January 26, 2024

  • Eric Weiss, President North America, Odds on Compliance

Unregulated skill gaming– is it time for regulation?


Defining the boundaries between what constitutes gambling versus other forms of entertainment where money is exchanged for the opportunity to win something of value has long challenged state legislators. From a historic perspective, even pinball machines were once considered gambling devices and considered illegal in some jurisdictions.

The core dilemma arises from the blurred lines between gaming elements. When the current laws were written, law makers could not have anticipated the advancements in technology which now put slot machines in people’s pockets, or social games that bring together people from around the globe to compete against each other or against the house in a virtual environment. As a result, the legal framework has struggled to keep pace.

The crux of the matter lies in the classification of computerized skill games—are they gambling games? Should they be subject to regulation? Examining arguments on both sides of this issue is crucial.

The Skill vs Gambling Conundrum

Pure skill games hinge solely on a player’s abilities without any randomness. Yet, many games blend skill and chance, creating a legal gray area contingent on jurisdictional definitions of gambling. Each game necessitates evaluation based on the legal stance of each state.

Different states approach skill gaming differently. Some prohibit any form of skill wagering, while others attempt to draw a line between skill and gambling games. Legal opinions and precedents further complicate matters attempting to define legality and chance across states.

States typically employ one of three approaches to differentiate gambling from skill:

  1. Any Randomness: If chance is present, it’s gambling.
  2. Predominance: If chance predominantly determines the outcome, it’s gambling.
  3. Materiality: If chance significantly impacts the game’s result, it’s gambling.

Regardless of the state’s criteria, if it deems skill gaming as gambling, its statutes and regulations would dictate its governance.

The Case for Regulation – In the Online Space

Comparing traditional competitive events to online computerized games highlight a significant disparity in visibility and accountability. Unlike observable tournaments, where the contestants are in plain view making it clear who is competing and that they are following the rules, online competitions rely on trust in the operator to ensure fairness, compliance, and ethical conduct.

Proponents for regulation would say that an unregulated online competition lacks transparency, because contestants have no way of knowing who they are competing against, the contestant’s age, if they are using technology to assist them, if they are playing a real person or if the outcome has been scripted. Further, unlike regulated gambling, there is no evaluation as to the good character and integrity of the operator, no required testing of the game, no KYC standards, and no regulatory oversight of their operation.  Additionally, because computer-based skill games can be completed in minutes, contestants can compete multiple times in one day, leading to issues of responsible gaming.

While some skill gaming operators welcome regulation to ensure fairness and deter unethical companies from entering the market, others oppose it citing redundancy, increased costs, and the stifling of innovation. Additionally, those arguing against regulation say they have evaluated state laws and only offer their games where legal. They argue that regulation is not needed because they proactively implement policies to address the age of contestants and fairness, and that they would face legal challenges if they did not strictly enforce those controls.

Certainly, regulating skill-based games in the online space does not come without its challenges. For instance, if the games are deemed to be gambling, then only states which authorize online casino games would be able to offer them.  Further, without a multistate agreement, the pool of players would be limited, making it difficult to achieve enough liquidity to match players.

Alternatively, the games could be designated as esports which would fall under mobile sports betting, thereby allowing many more states to offer them. Again, there would still be the requirement for a multi-state agreement for liquidity purposes. The state would also need to permit wagering on esports, and their laws would need to permit the players to wager on the esports events that they participate in.

A third alternative would be to simply regulate them as games of skill. This approach would still have the issue of how each state differentiates between skill versus gambling, but it would permit each game to be evaluated on a case-by-case basis for suitability. This would eliminate guesswork regarding which games can be offered legally.

Regulation in the Retail Space

While online skill-based gaming presents notable challenges, the legality of certain skill games in the retail environment is a pressing concern. Manufacturers of these games have found innovative ways to disguise what looks like a slot machine as a skill-based game. Others have found ways to combine skill with randomness that skirt local laws often inviting legal challenges.

Despite these games potentially meeting legal definitions of skill, players aren’t easily fooled. Even those believing they can consistently outplay these games soon realize otherwise. As these games permeate truck stops, convenience stores, and other venues nationwide, the regulated gaming industry is taking notice. Casinos and slot machine manufacturers see these games as direct, unfair competition, urging lawmakers to intervene. They argue that these machines evade regulatory standards, licensing, testing, and lack necessary operating controls for things like responsible gaming.

Concerns about these games aren’t confined to industry stakeholders; everyday citizens share worries. A survey by the American Gaming Association revealed widespread apprehension:

  • 71% believe “skill” machines lack player protections available in casinos.
  • 64% agree these games are too accessible to children.
  • 56% think they raise crime risks, endangering both employees and customers in locations where they’re found.

Furthermore, knowing that “skill” machines are not taxed and lack regulatory scrutiny like casino slot machines, the study found that 64% of Americans familiar with these games express concern about their presence in their community.

Beyond Gambling: The Need for Policy

Whether skill games constitute gambling or not, policy issues demand regulatory intervention. Regulation establishes a baseline, ensuring uniform standards for operators. It validates their credibility, addresses fairness, security of personal information, mediation of customer complaints, security of funds, payment of winnings, age verification, and responsible gaming, thereby instilling player confidence in the operator’s credibility and the fairness of their games.

The prevalence of skill-based games in retail spaces, despite their legal ambiguity and resemblance to slot machines, has sparked significant concern among both industry stakeholders and everyday citizens. While these games may technically meet certain legal criteria, they fall short in providing adequate player protections, raise accessibility concerns for children, and pose risks of increased crime in the locations where they’re found.

This year the American Gaming Association took a firm position on retail skill games with their former President and CEO Bill Miller stating:

“Unregulated machine manufacturers have built their businesses by duping consumers and small businesses while avoiding taxes, oversight and consumer protections. Keeping America’s gaming industry strong, safe and responsible can only be done through the robust infrastructure of the well-established legal market, not by rewarding bad actors with half-measures that fail to address the dangers of unregulated gambling.”

The call for regulatory oversight and intervention from the established gaming industry, citing unfair competition, echoes the worry that these games evade necessary standards and lack responsible gaming controls. The findings from the American Gaming Association’s survey underscore a widespread unease among the public regarding the presence of these games in their communities.

With mounting concerns about taxation discrepancies and the absence of robust regulatory oversight akin to casino slot machines, the conclusion is clear: there is a compelling need for comprehensive regulations and safeguards to address the proliferation of these skill-based games in retail spaces, ensuring player protection, responsible gaming practices, and community safety.

Additionally, in the evolving landscape of online skill gaming, the call for regulation also resonates loudly. As technology continues to reshape the gaming sphere, regulatory oversight emerges not only to delineate between skill and chance but also as a pivotal force in safeguarding fairness, integrity, and responsible gaming practices. Striking a balance between innovation and regulation remains a nuanced challenge, but it’s clear that a structured framework is needed to ensure a level playing field and foster trust among participants and stakeholders alike.

The future of skill gaming, whether it be conducted online, or in retail establishments, lies not just in its entertainment value but in its responsible and ethical governance, a direction that demands the collaborative efforts of legislators, industry leaders, and players.