Official magazine of the International Masters of Gaming Law
MALTA MARKET FOCUS
INTERNATIONAL MASTERS of GAMING LAW MAGAZINE
VOLUME 3 | NO. 3 | JULY 2023
ADVERTISING: A TALE OF BANS, EVIDENCE & EDUCATION
PLUS TRANSNATIONAL PERSPECTIVES ON VIRTUAL GAMING, ESG AND INFLUENCER MARKETING GAMBLING’S CONTRIBUTION TO UKRAINE’S FUTURE UK GAMBLING WHITE PAPER IN REVIEW ..& MUCH MORE!
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IMGL MAGAZINE | JANUARY 2023
MALTA’S FATF GREY-LISTING IMGL OFFICERS 2023
Officers of IMGL for 2023
SUSAN BREEN Secretary MISHCON DE REYA LONDON +44 20 3321 7434 SUSAN.BREEN@MISHCON.COM
QUIRINO MANCINI President TONUCCI & PARTNERS ROME, ITALY +39 06 322 1485 QMANCINI@TONUCCI.COM MARC DUNBAR Executive Vice President DEAN MEAD & DUNBAR TALLAHASSEE, FLORIDA +1 850 933 8500 MDUNBAR@DEANMEAD.COM
ERNEST C. MATTHEWS IV Vice President, Affiliate Members INTERNET SPORTS INTERNATIONAL LAS VEGAS, NEVADA +1-702-866-9128 ERNEST@ISISPORTS.COM BIRGITTE SAND Vice President, Affiliate-Regulator Members BIRGITTE SAND AND ASSOCIATES COPENHAGEN, DENMARK +45 24 44 05 03 BS@BIRGITTESAND.COM
PETER KULICK 2 nd Vice President, Treasurer DICKINSON WRIGHT PLLC LANSING, MICHIGAN +1 517 487 4729 PKULICK@DICKINSONWRIGHT.COM COSMINA SIMION 1 st Vice President SIMION & BACIU BUCHAREST, ROMANIA +40 31 419 0488 COSMINA.SIMION@SIMIONBACIU.RO
KATHRYN R. L. RAND Vice President, Educator Members UNIVERSITY OF NORTH DAKOTA LAW SCHOOL GRAND FORKS, NORTH DAKOTA
+1 701 777 2104 RAND@LAW.UND.EDU
KATE LOWENHAR-FISHER Assistant Treasurer EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER EVERI HOLDINGS INC
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JULY 2023
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PRESIDENT’S WELCOME
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QUIRINO MANCINI President INTERNATIONAL MASTERS OF GAMING LAW
Fulfilling the mission of the IMGL
Welcome to another edition of the IMGL Magazine. As this issue was being finalized, we were busy confirming speakers and sponsors for our Zurich conference in September. In this respect I must single out and thank Dr. Simon Planzer who is both the chair of the organizing committee and editor in chief of this magazine. He has gone to great lengths to deliver both a publication and a conference which are of the highest quality and we are all the beneficiaries of his efforts. This is the last edition of the IMGL Magazine before our autumn conference in September so I would like to take this opportunity to draw your attention to what is on offer. For those able to travel to Switzerland early, we have arranged a Swiss chocolate experience at the Lindt exhibition on the morning of Wednesday 6th. This a great way to prepare for the Member Meeting that afternoon before heading to the panoramic venue we have booked for our opening reception and the best view of Zurich. The serious business of the conference starts the next morning with a high-level industry review from two very senior individuals, Emmanuel Mewissen, CEO of Gaming 1 Group and Jason Lane, President of IAGR and Chief Executive of Jersey Gambling Commission. This is followed by a carefully curated journey involving all the stakeholders in our industry – regulators, operators, thrid-party suppliers, the media
and sports rights holders as well as those wo advise them. It is particularly gratifying to see more regulators attending IMGL events both as speakers and delegates. Facilitating better contact and communication with regulators is part of the mission of IMGL and we will be fulfilling this again in Zurich. Having gathered together all perspectives the conference will assimilate them in one final panel of leading regulators from Europe, North and Latin America and AFrica. This will be an opportunity to try and articulate the destination for our industry and the route we should travel to get there. This is an ambitious undertaking but one which I support and recommend that you do too. As with all IMGL events, there is the chance for excellent networking and hospitality along the way. Our gala dinner will be a very special occasion and the closing reception at the exibition of world football will be a good way to bookend proceedings. For those are able, the chance to extend your stay to enjoy Switzerland’s mountain scenery and other attractions is an opportunity worth taking. I really hope you will reward Simon for his efforts by joining us in Zurich. Meanwhile, please enjoy this edition of the IMGL Magazine. Quirino Mancini
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IMGL MAGAZINE | JULY 2023
EDITORIAL
Advertising: a tale of bans, evidence and education
W elcome to the 10th issue of the IMGL Magazine! It offers a broad spread of expert reading matter from around the world authored by subject matter experts from three continents. When launching the IMGL Magazine, we made it a priority to establish a global reach of both authors and readers. You will also find contributions that take a transnational perspective on topical matters, illustrating the relevance of recent developments in gaming beyond national or state borders such as the one by Executive Vice President Dunbar on virtual gambling, Portanier’s article on ESG or Portela de Carvalho’s contribution on influencer marketing. Transnational perspectives in gaming literature are much welcome. As legal professionals we started our career in a curriculum of national and state legal studies. Yet, gaming is a global industry and requires thought leaders to contemplate beyond geographical borders and constantly broaden their horizons. The themes of this issue also include marketing and more specifically advertising bans. We are all familiar with tales of markets opening up to regulated gaming or to a wider range of regulated gaming. Only to turn the engine of liberalization
into reverse with threats of advertising restrictions or outright bans. Weber’s article shows that Ontario is just the latest jurisdiction that seems to go down this road. The speed of the volte-face is now so rapid that there is barely time for new operators to establish themselves in the minds of consumers as legitimate and domestically regulated operators before being forced behind a curtain of marketing restrictions. I noted in an earlier issue of the IMGL Magazine that such restrictions may jeopardize a fundamental principle of competition policy: all legal market participants should enjoy a same level playing field. Yet, how is a new, small brand to gain market share if it is not permitted to exercise the right to commercial speech towards potential customers? Our Canadian colleague’s plea for the industry to pre-empt and break the unfortunate cycle is echoed elsewhere in this edition. Weber asks for the industry to devote more time and resource to gathering evidence and the same request is made by two colleagues in the UK. They advise industry representatives to take maximum advantage of the 12 to 18-months window for the presentation of data to the UK Gambling Commission. The consultation results have the potential of changing
SIMON PLANZER PHD, Editor in Chief IMGL MAGAZINE
Contents 6
Ukraine: Seeds of Hope Despite the War Can ESG Turn Around Negative Opinions on the Gaming Industry? Virtual gambling: Update from the US Ap p e l late Courts Influencer M arketing in G ambling and G aming The Gambling Act White Paper: U pping the Ante for the UK Gambling Sector Athlete, Celebrity & Influencer Marketing in Ontario The Polish A pproach to the R egulation of R esponsible G ambling
10 14 20 24 32 36 40 46 50
Indian Gaming Industry: Investment Destination 2023 Mergers and Acquisitions in the Spanish Gambling Market IMGL Autumn Conference Preview
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JULY 2023
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EDITORIAL
the face of gaming in the UK – hence, this is sage advice.
Continuing to cede ground to those that want to disparage the licensed gaming and tar both licensed and unlicensed operators with the same brush has consequences for both the industry and consumers. Amid a perfect storm, it is all the more important to gather solid empirical evidence and make it known to the public. What does the body of scientific evidence on gaming advertising suggest? How does advertising impact on problem gaming? What is known? And what are simply assumptions? These are the questions that I inquired together with Dr. Heather Wardle in a large-scale meta- study and the results seem more topical than ever. For those interested in the findings, you can download the study through the publisher Cambridge University Press. Finally, I shall use the opportunity to cordially invite you all to sign up via the IMGL Website for the IMGL Zurich conference taking place from 6 to 8 September 2023. I would like to thank all IMGL colleagues who have substantially helped through their active involvement in the organizing subcommittees to make it a memorable event for all attendees. Take a look at the pieces from the Ukrainian regulator in this issue (p6). We look forward to the opportunity to meet her in Zurich. Finally, we owe much gratitude to President Mancini for his contributions and efforts for the IMGL Zurich conference. Looking forward to seeing you all in Zurich!
Yours sincerely, Simon planzer@planzer-law.com
Click the covers to catch up on past editions and search our archive of gaming law articles at www.IMGL.org/publications
IMGL Magazine is owned, published and distributed by: The International Masters of Gaming Law PO Box 27106, Las Vegas, NV 89126 USA The IMGL is a domestic non-profit corporation registered in Nevada, U.S. with registration number NV20121147120 Editor in Chief: Simon Planzer PhD, planzer@planzer-law.com Publication & Marketing Committee: Co-chairs , Stephanie Bell and Simon Planzer Members : Henrik Hoffmann, Kok-Keng Lau, Christine Masse, Peter Kulick, Anna Soilleux-Mills, Veronique dos Reis Head of Publications: Phil Savage phil@IMGL.org Design and production: SportBusiness Communications. Copyright: All rights reserved to IMGL. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher. The articles expressed in this publication do not necessarily reflect the views of IMGL but those of the authors. The publisher and editor do not accept any liability for the contents of the authors’ contributions.
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IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | JULY 2023
UKRAINE
Seeds of hope despite the war WAR HAS IMPACTED EVERY PART OF LIFE IN UKRAINE BUT DEVELOPMENTS ARE STILL HAPPENING TO ENSURE THE GAMBLING SECTOR CAN DRIVE RECOVERY WHEN IT IS OVER SAYS OLENA VODOLAZHKO .
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IMGL MAGAZINE | JULY 2023
UKRAINE
Introduction The true legalization of gambling in Ukraine is a recent development, and despite the war with Russia, this process has not stopped. The Commission for the Regulation of Gambling and Lotteries, the operators of the newly created market, and society as a whole understand the necessity not only to withstand the conditions of martial law but also to continue and complete the gambling reform initiated before the invasion A History of Gambling Regulation in Ukraine On August 13, 2020, the Law of Ukraine “On State Regulation of Activities Regarding the Organization and Conduct of Gambling” (the Law) came into effect. This date can be considered as the birth of the Ukrainian gambling market, as gambling had been prohibited in the country for almost eight years prior to this date. Before prohibition, there had been a gambling market in Ukraine, but there was no specific regulation implemented by the government. Regulation during that time was carried out through general legislative acts that also regulated other business sectors, sometimes even using acts from the Soviet era. As a result, the regulation did not consider the specific nature of the gambling industry, the need to minimize social risks associated with its existence, and many other factors. This situation led to a significant number of violations by gambling operators, uncontrolled proliferation of gaming halls and unregulated access to vulnerable segments of the population, including minors. The absence of any culture of responsible gambling consumption in society, the unregulated nature of the industry, and other factors caused a serious social outcry, and condemnation of gambling, ultimately resulting in its complete prohibition. Throughout the period of the ban, gambling continued to exist illegally, and in line with the experience of most developed countries in the world, the need for regulation was recognised. There was a renewed attempt to legalize the gaming market
with the state’s involvement, taking into account past mistakes. Thus, a special law was passed and a dedicated regulatory body was established to create conditions for the launch of the market and to regulate it based on the fundamental standards and requirements outlined in the Law. The launch of Ukraine’s legal gambling market was received very positively by numerous foreign operators who viewed Ukraine as a country with great potential for gambling development in Eastern Europe. However, the adoption of the Law was insufficient for the full opening of the market to foreign operators, as it required legislative changes in the field of taxation, which until now has not aligned with the provisions of the Law and created a rather opaque gambling taxation system in Ukraine. Launch of the market despite the unresolved tax issues During the first few months of operation of the newly established Commission for the Regulation of Gambling and Lotteries (the Commission), the Licensing Conditions were adopted in accordance with the Law, and in February 2022, the first legal gambling operators appeared in Ukraine, both in the online and offline sectors. Certain weaknesses and ambiguities identified in the initial stages of market launch, as well as uncertainty over gambling taxation, did not hinder applications to obtain gambling licenses. In total, from 2021 to 2023, the Commission issued a total of 4,633 licenses for gambling activities. The issuance of licenses generated the equivalent of US$89.2 million for the state budget. The demand for gambling licenses was not affected by the high cost of licenses, despite Ukraine being among the most expensive compared to other jurisdictions. The high cost of licenses, as stipulated by the Law, became part of a consensus that made it possible to launch the market without the automated state system for monitoring gambling revenue (SSOM), which, according to the Law, is supposed to fully control the Gross Gambling Revenue (GGR) of every operator. The Law requires each operator to connect its online system to the SSOM to enable the Commission to monitor all betting
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UKRAINE
operations, the payout of winnings, and overall gaming revenue 24/7. By launching the market without the SSOM, the legislators anticipated that any potential losses to the state budget resulting from the lack of any controls over GGR would be compensated by the high cost of operating licenses.The cost of gambling licenses is expected to decrease by a factor of three once the SSOM is implemented by the Commission. The newly established market and potential foreign investors were eagerly awaiting the swift resolution of taxation issues. However, in the spring of 2021, most license-holding operators began their actual operations. By February 2022, the necessary changes to the tax legislation were ready for approval by the Ukrainian Parliament, but on February 24, a war broke out that changed everything. The impact of war on the market and its regulation After the shock of the first few months of the war, all businesses in Ukraine, including the gambling industry, began to recover and resume their operations. The occurrence of a force majeure in the form of war with Russia resulted in formal violations of the Law and of licensing conditions by operators. However, the Commission’s position was to unconditionally support existing operators and strive to preserve the newly established market. Most operators were unable to pay their annual licensing fees, and despite the Law granting the Commission the right to revoke licenses for such operators, the Commission refrained from taking such measures to maintain the market. Offline operators suffered the most significant losses, with some losing their premises and gambling equipment that remained in the occupied territories or were damaged due to shelling and combat actions. It should be noted that all operators demonstrated great resilience and made a conscious effort to avoid staff layoffs, continuing to pay salaries and assist employees who were forced to leave their homes due to the war. Among other harmful impacts of the war were the restrictions on all entertainment activities during the evening and night hours, the lack of an uninterrupted power supply due to rocket attacks on the energy infrastructure, the absence of aviation connections and tourism, which the large land-based casinos
relied upon not only in Kyiv. War places significant stress on citizens, some of whom seek solace in gambling. This threatens a sizeable increase in the number of gambling addicts, requiring additional efforts from operators, the regulator, and all members of society who must minimize the risks of gambling during the war. Opportunities for development despite the war Today, the Commission’s work is focused on the implementation of cutting-edge technologies for regulating the industry, such as a state online monitoring system, which is intended to become a unique tool not only for monitoring the proper payment of taxes by gambling operators but also as a source of data for market analysis. These data are crucial for the Commission to determine the priority directions for the development of the gambling industry. Representatives of the Commission presented the functionality of the state online monitoring system at the recent GREF 2023 annual conference in Bergen and received positive feedback from European Regulators regarding the system. This was very welcome and encourages further development of gambling market regulation and the market as a whole. The implementation of such a system will finally make the functioning of all market operators transparent and will mark the completion of the first stage of gambling
legalization, which began before the war. The Commission is also working closely with operators to make changes to the main Gambling Law, aiming to improve it based on on three years of legal legal enforcement experience. The Com
The Commission, like like Ukraine itself is receiving valuable and practical support from its colleagues at
practical
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UKRAINE
European regulators, whose regulatory expertise is highly valuable for an inexperienced regulator. In the Commission’s efforts to improve gambling market regulation, particular attention is being given to the initiation of transparent and accessible investment instruments in the gambling market. These instruments are prerequisites for attracting foreign investments into the Ukrainian economy after the war. Primarily, this relates to the opportunities for constructing tourist facilities that will become centers for the hosting of gambling establishments. Currently, the Law provides for the possibility of obtaining an investment license for operating a casino in Ukraine free of charge for a period of 10 years. The commission is also currently working on additional opportunities for granting licenses to operators who will participate in the reconstruction of Ukraine on preferential terms. Furthermore, the Commission is currently working on the next steps in the field of technical regulation and technical standards of the gambling industry. In this it is being provided with methodological support from internationally renowned companies that possess a high level of expertise in technical regulation. Operators are also actively participating in initiatives aimed at enhancingthe effectiveness of the principles of responsible gambling
For example, a large-scale social study, in which operators played an active role, is nearing completion. The study was conducted by the Responsible Gaming Center and was dedicated to examining the main criteria for identifying players with gambling addiction. This research is being conducted for the first time in Ukraine, and both operators and the Commission are eagerly awaiting the results. It is hoped that they will form the basis for more precise development of further measures to combat gambling addiction. In anticipation of the research results, the Commission has initiated the establishment of a permanent working group consisting of its representatives, representatives from the Ministry of Social Policy, the Ministry of Health, the Responsible Gaming Center, representatives from the medical community, and operator representatives. This working group will ensure the coordination of actions between society and the state in the fight against gambling addiction. The presence of effective market regulation mechanisms, transparent and clear technical market regulation standards, developed and convenient control tools, as well as the regulator’s active engagement, high level of professionalism, and expertise, are necessary prerequisites for the full recovery of the gambling market after the end of the war. In turn, the development of the gambling market in Ukraine can become an important component of Ukraine’s economic recovery both directly and indirectly through the potential for tourism development and the attraction of international operators to operate in the Ukrainian market. Understanding this, the Commission, together with market operators, continues to function despite the daily realities of war and rocket attacks, and does everything possible to achieve victory and ensure the quickest recovery and prosperity of Ukraine.
and actively engaging in efforts to improve gambling market regulation.
OLENA VODOLAZHKO Member of the Commission, Ukrainian Gambling and Lottery Commission For information contact o.vodolazhko@gmail.com
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IMGL MAGAZINE | JULY 2023
ESG
Can ESG turn around negative opinions on the gaming industry? REUBEN PORTANIER SUGGESTS THAT ENVIRONMENTAL SOCIAL AND CORPORATE GOVERNANCE (ESG) BE BENEFICIAL FOR THE GAMING SECTOR’S REPUTATION
A reputational challenge In recent years, we have seen an exponential increase in negative public opinion towards the gaming industry. This has not been helped by the political class, who despite voting for their own country-bound licensing systems (and the gaming tax revenues they earn), have increased their pronouncements on the harm that gambling addiction do to society and that the promotion of gambling services entices more people towards gambling who go on to develop problem gambling behaviour. Over five years, the position of law makers on advertising and mass media promotion has shifted from it being a necessary regulatory element to inform the public as to who is licensed in their jurisdiction so as to achieve a high channelization rate, to a situation were promotion in general is something which needs to be curbed and in some jurisdictions even outlawed completely. This has given the rise (at least in Europe) to advertising and sponsorship bans, and bonus scheme limitations amongst other measures. This situation was mainly fuelled by two elements. The first was that the gaming industry itself swamped their markets with
mass media advertising campaigns. In certain jurisdictions these were so ubiquitous they amounted to shooting themselves in the foot. The second was the result of media representation of gaming. The golden rule of a newsroom is that bad news sells, and every story about how gambling addiction ruined the life of an individual or their family, it is framed as a widespread problem, when the reality is that such unfortunate situations represent statistically less than one percent of people who engage in gaming. Regretably, the gaming industry has not done enough to dispel the negativity and promote itself as entertainment industry not vice. Recent examples of excessive advertising such as that seen in Italy, Sweden and the UK have induced social discomfort among non-gamblers (the majority of society) who in turn have brought significant pressure to bear on politicians to act. This has created a tsunami of advertising restrictions which has flowed from one regulated country to another. We have now reached a position where the industry needs to find a solution fast to stop the negative perception becoming worse to a point where public opinion considers gaming not as a form of entertainment, which they may like or dislike, but something
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ESG
inherently harmful and wrong. In this context the emergence of ESG may offer the chance for the sector to prevent a further slide in public perception and maybe even reverse it.
CSRD will start on the 1st of January 2024 and apply as follows: • Financial years starting on 01/01/2024 – CSRD will apply to companies currently covered by the Non-Financial Reporting Directive (NFRD). This requires large public- interest entities to disclose information on Environmental, Societal, and Governmental (ESG) practices in regular non-financial statements • Financial years starting on 01/01/2025 – CSRD will extend to companies that are not presently subject to the NFRD, but meet at least 2 out of 3 criteria mentioned above • Financial years starting on 01/01/2026 – CSRD will further extend to small and medium-sized enterprises (SMEs) European gaming operators covered by the CSRD will be obliged to comply and have their ESG framework. There are other frameworks and standards in place beyond the EU which are similar to the CSRD such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SABS) which provide guidelines for sustainability reporting with ESG at their heart. However, it will remain the case that a sizeable part of the gaming sector in Europe will not have to adopt any ESG reporting. This begs the question as to why the gaming sector should step up and embrace ESG even if it is not be mandatory. Reasons for the gaming industry to embrace ESG One key reason that the gaming sector should embrace ESG is that it is a quick win. The sector already has the basis of ESG by virtue of the highly regulated environment it operates in, thus it makes sense to embrace it. Unlike other sectors, online gaming has by default already implemented many ESG measures. The Social element (which is heavily regulated through responsible gaming measures, good causes funding or the obligation to donate to charitable institutions) is already inbuilt in the culture of a regulated entity. The Governance part is a core competence of a gaming outfit second to that of offering games due to the plethora of regulations and license conditions that need to be complied with. The sector may not be as prepared on the environmental aspect, but neither it is a big polluter, and in any case, this is something that can be worked upon. The second big argument in favour of the sector’s adoption of ESG is that ESG rankings are rapidly becoming very influential in the formation of public opinion and can play a key role in
ESG – principles and applicability Environmental, Social, and Governance (ESG) refers to a set of principles that guide responsible business practices. The ‘E’ refers to environmental criteria, which consider how a company seeks to implement mitigation measures that reduce any negative impact on the environment, such as reducing by its carbon footprint. In the context of online gaming, this could be, for example, a decision to host its servers in territories where the carbon footprint is lowest. The ‘S’ refers to social criteria, which examine how a company manages relationships with its customers, its employees, its suppliers, and the communities where it operates. Responsible gaming measures, good cause funding, gender pay gap reduction, and inclusivity measures all represent examples of how a gaming operator may already be unknowingly addressing the ’S’ in ESG. The ‘G’ refers to governance and considers a company’s adoption of good governance standards, including compliance with laws and the regulatory framework that governs it. In the case of gaming, good governance and regulatory good standing would include licensing compliance, AML measures, adherence to company law, gaming tax compliance as well as leadership, internal controls and shareholder rights among other things. The adoption of ESG is relentlessly becoming a mandatory requirement for listed companies s in financial services and other industries where responsibilities around the ‘E’ and the ‘G’ of ESG may be familiar, but ‘S’ less so. In Europe, where EU Corporate Sustainability Reporting Disclosure (CSRD) requirements will soon come into force, ESG will take centre stage for all listed companies (including those in gaming), but could spill-over to other areas, albeit on a voluntary basis. CSRD requirements will apply to all large companies, including foreign subsidiaries, which meet at least two of the following criteria:
1. Balance sheet total: €20 million+ 2. Revenue: €40 million+ 3. Average number of employees in the year: 250
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ESG
shaping positive public perceptions about the sector.
advertising bans with the mandatory adoption of ESG. A well thought out ESG framework can establish clear parameters for responsible advertising, which instead of being a blazoned promotion of bonus schemes or new games, would instead promote how responsible the gaming operator is. Examples of initiatives that would be part of ESG reporting Here are some ways in which ESG can change public perception about the online gambling industry 1. Transparency and Governance: Online gambling companies can improve their governance practices beyond what is required by regulators in order to enhance transparency and accountability. This includes implementing ethical guidelines, conducting regular self-driven audits, and ensuring fair gambling practices, for example, by assisting sports associations in their sport integrity efforts. Demonstrating strong governance can help build trust with the public and alleviate concerns about the industry’s integrity
Early in 2023, the Malta Gaming Authority (MGA) announced that it had started work on a voluntary ESG Code of Good Practice for online gaming operators licensed by the MGA. This initiative, which was put out for consultation in July 2023, will create an opportunity for operators licensed by the MGA to bolster their public image with the voluntary adoption of ESG. The MGA sees the adoption of ESG as a step in the right direction in terms of positive public opinion. When they launched the ESG Code of Good Practice project, the MGA stated: “Looking ahead, we expect to see more and more companies taking concrete actions towards becoming more sustainable, and we believe that reporting such efforts contributes positively to implementing change within the sector and improving its overall perception, while also addressing the increasing demand for transparency and accountability in the industry.” Hopefully, this highly commendable approach by the MGA will be followed by other regulators who may consider substituting
Consumer buying trends are moving towards choosing companies have strong environmental, gender equality and responsible consumption credentials. This is already happening in the gaming sector and will only become more predominant.
Players
Social media can make or break you. Ordinary members of the public can influence others as effectively as a newsroom through social media. Whilst influencers are engaged to promote good stories, the public can amplify a negative message that can go viral and which is picked up by the media, politicians and regulators. Having high ESG rankings can positively reshape public opinion.
Politics is all about public perception. Politicians typically react to public opinion and if the public has a negative opinion of the gaming sector then politicians will tap into it as a vote winning/ preservation exercise. If ESG neutralizes negative public perception on gaming then politicians would not focus on measures such as advertising bans.
Public
Politicians
The ‘ESG’ Positive Perception Model
Mass media newsrooms are thirsty for bad news knowing that the public in general is inclined towards certain negative opinions. Bad news sells but an ESG framework can, in the long run, diffuse such negativity.
Suppliers such as banks and payment institu- tions are governed by CSRD requirements in the EU (including ESG). They will exclude cli- ents that can negatively affect their ESG ratings showing how important it is for the online gam- ing sector to embrace ESG and eliminate the negative perceptions that suppliers may attrib- ute to the sector.
Mass Media
Suppliers
Regulators
Regulators do not want to be associated with licensees surrounded by negative media and when they are, there is pressure on them to be seen to be taking enforcement action. Adopting an ESG culture provides more confidence to regulators and can induce them to boast about their licensees high ESG ranking.
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ESG
2. Measures: Implementing responsible gambling measures is essential and a legal requirement for any regulated online gambling company. There are a range of initiatives mandated by regulators that promote responsible behaviour among customers including self-exclusion programs, setting deposit limits, and providing resources for gambling addiction support. These are already in place, however the industry may not have capitalized on them to engage with the media, and in turn educate the public that such measures demonstrate a commitment to customer well-being. So comprehensive are the support mechanisms for responsible gambling that gaming companies that adopt an ESG ranking framework can achieve higher rankings than the financial services industry on the ‘S’ element. Communicating the industry’s social responsibility can help to mitigate the negative perception of the industry as exploitative. Responsible Gambling 3. Online gambling companies can engage in social impact initiatives to improve public perception. This may involve supporting and funding initiatives related to mental health, addiction treatment, or education programs on responsible gambling. Sport betting companies can, for example, actively assist in fight against match fixing by funding educational programmes at youth sport level on the importance of integrity in sport. By actively contributing to society and addressing the potential negative consequences of gambling, companies can show their commitment to social responsibility Social Impact Initiatives: 4. Environmental Sustainability: Online gambling companies can focus on reducing their environmental impact. This can include adopting sustainable practices in their operations, such as choosing a hosting provider with a low carbon footprint, selecting office space that is environmental friendly and which minimizes energy consumption, using renewable energy sources, and implementing recycling and waste management programs. Demonstrating a
commitment to environmental sustainability can positively influence public perception by showing that the industry is conscious of its ecological footprint. through Opportunities in the workplace: Efforts have been made to provide more opportunities for women to move into key positions and to address the gender pay gap, however recent studies show that the sector is still a long way from reaching its goals. The ‘S’ and the ‘G’ typically include data on equal opportunities and a zero gender pay gap. Addressing this element, not only attracts more talent in a competitive skills market, it also enhances public perception of gaming companies which are seen as workplaces that address what really counts. The same applies at workplaces that embrace diversity. 5. Promoting Equality Let the Gaming Industry Adopt ESG There are numerous other reasons why ESG needs to be embraced by the gaming sector apart from the need to boost public perception and public opinion. ESG fosters values of responsibility, accountability, equality, fairness, ethical leadership, solidarity, and environmental protection amongst others. ESG also comes with rules for suppliers who have a mandatory requirement to have an ESG framework if they work for ESG reporting companies. These include credit and financial institutions, crypto asset exchanges and operators licensed under the EU’s Markets in Crypto Assets Regulation (MICAR), and listed B2B gaming operators. Such suppliers will be ‘forced’ by their ESG framework to supply their services/products only to like-minded corporate customers, and the voluntary adoption of ESG by the sector is one way that gaming operators can influence the behavior and practices of it suppliers. It is vital that steps are taken to improve the gaming industry’s reputation and in my view ESG may be a key tool which the industry can use to do so.
REUBEN PORTANIER Advisory and Compliance Partner, GTG For information contact: RPortanier@gtg.com.mt +356 2124 2713
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VIDEO GAMBLING
Virtual gambling VIDEO GAME STUDIOS, ANXIOUS TO HOLD THE ATTENTION OF PLAYERS ARE INCREASINGLY EMBEDDING CASINO GAME FEATURES WITHIN THEIR GAMES WITH LEGAL RAMIFICATIONS THAT ARE BEING DECIDED BY THE COURTS. MARC DUNBAR AND DANIEL MCGINN REPORT
In 2016, Marc Dunbar published a seminal article 1 examining the legality of gambling in virtual worlds. The article traced the genesis of case law on the topic and concluded that, while gambling with virtual currency in closed-loop virtual worlds was generally considered to be permissible by reviewing courts at the time, the variance present in each state’s regulatory regime would require careful analysis and an eye towards developing precedent if working within the space. Since the article was published, there have been several new developments. The number of free-to-play games has grown exponentially since 2016, as have the player bases and profitability of such games. Free-to-play mobile gaming revenue is projected to exceed US$75 billion USD in 2023. 2
As the market expands, so does the innovation within these gaming environments as each studio seeks to keep hold of both the attention and the wallets of players. One method of doing so that has proven to be popular, effective, and lucrative, is to introduce aspects of casino gaming into the conventional video gaming environment. Virtual casino gaming and virtual currencies 3 have become mainstays of free-to-play games on mobile devices, consoles, and computers. As revenue climbs, player bases grow, and new potential customers enter the market. The industry continues to evolve with more gaming variety, different incentives, and novel advertising to capture a share of the available pot and monetize the database of players frequenting the virtual gaming environment.
1 Available at https://www.imgl.org/publications/imgl-magazine-volume-3-no-1/gambling-in-virtual-worlds/ 2 https://www.statista.com/statistics/1107021/f2p-mobile-games-revenue/, last accessed April 19, 2023. 3 For the purposes of this article, the term “virtual currency” will refer to fictitious proprietary representations of “currency” created by game de- signers for use within social gaming environments which by the terms and conditions of the game have no value in the real world and cannot be monetized into “real world” fungible currency via a “currency exchange” sanctioned by the game creators.
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Hand in hand with the increase in virtual casino gaming options and an increase in participants goes a rise in consumer protection and other litigation related to these virtual environments. As players can log on and participate from anywhere, a variety of jurisdictions are hearing these cases, resulting in differing interpretations as to whether and to what extent these types of social gaming environments are permissible. 4 This article discusses appellate reviews of trial court cases discussed in the prior article, as well as the next wave of challenges to ascertain whether the use of virtual currencies purchased with real money and then lost within a closed virtual environment constitutes illegal gambling. Mason v. Machine Zone, Inc., 851 F.3d 315 (4th Cir. 2017), was a case stemming from a claim that thousands of individuals lost money participating in an unlawful “gaming device” that allows players to “spin” a virtual wheel to win virtual prizes for use within the video game Game of War: Fire Age (Game of War). In the case the federal appellate court reviewed the trial court’s determination that the class action plaintiffs failed to state a claim under Maryland’s gambling loss recovery statute. The trial court found that Game of War itself was a game of skill, while the alleged illegal activity was more akin to theater entertainment than gambling. Of particular note, the trial court recognized that the player could not “cash out” or otherwise exchange the virtual currency for real money pursuant to the game’s Terms of Service. On appeal. the Fourth Circuit, examining only the loss recovery claim, affirmed the trial court’s holding. Reaching this conclusion, the appellate court determined that neither party involved won or lost any money in the virtual casino. Instead, because Mason paid money for virtual gold that she obtained, and later exchanged that gold for unredeemable “virtual chips,” there was no money at stake, nor could she receive any money or resources redeemable for money as a result of her spin. Thus, she could not win or lose money in the Game of War virtual casino. Reaching this conclusion, the Fourth Circuit focused heavily on the term “money” as used in the Maryland Loss Recovery
Statute. The court determined the term did not encapsulate virtual resources only available and useable within Game of War, and to hold otherwise would improperly expand the statutory language. Notably, the court also rejected Mason’s contention that the existence of a secondary market for selling Game of War accounts for cash showed that “money” is at stake in the virtual casino. The court noted that Mason failed to allege that she or class members tried to sell their accounts or other virtual resources on the secondary market for money, and as such rejected the contention that the existence of the market alone demonstrated that money was won or lost. It is unclear whether such an allegation would have impacted the outcome, but it is worth noting as the law in this area continues to develop. The Northern District Court of Illinois examined a virtual casino in Phillips v. Double Down Interactive LLC, 173 F. Supp. 3d 731 (N.D. Ill. 2016). The Double Down Casino featured casino games of chance determined solely by Double Down’s computerized algorithms and was accessible via website, free downloadable application, or Facebook. Players use virtual “chips” to wager on the games. Players are granted a bundle of chips free of charge on their first login and receive free chips each day. Players are not able to “cash out” their chips with Double Down for “‘real world’ money, goods, or other items of monetary value.” Phillips filed a class-action complaint against Double Down in the Circuit Court of Cook County, Illinois, alleging that Double Down operates unlawful gambling devices, and that by “operating its virtual casino, [Double Down] has illegally profited from thousands of Illinois consumers.” Similar to the holding in Mason, the court determined that while the Double Down Casino was a gambling device, there were no “winners” or “losers”. The court reasoned that Double Down is not a winner, because it does not actively participate in the game of chance. Instead, Double Down makes its money from the purchase of chips, independent of the casino gaming activity. Phillips, on the other hand, was not a loser because she got exactly what she paid for; the chips allowed her to play
4 Numerous cases unrelated to gambling are also progressing against prominent gaming companies, particularly centered around minors and the disaffirmance of EULAs. See R.A. by & through Altes v. Epic Games, Inc., No. 5:19-CV-325-BO, 2020 WL 865420 (E.D.N.C. Feb. 20, 2020); Doe v. Epic Games, Inc., 435 F. Supp. 3d 1024 (N.D. Cal. 2020); Reeves v. Niantic, Inc., No. 21-CV-05883-VC, 2022 WL 1769119 (N.D. Cal. May 31, 2022); V.R. v. Roblox Corp., No. 22-CV-02716-MMC, 2023 WL 411347 (N.D. Cal. Jan. 25, 2023).
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the games. Thus, all Phillips’ claims were dismissed. 5 While the Fourth Circuit affirmed the previously reported holding in Mason, and the Illinois District Court followed similar logic, the Ninth Circuit overruled the trial court in Kater v. Churchill Downs Inc., 886 F.3d 784 (9th Cir. 2018). The Kater case centered around a virtual casino, dubbed the Big Fish Casino, that offered players the ability to receive free daily deposits of chips that could be used to play a variety of casino games. These game chips could also be purchased with real-world money if a player did not want to wait until the next
day’s deposit of free credits, and could be transferred to another player for a fee charged by the game operator. Unlike Mason, there was not a separate virtual world, or virtual resources that were useful within the virtual world. Instead, the chips awarded from successful games of chance that extended game play time. Kater alleged violations of Washington’s Recovery of Money Lost at Gambling Act, the Washington Consumer Protection Act, and unjust enrichment. The Ninth Circuit determined that the trial court erred when it dismissed the case with prejudice and also erred in holding that the virtual
5 Ristic v. Machine Zone, Inc., No. 15-CV-8996, 2016 WL 4987943 (N.D. Ill. Sept. 19, 2016), which dealt with an Illinois player seeking to recover alleged gambling losses based on the same application and casino gaming present in Mason, followed similar reasoning regarding “winners” and “losers”.
VIDEO GAMBLING
chips were not “things of value” and that no illegal gambling occurred. The trial court relied heavily on Big Fish Casino’s Terms of Use, which users must accept before playing any games, stating that virtual chips have no monetary value and cannot be exchanged “for cash or any other tangible value.” However, the Ninth Circuit noted that the existence of the transfer mechanism and an associated secondary market for such chip allowed players to effectively “cash out” their chips into fiat currency. Further, the court noted that Churchill Downs profits from such transactions because it charges a transfer fee on all transfers of virtual chips. The Ninth Circuit, in reversing the trial court, held that the virtual chips were indeed “things of value.” The appellate court found that because the chips are necessary for the privilege of playing the games within the Big Fish Casino, such that winning chips enables a user to play for free and running out of chips requires a user to purchase more, they are “things of value” because “they extend[ed] the privilege of playing the game without charge,” even though they “lack[ed] pecuniary value on their own.” 6 It is important to note that the Ninth Circuit’s opinion did not rely on the player’s ability to redeem points for money or merchandise. Quite the opposite in fact, as the court rejected this argument by finding that Big Fish Casino’s Terms of Use expressly prohibited the sale or transfer of the virtual chips. Value in an unauthorized secondary market did not matter to the court; instead, it was the value within the gaming environment through extended game play which was the crux of the illegal gambling analysis by the court. As a result of its determination that the virtual chips were “things of value”, the Ninth Circuit found that the Big Fish Casino constituted illegal gambling under Washington law, and therefore the value of the virtual chips lost was recoverable under the Washington Recovery of Money Lost at
Gambling Act. The court also distinguished this ruling from Mason, Double Down, and Soto v. Sky Union, LLC 7 , based on the differing statutes and definitions across states. 8 More recently, class action plaintiffs and attorneys have taken aim at the distributors of either virtual currency or gaming applications. In Taylor v. Apple, Inc., 2022 WL 35601 (N.D. Cal. 2022), appeal dismissed in part, WL 18635795 (9th Cir. 2022), and appeal dismissed, No. 22-15237, 2022 WL 18777162 (9th Cir. 2022), named plaintiff Taylor sued Apple on the premise that her son was induced to spend money on loot boxes 9 in the game Brawl Stars, which her son downloaded from the Apple Store. Specifically, Taylor alleged that her son bought virtual currency sold by Apple, which he then spent on loot boxes, which Taylor alleged were legally equivalent to slot machines under California law. It is worth noting that virtual currency could be spent on other virtual items within the game as well. Ultimately, the court determined that the loot boxes themselves were not per se illegal, and that all Taylor’s son purchased from Apple was virtual currency, which he received. In Coffee v. Google LLC, 2022 WL 94986 (N.D. Cal. 2022), Plaintiffs downloaded the games Final Fantasy Brave Exvius and Dragon Ball Z Dokkan Battle from the Google Play Store onto their mobile devices. Plaintiffs alleged that they “purchased virtual coins with [real] money to buy chances on loot boxes and lost property in the form of the virtual coins they used to buy chances on loot boxes,” asserting various claims under California law based on their contention that loot boxes are illegal slot machines. Id. The Coffee court, similar to that in Taylor, found that the plaintiffs got exactly what they paid for. 10 Furthermore, the court determined that loot boxes are not slot machines because they do not award a “thing of value” under California law, quoting Taylor. 11 The court also took judicial notice of the Google Play Terms of Service prohibiting the sale or transfer of any in-app content
6 Kater, citing Bullseye Distrib. LLC v. State Gambling Comm’n, 127 Wash. App. 231, 110 P.3d 1162 (2005). 7 159 F.Supp.3d 871 (N.D. Ill. 2016) (applying California law), discussed in the prior article.
8 Similar cases have been settled on the same arguments and holdings applying Washington law, e.g., Wilson v. Huuuge 944 F.3d 1212 (9th Cir. 2019); Wilson v. Playtika, 349 F. Supp. 3d 1028 (W.D. Wash. 2018); Reed v. Light and Wonder, 2021 WL 2473930 (W.D. Wash. 2021) and 18-cv- 0565-RSL, (W.D. Wash. 2022). 9 Loot boxes are generally randomized chances within the game to obtain important or better weapons, costumes, or player appearance or other in-game items designed to enhance gameplay. 10 The court also reiterated that virtual currency is not a good or service under the California Consumers Legal Remedies Act, a common holding. 11 “Finally, the allegations of the complaint further fail to show that the games violate the Penal Code because the loot boxes do not offer players a chance to win “a thing of value.” Plaintiffs insist that the loot boxes contain items that are of significant subjective value to those who play the games and purchase them. While that undoubtedly is true, the lack of any real-world transferable value to the items takes them outside the mean- ing of the statute.”
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