MORE THAN JUST SKIN(S) IN THE GAME: HOW ONE DIGITAL VIDEO GAME ITEM IS BEING USED FOR UNREGULATED GAMBLING PURPOSES ONLINE.

• Author: Haskell, John Vrooman

1. Introduction

   "The guy who invented poker was bright, but the guy who invented the chip was the genius." -Julius Weintraub On September 27, 2016, the Washington State Gambling Commission ("WSGC") issued a cease and desist letter to the popular video game developer, the Valve Corporation ("Valve"). (1) Asserting that they are in violation of Washington State gambling law, the cease and desist letter emanates from Valve's alleged involvement in a quickly evolving industry known throughout the world as "skin gambling" or "skin betting." (2) As denoted by the letter, the WSGC sets forth that by turning a blind eye to the enforcement of its regulation against the usage of "bot" accounts, Valve knowingly permits their customers to use skins for illicit gambling purposes. (3)

   Skins, as they are commonly referred to in the video game industry, are virtual decorations used in many modern day, online, multiplayer video games to change the appearance of a video game avatar's weapons or appearance in-game. (4) Although originally intended as simply a cosmetic feature of the video games they are used in, entire marketplaces have developed around the skins in a number of popular, Valve developed, video games over approximately the past four years. (5) Similar to a casino chip, a skin can be used as a "de facto currency" that can be used to place bets on the outcome of electronic sports ("eSports") matches, roulette games, virtual coin flips, and other casino-style games, completely online. (6)

   Unlike video games that simply have lottery or casino style features built into their user interfaces, skin gambling has almost entirely emanated out of third party websites. (7) Through Steam, the Valve Corporation's digital distribution platform, these third-party websites have developed online casinos to facilitate gambling or wagering schemes using skins that are tradable in Valve video games like Counterstrike: Global Offensive ("CS: GO"). (8) As a result, from January 2016 to July 2016, one website, was able to facilitate the betting of approximately 103 million skins in over a period of 2,800 quasi-professional CS: GO matches, amounting to approximately $1 billion in placed bets. (9) As skins presently remain an unregulated currency domestically, many questions arise as to the legality of using such a de facto currency for gambling purposes.

   Part II of this note provides a brief overview of the evolution of the gambling industry in the United States. (10) Part II further goes on to address some of the most important federal statutes pertaining to gambling, particularly that of sports betting. (11) Part Ill of this note will outline how skin gambling came to be and how the gambling process generally is facilitated via Valve-produced video games that provide players methods by which to buy, sell and trade skins. (12) Part IV will provide an analysis of the applicability of the relevant federal statutes and case law to skin gambling, a presently unregulated market. (13) Additionally, Part IV shall explore how attractive skin gambling is to children of young ages, and will compare foreign attempts to regulate the presently evolving industry. (14) For purposes of this note, as skin gambling and betting almost exclusively exists in games developed by Valve, the discussion will primarily revolve around games such as CS: GO, Defense of the Ancients 2 ("DoTA 2"), and Team Fortress 2 ("TF2"). Additionally, and to avoid confusion, the umbrella term "skin gambling" shall be used to encompass both the process by which skins are used as a de facto currency to place bets and used in gambling activities in this note.

2. History:

   Participation in lottery-style games has been a favored pastime in America since the early days of the colonial settlements. (15) State legislatures first enacted state-run lotteries to help raise supplementary revenue and as a method by which to assist in the construction and development of local infrastructure projects. (16) Although viewed as a respectable industry for nearly two centuries for their beneficial contributions to the community, by 1862, states that lacked anti-gambling legislation began to be in the minority. (17) While the crackdown on state lotteries issued a blow to citizen participation in state-sanctioned lottery games within their respective state's borders, those who participated in lotteries were soon able to take their business elsewhere, with the most prominent participation emanating out of the state of Louisiana. (18)

   Founded by John A. Morris and Charles T. Howard, the Louisiana Lottery Company, nicknamed the "Serpent," was incorporated by the Louisiana state legislature in 1868. (19) Exempting the Louisiana Lottery Company from all taxes and prohibiting the sale of foreign lottery tickets within the state's boundaries, the Louisiana Legislature was promised $1 million in profits from the Louisiana Lottery Company over a period of 25 years. (20) As nearly the only show in town, the Louisiana Lottery quickly gained a stranglehold on the market, with daily drawings for winning tickets held in major cities throughout the United States. (21) Much like its predecessors, however, regulation eventually crippled the Louisiana Lottery Company. (22) Banning all advertisements and other media regarding lottery schemes from being sent by mail, the United States federal government dealt a fatal blow to all state lotteries with the Anti-Lottery Act of 1890. (23) With the American lottery industry in shambles, the nation would not again see a state-sanctioned lottery until 1964. (24)

   Though nearly all forms of gambling remained illegal in the United States until 1931, with the fall of the state-run lottery schemes, social gambling began to take a new form as the many Americans began to place their hard-earned dollars on sports betting in the early 1900s. (25) While baseball was one of the most popular sports to bet on, betting on other professional and college sports grew in popularity throughout the 1920's. (26) During this time however, sports betting was illegal at the federal level, until 1951, whereupon Congress effectively legalized sports betting by imposing a ten percent excise tax on any and all wagers placed on the outcome of a sports match or game and an annual stamp tax on any person liable for the excise tax. (27)

   Following the federal tax regulations of 1951, in 1961, Congress began to take further steps to regulate sports betting, beginning with Interstate Wire Act of 1961 hereinafter "Federal Wire Act"). (28) Introduced before the House of Representatives Judiciary Committee on May 17, 1961 by then Attorney General, Robert F. Kennedy, the purpose of the Federal Wire Act was to provide assistance to the several States in enforcement of their laws regarding illegal gambling. (29) As arguably one of the most important federal statutes related to gambling and sports betting, (30) the most relevant part of the statute states:

   Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both. (31) As defined under the Federal Wire Act, a "'wire communication facility' means any and all instrumentalities, personnel and services... used or useful in the transmission of signs, pictures and sounds of all kinds by aid of wire, cable or other like connection between the points of origin and reception of such transmission." (32) Thus, the Wire Act, rather expansively, covers all forms of modern-day communications that can be used to transmit and receive sporting bets, including but not limited to: wireless phones and the internet, as both use some form of "wire communication facility." (33)

   Shortly following the Wire Act, in 1970, the Illegal Gambling Business Act ("IGBA"), a vital part on the war on organized crime, was enacted as a section of the Organized Crime Control Act. (34) Although somewhat limited by less-expansive terms, unlike the Wire Act, as to what illegal gambling activities expressly fall under the IGBA, the statute, in short, targeted the financers, managers, supervisors and directors of illegal gambling businesses. (35) However, to satisfy the statutory requirements of the IGBA, the purported illegal gambling business in question must involve at least five or more persons, and have remained in operation for over thirty days or experienced a profit greater than $2,000 any day during the venture. (36) Although originally intended to target organized crime, it has since been held that the IGBA prohibits the operation of illegal gambling businesses, "regardless of whether there is organized crime involvement." (37) By adding another layer of regulation, the IGBA and the Wire Act together expanded Congress's ability to target illegal gambling businesses with the help of state legislatures. (38)

   Trailing the Wire Act nearly 30 years later, the Professional and Amateur Sports Protection Act ("PASPA") was passed in 1992. (39) Expressly forbidding states to sanction sports betting, PASPA was by far and away the most direct action by the Federal Government in an attempt to regulate or do away with a gambling scheme that was quickly growing out of hand since the Anti-Lottery Act of 1890. (40) When signed into law, the act itself had three important goals in mind: "(1) to stop the spread of state-sponsored sports gambling, (2) to maintain sports' integrity and (3) to reduce the promotion of sports gambling among America's youth." (41) To promote these goals, Congress cracked down on the several states, preventing any...