This article is part three in a three part series from Cashplay to educate game developers about the legalities and best practices surrounding skill gaming - both online and mobile.
In the final part of our series about the legalities and best practices surrounding skill gaming, we take a closer look at what not to do with cash tournaments in your game in order to avoid being categorized as 'gambling' or 'betting'.
At Cashplay, we're on the front line of the game monetization revolution with real money, amateur cash tournaments greatly disrupting the video gaming industry.
Our skill gaming platform integrates with a wide variety of mobile games and helps developers monetize their audiences in a more engaging way than traditional banner advertising or IAPs, delivering double-digit DAU conversion and ARPDAU exceeding 50 cents in some cases.
In this installment, we'll look at some of the issues that game developers need to be aware of when deploying cash tournaments to ensure they don't stray into territory generally considered to be illegal gambling.
First, we'll consider which terminology you need to avoid using in relation to the contests you provide, and then we'll tackle the essential considerations for structuring real money competitions, all while highlighting a few common mistakes.
Terminology creates reality
Taken at face value, cash tournaments based on skill games bear a resemblance to the mechanisms of gambling.
Players that pay an entry fee to participate in a cash tournament with a cash prize for the winner?
The wrong terms can push your operations into the wrong side of the legal border.Jarrod Epps
That sounds like a stake made as part of a bet or wager - in fact, some companies operating in the cash tournament space have gone as far as to incorporate this terminology into their names.
For skill games, however, it is most certainly not the same thing (I go into more detail on what defines a skill game in the first article of this series), and using the wrong terms can, in fact, push your operations into the wrong side of the legal border.
If you use gambling terminology, you shouldn't be surprised if your activities are labelled 'gambling', which then means severe restrictions for your games in terms of the territories you can target and the licenses you'll be expected to apply for and pay to maintain.
Bottom line: if you offer cash tournaments based on games of skill, you should remove all references to 'stakes', 'wagers', 'gambling', and 'bets'.
Use 'entry fees', 'cash tournaments', 'challenges', and 'contests.'
Structuring real money competitions
When structuring cash tournaments for your game, there are a few key elements to keep in mind to ensure that your contest is clearly classified as a non-gambling event.
To use a territory where case law is plentiful, we look to the United States for more specific definitions. Courts in the US have applied a three-part test to determine whether 'consideration to play a game' constitutes a "bet" or "wager", known as the "Humphrey Test" from a landmark court ruling.
As a baseline, when launching a skill based cash tournament, be sure to check that you're in compliance and can answer 'yes' to these three questions:
- 1) Does the game involve the payment of an unconditional entry fee (that does not make up the winnings purse)?
An "unconditional entry fee" means the money a player commits to enter a tournament is defined at the outset and has no impact on the final winnings purse.
- 2) Are winnings guaranteed to be awarded (the size of which is not subject to the number of entrants)?
As opposed to the common 'pool betting' tournament structure found in traditional gambling where the overall winnings are dependent on the number of entrants, the final winnings in real money skill gaming need to be set in stone from the beginning.
This fixed-winnings structure does not come without an element of risk to the operator. At Cashplay, we run regular 'Unlimited Entry' tournaments where our players pay a set fee per entry - usually $1 - with the top three highest scoring 'players winning, say, $500, $300 and $100.
We've found this structure to be an incredibly popular complement to our standard head-to-head tournament structures, with some individual tournaments generating as much as $1,000 a day in additional income, but there is always the risk that there won't be enough entrants to cover the defined prize amount.
Ultimately, we have to understand how your players engage with the game content and we run significant analytical platforms to ensure tournaments generate as much profit as possible.
- 3) Is the game operator unable to compete for the prizes?
The final component of the Humphrey Test is important. Traditional gambling typically involves betting against 'the house'. To achieve proper compliance, your tournaments have to be structured so that players are competing on a level playing field against each other with the outcome based entirely on merit.
Impact of virtual currency
Don't fall into the trap of expecting that virtual currency can serve as a magic loophole for facilitating online betting.
With the rise in popularity of BitCoin and other virtual/digital currencies, we are constantly approached by groups who have ideas about how to circumvent legal systems through the implementation of currencies off the grid. Unfortunately, these currencies carry value and therefore fall under the same regulations as traditional currencies.
The Unlawful Internet Gambling Enforcement Act of 2006 (UIEGA) exempts from its definition of "bet" or "wager" participation in any game or contest in which participants do not stake anything of value other than:
- Personal efforts of the participants in playing the game or contest or obtaining access to the Internet.
- Points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor.
Although this means you can offer "betting" or "wagering" via virtual currency, it does not mean that this virtual currency can be purchased by the participants, wagered, and then later redeemed for real money.
As a practical measure, you should be sure that you are comfortable that your chosen supplier for cash tournament operations can answer all the questions you have in regards to legality, and that they operate using best practices in referencing terminology.
Also, if you want to start offering real world prizes, be they universally-recognized currency or anything else, be sure you are still operating within the limits of the law to ensure you protect your players and your business.
Jarrod Epps is the CEO and founder of leading skill game tournament system Cashplay, which helps game developers to monetize their titles through real cash player versus player tournaments.
To learn more about skill gaming, you can download Cashplay's legal white paper Skill Gaming in the United States, or contact Cashplay at email@example.com
And don’t forget to read part 1 - Cashplay on balancing the huge potential of real money skill gaming with its legal pitfalls - and part 2 - Can randomness play any part in real-money skill-based gaming? - in this series covering the legalities and best practices surrounding skill gaming.