MGA’s Position on Digital Games of Skill With Prize

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The Malta Gaming Authority (the ‘MGA’) has published its position on digital games of skill with prize offered through means of distance communication.

The MGA’s view is that games that are predominantly or totally influenced by the skill of the player and a negligible or no element of chance (‘Games of skill with prize’) are to be distinguished, from a regulatory perspective, from other types of games of chance, and games of chance and skill that are currently licensed under the Remote Gaming Regulations (the ‘Regulations’).

The MGA’s position is that such games of skill with prize should not be submitted to licensing requirements since the associated risks do not necessitate such stringent ex-ante requirements.

Despite this, in order to ensure a safe and fair environment for consumers, the skill game operators and their gaming activities should fall under the governance and regulatory competence of the MGA – thus being subject to certain standards and monitoring.

A proposal will be made to the government to incorporate a new regulatory framework that will provide more clarity in the definition of these games, as well as provide for the adoption of softer regulatory approaches to for gaming activities that do not fall under licensing obligations.

The paper concerns games of skill that are offered by means of distance communications (mainly the internet). The games must be ones that offer a prize of money or money’s worth. The intention is to adapt to the increase in popularity of games with an outcome that is partly or fully determined by a consumer’s skill – which includes knowledge, dexterity and the reaction time of the player.

Public consultation was carried out by the MGA, and one of the main issues that was raised by the respondents was the need for further clarity in delineating between skill and chance. This centres around the need for the legislation to provide a clear definition of a ‘pure skill game’ since every human activity is in some way influenced by chance. The regulatory regime that different games will fall under will be determined by the level of risk involved.

The feedback received suggests that game testing is difficult, costly, and highly ineffective since the game is not played against the house and players playing against each other start off on an equal footing. In order to determine whether the predominant element of a game is chance or skill, a qualitative test can be used. If a player who lacks skill in a game can defeat a player that is skilled, then the game is one of chance. If a player can find a strategy of play by which he can influence the game in his favor, then the game is of skill.

Another important issue that was raised was that since pure skill games are not to be subject to a licensing regime, the regulator must be in a position to rule on whether a particular game is a pure skill game or otherwise. The classification will have a bearing on a number of things, such as the tax treatment the game would be subject to. The audience that is typically drawn to pure skill games is different to the gambling audience, but consumer protection is still necessary as risks are still present.

The Electronic Sports (eSports) sector requires formal and legal recognition at law as the industry is experiencing a boom. A genre of games that is often classified as being an eSport is that of digital collectible card games, such as Hearthstone. The position paper states that “chance comes into play when drawing the cards from the deck after each turn, and whilst drawing the right cards at the right time will definitely help a player win, over the course of a whole match, particularly in tournament format, the element of chance is significantly reduced in determining the outcome of a match.”

The issue of differentiating between skill-based games with elements of chance and gambling was also raised. Games that are based on a random number generator at the start, but which then rely on skill are different to gambling games. A possible test that could be implemented is that if a skilled player is able to win more than 56% of the matches, the game is one of skill. The differentiation is important because games of skill and chance, and pure skill games require lighter regulations that reflect the crucial difference to gambling games.

MGA’s Opinion – Defining a ‘game of skill’

The legislation that is currently in place relies on how the outcome of a game is generated in order to determine whether a game is licensable or not. Under the law that is currently applicable, a game of skill is defined as a game that depends ‘mainly’ on the skill of the participant.

In pursuit of offering more clarity, the MGA assessed the application of the definition in other jurisdictions. The method of determining if a game is mostly based on skill differs across jurisdictions. This is also the case within the EU, as courts of different member states have delivered varying judgments with regard to whether a game is mostly based on skill. Most countries allow pure skill games without the need of a gaming authority’s authorization. Despite this, some jurisdictions still impose certain standards or controls that need to be abided by. The requirements include restrictions on age, advertising, and promotion.

Due to the theory that every activity has an element of chance involved, the true definition of a pure skill game is still open to debate. In light of this, the MGA believes that Malta’s next gaming legislation overhaul should clarify the interpretation of a game of chance and skill, and a game of skill. This is in reference to the wording of the law, in particular the following phrases: ‘mainly of skill’ and ‘up to a certain extent.’ The authority is also of the opinion that the legislation should consider the meaning of ‘games of pure skill’ to be interpreted as games having a negligible element of chance, rather than have it be interpreted literally.

The authority has grouped the different types of skill games into ‘Type I’ and ‘Type II.’ Type I includes games that, despite having a considerable element of chance involved, are predominantly determined by skill. The MGA has made reference to jurisprudence from the United States of America which holds that it is the character of the game, and not the player’s skill or lack of it, which should determine whether a game is one of skill or chance. Fantasy sports games also fall within the Type I category.

Type II skill games are ones that are completely determined by skill. Any element of chance that may exist – if any – is insignificant and has no real bearing on the final result. These games are usually off-the-shelf games developed by third party software developers. The purpose behind Type II skill games is for players to use their skills to defeat their opponents and win. Unlike in games of chance, winning a prize of money or money’s worth is secondary to the ultimate objective of winning at the game.

The authority understands that the current definition of ‘skill games’ does not offer enough clarity when taking into consideration the technological advancements in the market. The authority remains keen on intervening only in cases where it can mitigate the risks faced by consumers.

Consumers of Type I and Type II skill games are also protected by domestic and European legislation, including the Consumer Rights Regulations. The MGA’s intention is to offer qualitative and/or quantitative ways of classifying different games in order to provide more adequate protection to consumers. The authority will be interpreting the term ‘skill game’ or ‘game of skill’ to include games  – in addition to the current definition in the Lotteries and Other Games Act (the ‘Act’) – the result of which is determined by the knowledge, reaction time, and/or dexterity of the player. An element of chance can be present, but it must be of such a degree that has no significant bearing on the end result. This includes Type II skill games, whereas Type I skill games would fall under the definition of games of chance and skill and thus become licensable operations.

The authority believes that the categorizing of games should be done in a subjective manner on a case-by-case basis, applying a series of objective criteria. The onus of proving that a particular game is a skill game vests in the operators. The list of criteria used is the following:

  • The presence of random draws and their effect on the outcome;
  • The length of each game;
  • Whether the object of the game is amusement or competition;
  • Whether a skilled player can win more than an unskilled player;
  • Whether the chance of winning is increased by experience in the game;
  • Whether skill in the game can be acquired through education;
  • Whether a particular strategy can nullify the element of chance;
  • Whether the game is played against other human players or against the house; and
  • Common sense and opinion of the player community.

 

The MGA’s view is that the checks and monitoring of Type I skill games should be differentiated from the standards applicable to gambling games, since the characteristics of the two categories are also different. As for Type II skill games, the authority is of the opinion that the risks that consumers are exposed to are already safeguarded by general consumer protection legislation. It is not likely for a Type II skill game operator to offer an unfair game to consumers, just like it is less likely for a Type II skill game to be exposed to criminality when compared to gambling games. Despite this, the authority believes that specific regulation relating to consumer protection, such as financial protection, data retention protection, and age limits, is warranted in certain cases.

In light of the above, the MGA will be proposing a number of provisions to the Government for the forthcoming Bill for the new Gaming Act. Amongst other provisions, the MGA will be proposing an extension to the scope of games that currently fall under the regulatory competence of the authority – including pure skill games – as well as having more clarity in the definitions of the different types of games. In addition to this, the MGA proposes an extension of its functions to be able to keep non-licensable activities under review in order to ensure the effectiveness of the regulatory approach in attaining the gaming policy regulatory objectives.