz.com, a leader in the real-money skill-game market, has over 50 patents, including a patent for technology that ensures fair and level asynchronous play. Skillz does not have a patent for any specific game played on their platform and in fact, there are a lot of copycat apps on the Apple App Store that are essentially the same games as those available through Skillz. The downside of patents is that patent protection is fairly expensive to obtain and to police, involves publication and public disclosure of the technology, and may even be waived by playtesting certain concepts.

2. Copyright.

Copyright law protects creative works like books, movies, music, and yes, video games. The underlying code for a game is also protected by copyright and pirates who illegally copy the code and sell copies of the game are violating federal copyright law. Most recently, copyright claims have come up in the context of streaming and whether streamers are allowed to use certain music and other creative elements during their broadcasts.The creative concepts – or the “theme” of the game – are also protected. This means the storyline, the characters, art, music, box design, and other distinct creative and thematic elements. But not everything is protected by copyright.

Distinct from the “theme” of the game are the game mechanics, which cannot be copyrighted. “Game mechanics” is the actual gameplay – this can be as simple as moving the joystick to move an avatar around in a virtual environment. The United States Copyright Act codifies this concept and expressly states that copyright protection does not extend to “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 USC 102(b). The distinction between the copyrightable theme and the non-copyrightable game mechanics is not always clear and there may be some overlap. Additionally, the concept of “fair use” protects certain commentary, criticism, and parody from an infringement claim.

3. Trademarks.

Trademark protection exists chiefly to prevent customer confusion and to protect the integrity of a brand. In the video game context, trademark will primarily protect the name of the game, but can also protect unique “trade dress” elements that constitute unique menu or box designs, or user interface elements. A trademark can also protect a slogan or recognizable phrase associated with a game.

Trademarks are relatively easy to obtain and the USPTO website allows you to search for existing trademarks to ensure that your branding does not infringe on existing products. Trademarks also vary in strength depending on whether they are more generic and descriptive, or unique and arbitrary. For example, the game name “Grand Theft Auto” is also the term for a certain felony associated with vehicular theft. The name literally describes a core game concept (stealing cars), so it would be considered either a “suggestive” or “descriptive” mark. On the other side of the spectrum, an entirely unique “fanciful” or “coined” mark enjoys the strongest protection – for example the terms “Skyrim” or “Warcraft” (at least arguably) do not have any other meaning outside the game context.

4. Other Intellectual Property Issues.

The most two common questions facing game developers are: (1) How can I prevent someone from copying my game? and (2) How do I avoid getting in trouble for copying someone else’s game? While you may have taken steps to protect your intellectual property, the fact is that games are especially vulnerable to knockoffs and plagiarism. International law may even become an issue if an overseas company takes and repurposes your idea. By hiring an attorney as part of your team, you can ensure that you have taken the right steps to obtain copyright protection for your user interface, graphics, art, etc., and that you have properly registered your trademarks. An attorney can also ensure that any contractors – such as artists, coders, or composers – properly assign all rights back to the game developer through “work for hire” agreements. Licensing agreements with any publisher must also delineate the rights and responsibilities of all parties. Royalties and assignments must be fair, clear, and definite. If you have a co-designer or a business partner, you must absolutely have a business agreement before your idea starts making money, so there are no surprises or hard feelings. If there are copyright concerns or knockoffs, a DMCA takedown notice or demand letter is often an effective tool to dissuade would-be thieves. Conversely, if you are receive a takedown notice or demand from another designer, you need to have an effective and prepared attorney ready to respond.

Regulatory Concerns.

Most game developers are not going to encounter regulatory issues or attract the attention of state or local prosecutors. However, if you are considering real-money play (such as skill games) you will need a legal opinion as to where your game may be offered. Payment processors, advertisement platforms, and distributors may all require additional information and assurances as part of their internal review and approval process.

Finally, if you are distributing internationally, you need to be aware of the region-specific laws and regulations. Some regions are more friendly to gaming than others – for example, real-money skill-games are popular and abundant in India, but there is no uniform national-level law. Hong Kong is a haven for real-money gaming, yet at the same time, China does not allow them. Plus, there are international tax treaties and financial regulations to navigate.

Whatever your game and whether you are a veteran or just starting out, an experienced gaming attorney can be a great asset to your business.

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 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.

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esports gambling law gaming law internet law

The Three Types of Skill-Based Real-Money Games: Room for Innovation, Not Stagnation.

The skill-based real-money gaming market remains a popular and innovative business environment. The draw for players is that they can play games and win real money, but also improve their chances of winning through skill. Unlike gambling or casino-style games, skill-based gaming is not mathematically skewed in favor of “the house.” There are many types of games to choose from – card-based solitaire-like games, bingo, bubble puzzlers, trivia, and even sophisticated physics-based racing games. Best of all, unlike casino gambling and sports betting, skill-based real-money games are legal and available in the majority of U.S. states and internationally as well.

For developers, the upside is obvious. Monetization of gaming has always been profitable and a lucrative business – hence the tightly-regulated casino and sportsbetting markets. Designing a mobile game instantly gives the developer access to customers across the world through a well-established distribution network (i.e. the Apple App Store). When done right, real-money skill games are not required to be licensed or otherwise regulated in a majority of the states. This makes the real-money skill game market very accessible to most developers, including smaller studios with limited budgets and without the lobbying firepower that would otherwise be required to enter the money gaming market.

These factors combine into a highly-competitive market. This makes it difficult to design a profitable game without innovation. For example, the Skillz.com platform (publicly traded as SKLZ on the NYSE) boasts over 30 million players and over 30,000 developers. However, according to Skillz’s August 2021 prospectus filed with the SEC, only three games accounted for 74% of all revenue in 2021. These so-called “big three” are Tether’s “Solitaire Cube” and “21 Blitz,” and Big Run’s “Blackout Bingo.” Predictably, there are number of copycat games that are very similar to these “big three” in design and gameplay. To be successful, developers must innovate. As part of their development and marketing efforts, all companies in this space need to understand the three main types of skill games, each with its own set of regulatory nuances:

Pure-Skill Games

The first category of games is the “pure skill” variety that are similar to the popular Solitaire Cube, 21 Blitz, and Blackout Bingo that account for such a large share of the market. These games pit players in head-to-head contests, multiplayer battles, or tournaments the outcome of which depends solely on the skill of the player. For example, in Solitaire Cube, players are given the same deck and are scored on how well and fast they play Klondike Solitaire using these cards. Players pay an entry fee, with the winner receiving a cash prize.

These “pure skill” games do not involve any other factors than the players’ own skill in determining the outcome. There are limitless possibilities in this genre – anything from knife-throwing games, to cup flipping or “beer pong” style contests, to trivia games fall into this category. Some particularly innovative developers have even developed sophisticated physics-based games (similar to Angry Birds) that take serious dexterity, planning, and logic to master.

Pure-skill games are legal under U.S. federal law, as well as in the majority of U.S. states. Because skill games involve the opportunity to win real money, the Apple App store and various social media advertising platforms require special approval and an application that must be accompanied by a legal opinion from qualified gaming counsel. Payment processors also require special approval, a physical presence in the United States, and have their own set of standards and rules that must be met before your gaming account is approved.

Fantasy Sports or Market Games

The second category of skill games are those that are similar to the daily fantasy sports (“DFS”) contests offered by DraftKings and FanDuel. Generally, participants pay an entry fee and then are given a virtual currency budget to spend on a lineup of sports players to be on their fantasy team. The fantasy team then scores points based on real-world performance and the participants that accumulate the most points can win a cash prize.

Traditional sports and leagues like the NBA, NFL, MLB, and NHL are not the only options. There is at least one fantasy esports platform that lets players put together a lineup of their favorite gaming stars. There are also fantasy stock market games that let players pick a portfolio of real-world shares and win prizes based on how well their portfolio does against other players.

The key distinction between these fantasy games and pure-skill games is that the outcome of a fantasy game is not determined solely by a player’s skill. While it certainly takes knowledge and research to put together the best team, points are awarded based on real-world performance that is outside of the participants’ control. In fantasy sports, a particular player might have a bad game, get injured, or fall victim to bad officiating or adverse weather conditions. In fantasy stocks, a particular stock might enjoy a sudden price spike due to a merger announcement or a new product. Or, a stock might quickly lose value due to an SEC investigation or other unpredictable real world factors. In 2020, the IRS issued two separate memoranda analyzing and addressing this distinction, concluding that DFS involves “wagering” within the meaning of the Internal Revenue Code. At a minimum, the IRS’s position matters from a tax perspective: does your skill-based game involve “wagers” subject to excise tax?

DFS and similar fantasy games are more regulated than “pure-skill” games. DraftKings and FanDuel currently offer their DFS products in 43 states and are a good regulatory bellwether. In some states, DFS is offered as an unregulated skill-game product that falls outside of the state’s definition of “gambling.” In other states, legislatures have passed laws that expressly exclude DFS from “gambling,” but do not otherwise regulate or license DFS. In contrast, states like Michigan have enacted comprehensive licensing regulations for DFS. There are also states that outright ban any sort of real-money wagering. And, there are states that have issued DFS-adverse legal opinions and are embroiled in litigation to decide whether DFS constitutes illegal “gambling.” In other words, the regulatory landscape for DFS-type games is complicated and requires guidance from an experienced gaming attorney.

Arcade-Style Skill Games

The third category does not involve mobile phones, computers, or the internet at all. Rather, these games look like arcade cabinets or even like slot machines, and are found in certain bars, restaurants, and other public establishments. Originally, these games were purposefully designed to look and feel like slot machines, but introduced additional player choice or input features so that they would involve skill and purportedly fall outside of the definition of “gambling” in most states. Authorities in some states have cracked down on these types of machines (sometime called “nudge machines” or “skill slots”), concluding that the claimed skill element was a sham or otherwise insufficient to render the machine a true game of skill.

Despite the ongoing pandemic and the ubiquity of gaming options on mobile devices and the internet, these cabinet-type skill games are still thriving. One particularly popular game called “Dragon’s Ascent” has attracted the attention of regulators in the D.C. area and has sparked debate over whether the game (which pays out cash prizes) is an illegal gambling device. Players score points by shooting magic balls at dragons to capture them, using the joystick and buttons to direct and time their shots. The two-player version looks like a traditional arcade cabinet. The eight-player version adds an impressive-looking table that doubles as a screen. Both versions include drink holders, and the game’s promotional material specifically targets bars as a way for them to “offer something new.”

Although the barriers and start-up costs to enter into this specific market are significantly higher than the mobile game field, the presence of arcade-style skill games demonstrates the level of innovation and variety in the industry. Bars and restaurants that survive the pandemic may very well be interested in real-money skill games as one way to bring customers back to their in-person establishments. It is also possible that bars and restaurants will partner with more skill game developers to introduce mobile or more individualized real-money games to their establishments. After all, having a pint and betting $5 on a game of pool or darts is one of the most traditional and familiar ways to bet on a game of skill. Technology may advance, but people’s desire to compete, wager, and win real money remains the same.

Have more questions? Do you need a legal opinion or help getting your game through the regulatory 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.

Categories
business law esports gambling law gaming law internet law

IRS Rulings on Daily Fantasy Sports Wagering: What Does This Mean for Skill-Based Gaming?

Real-money skill-based games are very popular across the world and the United States is no exception. Generally, real-money skill games allow players to compete against others in various games where the outcome is determined by the relative skill of the players (as opposed to chance). In simple terms, it is the same betting your friend $5 on a game of darts or pool at the local pub. Except these games are played online – most frequently on smartphones. Games range from timed solitaire contests (using the same deck), to knife throwing or cup flipping games, to trivia contests. Because chance does not determine the outcome, most states’ anti-gambling laws do not prohibit skill-based games. U.S. based and international companies have been working to invest in this space, using the increasing availability of the internet and smartphone apps to provide entertainment to players seeking to compete against others and win some money in the process.

I have written extensively about legality of skill gaming, as well as the obstacles that developers need to overcome to get their games up and running and advertised.

Besides private company gatekeepers, local law enforcement, and regulatory authorities, there is a new obstacle for skill-based gaming companies. This time it comes from the IRS and could have broad market implications beyond simply paying taxes.

In 2020, the IRS issued two related memoranda regarding Daily Fantasy Sports (“DFS”) wagers. Recall that DFS is an accelerated version of traditional fantasy sports, giving players a chance to set lineups and compete on a daily basis, rather than having just one team for the entire season. DFS is available in 43 states through the two major operators: DraftKings and FanDuel. Similar to pure-skill games, DFS distinguishes itself from gambling by emphasizing that relative skill of the players determines the outcome (as opposed to chance). In some of the 43 states, DFS operates pursuant to government license. In other states, DFS is unregulated and either expressly or implicitly exempt from the statutory definition of “gambling.”

In the first 2020 memo, the IRS considered whether DFS operators (i.e. DraftKings and FanDuel) were required to pay excise tax on wagers pursuant to IRC §§ 4401 et seq. Under federal tax law, each “wager” is subject to excise tax – sportsbooks are very familiar with this provision that requires the bookmaker to pay tax on every bet accepted from a patron. In answering in the affirmative, the IRS defined “wager” without any reference to an element of chance:

“[T]he statutory language in IRC §§ 4401 and 4421 does not differentiate whether an activity involves skill, chance, or some combination of the two. Most importantly, whether DFS is a game of skill for state gambling statute purposes is not relevant for determining whether DFS is wagering for federal excise tax purposes.”

IRS AM 2020-009

At the same time, the IRS did not overturn Revenue Ruling 57-521, which was a 1957 opinion on whether a puzzle contest was a taxable gaming transaction. Rather, the IRS distinguished that in the puzzle contest “the contest participant’s own skill was the only factor involved in winning the puzzle game and there was no chance element at all.” In DFS, the participants use their skill to select a lineup, but then earn points based on the real-world performance of the selected athletes (over which the participants have no control). The IRS emphasized that no matter how educated and skilled a DFS participant may be, there is always a chance that the chosen player or players will perform poorly that particular day, get injured, or suffer adverse effects on their performance from the weather or officiating. Thus, the IRS concluded that the “skill” involved in DFS was similar to the skill involved in traditional sports betting or horse race “handicapping.” Finally, the IRS also explained that that the rate of excise tax (0.25% or 2%) depends on whether DFS is “authorized” under the law of the state where the wager is accepted. The IRS did not explain whether “authorized” means DFS is operating pursuant to express state license or is simply outside of the particular state’s anti-gambling legislation.

Two months after the excise tax memorandum, the IRS relied on essentially the same analysis to conclude that DFS wagers are “wagering transactions” that can be used to offset wagering income during a taxable year under IRC § 165(d). Effectively, DFS wagers are treated the same as gambling losses under the IRC. In its legal analysis, the IRS reiterated:

Any argument a DFS transaction is not wagering because it is based on skill must fail because elements of chance beyond the participant’s control ultimately determine the outcome of the transaction

IRS Memorandum 202042015

Why does the IRS’s DFS analysis matter for skill-based real-money gaming? Two main reasons: (1) The IRS’s interest in DFS transaction could signal increased tax scrutiny for real-money skill-gaming operators; and (2) the IRS’s legal analysis of whether a skill game is actually gambling/wagering could be adopted by states that currently do not regulate skill-based gaming.

1. Do real-money skill-based game companies have to pay federal excise tax?

There is no doubt that pure-skill games are still exempt from the definition of “wager” and “wagering transaction” for tax purposes. However, it is unclear whether there can be “any” chance at all. The first IRS memo cited a 1957 puzzle game ruling to distinguish pure-skill games, noted “there was no chance element at all,” and concluded that “[t]he existence of chance indicates that DFS contests are distinguishable” from the pure-skill puzzle game at issue in the 1957 memo.

In the second memo, IRS revised its position slightly to conclude that “the test is not whether there is an element of chance or skill, but which is the dominating element that determines the result of the game.” Regardless, the IRS took the position that the outcome of a DFS contest is predominantly determined by chance (as opposed to skill). DFS industry leaders have predictably issued statements opposing the ruling, calling it “deeply flawed” and inconsistent with state court decisions that have held that DFS is a game of skill.

If you are a real-money skill game developer, it is critical to determine whether your game has any element of chance at all. In other words, is your game more fantasy sports or pure contest? If there is any element of chance at all, you must determine whether skill “is the dominating element” of the game. Most, if not all, real-money skill games will pass this second test. At the same time, if your game is more like fantasy sports (for example a stock market or cryptocurrency picking game), your game will likely be considered to involve taxable wagering. This obviously subjects you to the excise tax under IRC §§ 4401 et seq. An added wrinkle is whether you owe tax at the 0.25% “authorized” rate or the 2% “unauthorized” rate. Most skill-based operators operate without a license or governmental approval – but at the same time, they only operate in states where their activities are not prohibited by state anti-gambling laws.

2. Will states adopt the IRS definition of “wager” to regulate real-money skill-based gaming?

Additionally, the IRS analysis may be adopted by states seeking to regulate or prohibit real-money skill games. For instance, if you are paying excise taxes to the IRS, a state regulator can easily use that fact to argue that your game is actually “wagering” and therefore constitutes “illegal gambling.” This is especially troubling because the first “excise tax” memo seems to require “chance only. It is also possible that real-money skill games will be considered “wagering” for the purposes of excise tax imposed by IRC §§ 4401 et seq but not “wagering” for the purposes of IRC § 165(d).

Stay tuned for more on this developing area. It is likely that DraftKings and FanDuel are headed for a showdown with the IRS over the excise tax issue. Any resulting Tax Court decision (or even settlement) will have significant repercussions for the skill-based gaming industry.

Have more questions? 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 or tax 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 reserve

Categories
business law esports gambling law gaming law internet law

A Guide to Getting Your Skill-Based Real-Money Game Approved in the United States.

Skill-based real-money gaming has been a popular form of entertainment across the world for hundreds of years. From Roman legionnaires wagering on an early version of backgammon to $5 eight-ball games at your local pool hall, skill games have always attracted players looking for a chance to win real money. With smart phones in every pocket, skill-based gaming has entered a new era where anyone with an internet connection can play various money skill games through their phone or computer and stake anywhere from $0.25 to hundreds of dollars on the outcome.

Gaming is a rapidly growing industry and the skill-based real-money market is no exception. Indeed, there is already at least one publicly-traded California-based company (Skillz.com; SKLZ) investing substantial resources in the real-money skill-based U.S. market. However, any sort of real-money gaming business implicates federal and state-level regulation. While a government license is not necessary in most states, your game must still pass private sector review. Apple’s App Store is indispensable in the current market; advertising through social media like Facebook is another must. Banking and payment processing is likewise an integral part of your ability to run a business.

I have advised a number of companies, both international and U.S. based, on the legality of their skill-based real-money games. Through Artaev at Law, I have prepared detailed memorandums and analysis for a number of companies, as well as provided consultation to investors seeking more information about the real-money skill-games market. As a game developer, here is what you need to know:

1. Get Your Game to the Players.

If you were to get into the full-scale casino gambling market, you would have to comply with stringent state-level regulatory requirements, pay substantial application and licensing fees, and otherwise deal with an intricate governmental regulatory framework. Further, in the few states where casinos are even legal, there is only a limited number of licenses that a state will issue. In other words, it is impossible. But real-money skill gaming operates outside the gambling regulatory framework, which means you don’t have to go through a government licensing or regulatory approval process to offer your product (in most states).

Instead, real-money skill game providers find themselves faced with so-called private company gatekeepers. The popularity of real-money skill gaming is in large part due to the ubiquity of the smartphone. Apple’s App Store is the only practical way to get real-money skill games onto iPhones (no, people will not “unlock” their iPhones to sideload your real-money skill game, especially when the App Store already has a robust selection of these games that are easy to download and use). Google’s Play store does not currently allow real-money skill games, so there developers must either provide sideloading options or use a Progressive Web Application (PWA).

The bottom line is that developers must pass Apple’s “gatekeeping” to even get their app on the market. That means complying with the App Store Review Guidelines. Section 5.3.4 is particularly important:

5.3.4 Apps that offer real money gaming (e.g. sports betting, poker, casino games, horse racing) or lotteries must have necessary licensing and permissions in the locations where the app is used, must be geo-restricted to those locations, and must be free on the App Store.

Apple considers real-money skill games to fall into this category, even though skill games do not depend on chance like the “sports betting, poker, casino games, horse racing” examples. This guideline can be distilled into three requirements: (1) The app must be legal where you are offering it; (2) The app must be geo-restricted to only those locations where it is legal; and (3) the app must be free.

The first requirement is the most important and the most confusing for app developers. How do you demonstrate that your app has “necessary licensing and permissions” if the states where you are offering your real-money skill games do not regulate such games? This is a situation where a legal opinion or memorandum from an experienced gaming attorney is helpful. In general, such a legal opinion will describe your game, explain how the game fits within existing federal regulations, and then present a state-by-state analysis (supported by applicable statutory and case law citations) to show that the skill game does not violate those states’ anti-gambling prohibitions or any other law.

The second requirement of geo-restriction is self-explanatory. Your app can only offer real-money gaming if the user verifies their location in a state where such gaming is legal. You can still offer practice or play-money games without geo-restriction (or if the user does not want to or cannot verify their location).

The third requirement is that the app must be free. Section 5.3.3 of the review guidelines further clarifies that “in-app purchase” cannot be used to purchase credit or currency for use in the real-money gaming app. That means that you will need to set up some sort of external mechanism for deposits, link the user’s existing account and balance to the app, and ensure compliance with the external payment processors’ requirements.

Once submitted, the review process can take between several weeks to more than a month. A lot depends on whether your app is similar to other apps already approved or whether it is something completely new. Other factors, like the reviewer or the law firm reviewing the legal analysis may also impact the timeline.

2. Advertise Your Game.

Advertising is critical to your app’s success and online advertising platforms have special rules for real-money games. Social media companies like Facebook and Twitter require prior approval and permission before running your gaming ad. The process is similar for both platforms and generally involves filling out a questionnaire, selecting the geographic areas you are targeting, providing a link to your app’s website, and submitting a legal opinion that your app comports with the law where it will be advertised. Google and YouTube (owned by Google) do not currently allow real-money skill game advertising.

This process may be a bit more lengthy than getting approval from the App Store. Depending on the nature of your product, your location, and the platform, the process may take several months. The social media platform may also come back with additional specific legal questions for your counsel to answer. The level of follow up and scrutiny is hard to predict because the social media companies farm out the review to outside law firms, which have their own standards and review processes.

3. Set Up Your Payment Processor and Bank.

Once your game is live and advertised, it’s time to start making money. There are a lot payment processors out there (PayPal, Square, etc.) and each has their own set of rules and guidelines for business accounts. The federal Unlawful Internet Gambling Enforcement Act applies to payment processors, so they must be especially careful not to facilitate illegal gambling activities. Credit card companies present another potential obstacle, as credit card companies often lump skill-based gaming with gambling into the 7995 merchant code.

For example, after states started rolling out regulated sport-betting options, Visa issued guidance that made its payment services available for “all transactions that are consistent with local, federal, and international laws.” Visa introduced new 7800-series merchant codes for legal gambling, but none of those codes apply to real-money skill gaming transactions. Practically, this means that skill-gaming transactions may still fall under the blanket 7995 code and Visa may not authorize the transaction. Nor does Visa issue an MVV (merchant verification value) for 7995 merchants, meaning that skill-based real money gaming companies are limited as to their direct-pay options.

This essentially requires skill-game companies to explore options through payment providers like PayPal. Provided you are based in the United States and can link a bank account, the process should be straightforward. If you are based in another country however, there is a whole another set of hurdles to overcome.

There’s More.

Getting your game approved, advertised, banked is only the first step. You will also need robust terms and conditions that govern your relationship with your users, which is especially critical when dealing with real-money gaming and facing potential payout disputes. A privacy policy is also a must, especially if you are offering your game internationally. Then there is the issue of taxation and whether you should be paying excise tax on skill-based game wagers. Real-money skill-based gaming is a hot market, but requires experienced legal counsel to get through these various issues.

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.

Categories
business law esports gambling law gaming law internet law

International Skill-Based Real-Money Gaming: Is It Legal?

Previously, I wrote about the legality of skill-based real-money gaming in the United States. But the U.S. is not the only country where skill-based games are popular – real money competition is huge all over the world. For example, in India, skill-based gaming is not only a popular source of entertainment, but is also becoming a way to make a living. According to Ronaldo Landers, the CEO of the All India Gaming Federation, smartphone gaming has been the most significant contributor to the growth of real-money skill game business in India. That market alone is expected to gross close to $1 billion in revenue by 2025. Market studies currently estimate 350 million gamers in India and have reported a 21% increase in transaction-based gaming, with consistent growth expected in the near term.

Despite the worldwide popularity of skill-based gaming, legal compliance remains a challenge. The law is obviously different in each country and whether skill-based money games are legal depends on where you are. Sometimes there is no uniform national approach – both the United States and India regulate gaming on a regionalized state level. In India, each state has the power to make its own betting and gambling laws, which has led to a patchwork of legislation and judicial decisions. For example, Andhra Pradesh and Telangana have banned all real-money games (whether gambling or skill based), Tamil Nadu permits skill games only, and Kerala has expressly banned real-money online rummy. The lack of national principles and regulations has even resulted in conflicting judicial decisions about whether poker is a skill-based or chance-based gambling game. The Gujarat and Bombay High Courts have determined that poker is a game of chance – while at the same time the Karnataka High Court has reached the opposite conclusion. To add to the confusion, the Supreme Court of India has opined that rummy is a skill game except if played for real-money stakes or if operators make a profit.

In Europe, gambling is generally governed on a national level. This means that each country has their own set of laws that define and regulate gambling. Skill-based games that fall outside the definition of gambling are permitted. For example, one popular skill-game platform active in the European Union only offers real money cash gaming in Austria, Belgium, Cyprus, Czech Republic, Denmark, Germany, Luxembourg, Monaco, Netherlands, Romania, Spain, and Sweden. However, players located in France, Portugal, Italy, etc., are restricted to play for virtual “play” money only. All countries either regulate or outright prohibit gambling, so the question comes down to whether a particular skill-based game falls within that country’s definition of “gambling.” That question can only be answered by careful application of the particular country’s laws to the specific characteristics of the game.

What about cross-border play? Can a company based in the United States, India, or Germany offer games between players in different countries? It depends on where the players are located. In the United States, federal law does not prohibit skill-based real-money gaming. The most significant legislation – the Unlawful Internet Gambling Enforcement Act of 2006 – restricts financial transactions associated with “betting or wagering” if the “betting or wagering” is illegal where it is initiated or received. The UIGEA does not apply to most skill-based games, which are not a “game subject to chance.” But even if it involved a “bet or wager,” skill-based gaming is not unlawful in the majority of the states in the United States. So long as the bet or wager is legal in the state where it originates and in the state or country where it s received, there is no federal prohibition on the activity.

From a practical perspective, most skill-based gaming companies put the onus on the players to determine whether real-money skill-based gaming is legal in their particular jurisdiction. This is especially the case with non-U.S. based players – the terms and conditions require the end users to do their own due diligence. Of course, before a company can offer its skill-based game on a different country’s Apple App Store, the company will have to comply with that country’s specific terms and requirements. For instance, there may be geo-restriction or geo-location requirements. It is also likely that Apple (or Facebook for advertising purposes) will require a legal opinion about the legality of the game in the host country as well as the other countries where competitors are located.

Cross-border competition can be especially attractive to players looking to compete against friends and family located abroad. Gaming plays an important part in many cultures and increased accessibility through the internet and mobile app gaming presents opportunities for users to enjoy real-money gaming no matter where they are actually located. Whether celebrating the lunar new year through some fun family games or simply challenging your cousin to a $5 game of 8-ball, skill-based money games are a growing, popular market and business opportunity all over the world.

Have more questions? Need an expert legal opinion? Need help getting your app through the Facebook, Apple, or Google 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.

Categories
business law gambling law gaming law internet law

Mobile App Real-Money Skill Games: Google Play Says No Thanks.

The skill-based real-money gaming market is red hot in the United States, fueled in large part by the ubiquity of smart phones. We all play games on our phones and real-money gaming provides a quick, fun way to win some money for casual players. The games are not difficult to learn, offer free practice play, and have varied stakes to suit almost any level of risk tolerance. Full-scale casino apps are only available in a handful of states that have legalized full-scale online gambling, and while daily fantasy sports is more widely available, its appeal is limited. On the other hand, real-money skill-based games are available in most states. The preferred medium is the mobile app – as there are an estimated 222 million smart phones in the United States, split about 55% Android and 45% iOS. However, only Apple’s App Store offers skill-based real-money apps. Google’s Play store does not.

On March 1, 2021, Google changed its policies to allow “real-money gambling apps.” This definition expressly refers to licensed gambling products, meaning online casino apps for the few jurisdictions that have legalized online gambling. Google also allows daily fantasy sports apps that meet certain requirements. At the same time, Google expressly excludes any type of real-money skill gaming. Specifically, “we don’t allow content or services that enable or facilitate users’ ability to wager, take, or participate using real money…to obtain a prize of real monetary value. ” Critics have pointed to the fact that this encourages “sideloading,” (downloading the app through a website, as opposed to the official app store) which presents potential security risks and opens the door for true scams. Google’s policy also makes it more difficult for international companies to enter the U.S. skill-based market, as consumers may be even more reluctant to “sideload” an app from a foreign website, even if they would otherwise get the app through the Google Play store. At the same time, Google’s position is explained by the lack of clear regulation for real-money skill-based gaming. Google clearly does not want to police or vet the various iterations of skill-based games or review them for state-specific legality. Instead, it is relying on state licensing to authorize real money gaming. This position excludes most real-money games that are neither licensed nor regulated under most states’ laws.

Apple’s App Store Review Guidelines remain the same. “Apps that offer real money gaming…must have necessary licensing and permission in the location where the app is used, must be geo-restricted to those locations.” For real-money skill-based games that do not need a special license in about 80% of the United States (because they do not depend on “chance” and are not otherwise regulated), this is a green light to make their apps available on the App Store. There are many such games available in the App Store, including hundreds of titles offered through the Skillz.com platform, which is a large California-based, publicly-traded company. For the time being, Apple seems comfortable with hosting real-money skill-based gaming, so long as the developers comply with the geolocation requirements and are only operating in those states where a license is not required.

Developers looking to distribute their games in the United States should look toward iOS for the time being. The legitimacy of “official” app store distribution is especially valuable in the real-money gaming market. Note that Apple still requires “geo-restricting” to those jurisdictions where the app is legal. Federal law does not regulate most skill-based real-money gaming, but the state-level analysis remains unsettled. In fact, even the large industry participants like Skillz, WorldWinner, and others cannot agree on a uniform list of states where their products are legal. In other words, if you are operating unregulated and without a license, you must absolutely consult with a legal expert and determine your risk tolerance before defining your geolocation parameters.

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.

Categories
business law esports gambling law gaming law intellectual property internet law

The Facts About Real-Money Skill Gaming: Dispelling 5 Common Internet Myths.

Artaev at Law advises companies looking to launch new technologies and tap into the skill-based real-money game market in the United States. In keeping up with the latest legal and regulatory trends, we do a lot of research, and we have seen a lot of misleading and downright false information on the internet. Do not be deceived and get the facts backed up by legal analysis – Artaev at Law is the trusted, experienced, and accurate source to answer your questions and dispel the most common myths about real-money skill gaming.

1. MYTH: Online gambling games are the same as “real-money games of skill.”

FACT: No. Words matter. “Gambling” is term of art used in state laws across the United States to define heavily-regulated casino-type activities, usually with reference to an element of “chance.” Federal laws like the Unlawful Internet Gambling Enforcement Act (“UIGEA”) also regulate and prohibit banking institutions from facilitating unlawful gambling. But paying an entry fee to a cash-prize tournament or wagering on yourself in a head-to-head contest is not the same thing as “gambling.” These real-money games of skill rely on the relative skill of the players to determine the outcome and do not involve any element of chance, so they cannot be considered “gambling,” which has a specific definition under the law. I have even seen other law firm websites make this mistake and misuse the term “gambling” to refer to anything that involves the wagering of real money. There are also a lot of questionable websites that attempt to equate online casinos to video games or pure-skill games in an attempt to confuse and generate clicks and get people to transfer money to off-shore operations. Do not be deceived – and contact a knowledgeable lawyer if you have questions.

2. MYTH: States only regulate “games of chance” and if the real-money game does not involve “chance,” the game is automatically legal everywhere.

FACT: No. There are 50 states in the United States and each one of them has their own laws that regulate gambling. Each state has its own definition of “gambling” and what exactly is and is not allowed depends on the nature of the game offered, as well as specific regulations. Some states specifically allow participants to wager real money on “bona fide contests of skill.” Others prohibit wagering any real money on any game, even if chance is not involved. Note that wagering on the play of others, even if they are involved in a contest of skill, is prohibited as gambling. After all, that is how sportsbooks work – wagering on the competition of others. This is a constantly evolving regulatory area – the major real-money gaming websites themselves disagree where to offer real-money gaming – some offer cash games in 45 states, others in 41, others in 35, etc. Whether your particular game is legal (and where) is a case-by-case analysis that requires an up-to-date legal opinion.

3. MYTH: Real-money games of skill are those shifty-looking slot machines that you see at truck stops or those internet cafes that offer sweepstake games.

FACT: No. Those slot machine looking things are in fact slot machines (with some extra features added to attempt to claim that they involve “skill”) and internet cafes try to disguise game of chance gambling as sweepstakes. Law enforcement in many states have used existing gambling laws to shut down these establishments. Real-money games of skill are in fact played predominantly on mobile devices or computers at home. They are nothing like slot machines or sweepstakes and allow players to compete head-to-head for real cash prizes. There are card based games (like Solitaire that awards points based on speed to completion), bubble shooter games, Tetris clones, knife throwing games, and many others. The head-to-head (or tournament) contests are more akin to entering a pool tournament for a chance to win a cash prize, rather than any sort of randomized game of chance.

4. MYTH: Skill games or are just a different type of gambling video game that Las Vegas using to try to appeal to Millennials who are not interested in the traditional casino games.

FACT: No. Skill-based real-money gaming is not something that involves or depends on land-based casinos. While the regulatory bodies in states like Nevada and New Jersey did adopt regulations to encourage a new type of slot machine that involves an element of skill, there is no indication that these types of machines enjoy any sort of popularity. Like many other forms of entertainment in 2021, skill-based real-money games are based online. Advanced internet and mobile phone technology and accessibility is making these games an especially lucrative business.

5. MYTH: There are no legal implications for organizing or running a real-money video game tournament (FIFA, Tekken, Magic: The Gathering, etc.) because the outcome depends on the skill of the players.

FACT: No. There are two distinct problems with this assumption. One, is that legality depends on the nature of the game being played. Is there an element of chance? This could be determined by not only the nature of the game, but how the match-making or team selection function works. If chance is present, how much, and does it predominate over the skill element? That will determine whether the particular game passes the state-level “gambling” test. Two, there are intellectual property issues. The game studios own copyright and trademark rights in their games and do not endorse third party websites that enable real-money wagering on their games. Studios like Epic Games have publicly announced their view that these websites are misappropriating their intellectual property, and legal action is likely forthcoming.

Skill-based real-money gaming is an exciting and emerging form of entertainment worldwide. But there is a lot of misinformation online. The regulatory landscape is always changing, and Artaev at Law are the experts on the facts, trends, and the law about real-money skill-based (or pure-skill) gaming.


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
business law gambling law gaming law internet law

Is Playing Video Games for Real Money Legal? It May Depend on the Game.

Skill-based real-money gaming is a growing industry worldwide. Previously, I wrote about the legality of playing casual games like Solitaire and bingo derivatives for real money. But what about console or PC games like FIFA ‘21, NHL ‘21, Madden ‘21, NBA2K21, and PGA2K21? Shooters like Call of Duty, CS:GO, and Fortnite? Strategy card games like Magic the Gathering? Can those be played for real money as well?

We are not talking the official in-game cash cups or periodic tournament that a few games offer. Rather, head-to-head real money competition that makes any game a chance to win (or lose) cash. There is no shortage of websites and apps offering players this very service. The chance to wager real money on head-to-head video game contests or play in cash-prize leagues and tournaments is certainly attractive. But whenever there is any sort of betting or wagering, legal issues may come up. As a player, you want to make sure you are not breaking the law by wagering $5 on a Sunday Madden round robin. As an entrepreneur and app developer, you need to know what you can and cannot offer to your audience or how to plan for and resolve potential legal issues.

There are two distinct problems areas in the real-money gaming sector. First, is playing video games for real money considered illegal gambling?

Each of the 50 U.S. states has its own set of laws that define “gambling” and that definition determines whether real money playing video games for real money. Do not assume that a platform or app is legal just because it is not traditional, casino-style “gambling.”

You may have heard that if a game’s outcome depends on skill rather than chance, then it is not “gambling” and therefore allowed. 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, casino-style gambling), not all have the same laws. Certain states define gambling independent of whether chance or skill determines the outcome. They simply make it illegal to wager money in exchange for the possibility of winning money. Other states expressly regulate “games of skill,” either independently or as part of recent internet gambling legislation.

Note that even if a state allows participants to wager real money on a game of skill for a chance to win cash prizes, wagering on the gameplay of others is prohibited. Wagering on the play of others is akin to a sportsbook, which are tightly regulated as gambling across the board.

The gambling vs. game of skill analysis also depends on the particular game at issue. Some games are pure skill with no element of chance – such a game that pits two identical soccer squads against each other. Others have some element of chance, but the skill predominates over the outcome. For example, Fortnite has an element of chance (even presuming you are matched with players of equal skill) because the loot is randomized and the bus approaches the map from different directions, giving an element of luck at least at the start. Then there are games like Magic: The Gathering and Hearthstone or any other game that features cards and a random shuffle mechanism. While better players will certainly win over time, the randomness of the shuffle does affect the outcome. Thus, the specific nature of the game played also determines the legality of the wager on a state-by-state basis. Note that official in-game tournaments always have a “void where prohibited” disclaimer and generally do not require a real-money entry fee to participate to avoid legal issues.

The second problem is intellectual property rights – specifically the game copyrights and trademarks owned by studios like EA and Epic.

Game studios generally do not endorse any websites or apps that allow real-money wagering on their games. In fact, such wagering providers may face copyright or trademark infringement lawsuits from the game developer for misusing their intellectual property.

Many third-party wagering sites use the logos or cover art from the games that they support, but not many have the license or permission to do so. From a trademark perspective, the game studios could have a brand confusion claim, as players may assume that the game makers themselves endorse these wagering sites. The fine print (that nobody reads) disclaiming any endorsement is unlikely to prevent a trademark infringement action. Game developers spend millions of dollars on cultivating their image and will not hesitate to file a lawsuit to protect the integrity of their brand.

The game studios also own the copyright to their games, which means they get to control how their products are used, distributed, and portrayed. At least one studio, Epic Games, has publicly stated that any website or app that facilitates wagering on any of its games (including Fortnite) is violating Epic’s IP rights. Video game publishers – especially those that market to the under-18 crowd – do not want to be associated with anything that could be viewed as gambling (even if it is not gambling under the law). It is likely that there are lawsuits coming to protect the games’ “family-friendly” image and reassure parents that video games are a safe and wholesome hobby. It is also unlikely that any game studio – at least any major game studio – will enter into a licensing deal with a wagering website to specifically support real-money wagering on gameplay.

Plus, some studios themselves offer cash and prize competitions. For example, Fortnite hosts its own real money prize events. Call of Duty has league play. Magic: The Gathering periodically does an Arena tournament that awards a cash prize to the top players. “Official” competitions let the studios control their own IP and not have to share revenue and player base with any third parties. Further, most official competitions do not require a real-money buy-in to participate, making them more “family-friendly.”

There is no doubt that real-money skill gaming is a big draw worldwide, especially with the ubiquity of smartphones and fast cellular connections. Potential legal issues are there as well, and the wrong approach will attract the attention of local law enforcement and civil intellectual property lawyers. To add to the uncertainty, the United States is a dual-sovereign system, with regulations both on the federal level (that mainly affect the banking aspect of wagering) and the state level (that are constantly changing). Tread carefully and hire a lawyer.

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
gambling law gaming law

Fun Facts About the History of the World’s Oldest Hobby: Gambling.

For a change of pace, here is some short and fun reading about everyone’s favorite hobby – gambling. Whenever I do a gambling-related legal project or research, it amazes me how much time and effort has been spent by lawmakers across the United States regulating and restricting gambling in all its forms. And, it is equally amazing how much time and effort has been spent by people to evade those restrictions by designing every sort of workaround imaginable. The battle continues in the age of the Internet and evolves with each technological advance, with mobile gaming being the latest front.

The history of gaming and gambling is fascinating. For as long as people have been playing games, they have bet money on them. According to “The History of Backgammon” by Oswald Jacoby, the world’s original dice game (with dice carved from actual bones) was played as early as 3000 B.C. in southern Mesopotamia (modern day Iraq). Backgammon boards were found in King Tut’s tomb that date back to 1500 B.C., and evidence exists that Ancient Egyptians played for money and even designed an elaborate mechanical dice box to protect against cheaters. Real-money gaming was huge in the Roman Empire, both among royalty and ordinary Romans. Nero (among his other excesses) is said to have played a version of backgammon for an equivalent of $15,000 per point and Emperor Commodius turned the imperial palace into a grandiose casino. Wall paintings in Pompeii depict scenes of ordinary Romans playing in inns, arguing over a backgammon board, and being promptly thrown out by the innkeeper. Suddenly naming one of Las Vegas’s most popular casinos “Caesar’s Palace” makes sense.

Backgammon and gambling in general were so historically popular and addictive, that during the Third Crusade in 1190, Richard the First and his allies issued a joint proclamation that prohibited playing any game for money for any person “beneath the degree of a knight.” Knights and clergymen were permitted to gamble, but were restricted to losing no more than 20 shillings per day, with strict penalties for exceeding the limit, including being flogged naked through the army for 3 days. Sports betting dates back at least to Ancient Greece, where betting on the original Olympics was widespread.

Today, there are so many iterations, versions, and types games that people wager on, it is no wonder that each of the 50 United States has an extensive statutory scheme addressing gambling. Courts all over the U.S. have thousands of pages of options dating back more than a hundred years dedicated to analyzing various devices to determine whether they are prohibited “gambling devices.” Did you know that pinball machines were originally restricted as gambling devices and there remain detailed regulations in each state as to the maximum number of free games that a pinball machine can award? But that’s a topic for another day.

Despite heavy regulation, gambling and betting remain extremely popular across the world. The modern global casino industry is estimated to be worth in excess of $100 billion, with steady and continued growth expected. The sports betting market, which is tracked separately, is valued at approximately $85 billion worldwide. According to analysis by Morgan Stanley, the U.S. sports betting market is projected to grow from $833 million in 2019 to $7 to $8 billion by 2025. Although COVID-19 dropped casino and gambling related revenues by over 10% in the United States in 2020, the market is still expected to recover and grow robustly in the foreseeable future. Indeed, latest data indicates better-than-expected revenues in the gaming industry in 2020, as many people are turning to gaming (both video games and gambling) as entertainment, social interaction, and an escape from the stresses of daily life. Stay tuned.

Dan Artaev is an experienced attorney who has advised domestic and international clients regarding gambling regulations, legislation, and provided other gambling- and gaming-related representation. Contact Dan by email at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

© 2020 Artaev at Law PLLC. All rights reserved.

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