Law of Probability: Real-Money Games and Gambling

The rise in the global popularity of real-money video games and online gambling sites serves notice to developers, platforms, and investors to carefully consider the legal issues and challenges that could accompany the development of related business models. Before embarking on a business venture involving real-money skill-based games or games of chance, stakeholders should understand the legal issues involved.

In real-money skill games, the players of the game pay an entry fee or other consideration for the opportunity to win. Outcomes are the result – at least to a significant degree – of the players’ relative abilities, knowledge, and experience. Gambling, on the other hand, is defined with respect to chance – in some US states, there can be no chance; in others, chance cannot be a “material factor;” and in yet others, chance cannot be the “predominant element.”

The distinction between skill-based and chance-based games can determine whether playing and hosting them is legal. If poker and blackjack are deemed to contain sufficient skill elements, regulators may decide they aren’t really gambling. An attorney experienced in this industry can protect both stakeholders and customers from potential legal issues that may arise in real-money gameplay:

Reasoned Legal Opinion

Under US federal law, banks and payment processors handling funds from real-money games companies are required to obtain a “reasoned legal opinion” that the games offered by such companies do not violate applicable state laws.  A reasoned legal opinion evaluates the chance elements in a game and whether it complies with federal law and the laws of each of the states in which the game is offered.  An experienced games lawyer should be consulted to prepare the opinion, which will be reviewed carefully by financial institutions and potential business partners.

Dispute Resolution

Real-money gaming sites should create dispute resolution policies that are clear, fair, and effective. These policies should provide for disputes over money, content, and contest outcomes, and should address how each scenario will be dealt with. It is important to ensure disputes are adjudicated promptly and transparently.

An attorney who has worked with gaming, esports, and online gambling clients can help market entrants devise policies to minimize the number of disputes that arise and for dealing with them fairly.

Anti-Money Laundering

As a real-money game platform or developer, it is essential to understand “know-your-customer” (KYC) and  anti-money laundering (AML) requirements and how they may apply to your business. KYC and AML regulations are intended to combat money laundering, terrorist financing, and comply with sanctions and restrictions published by the US Office of Foreign Assets Control (OFAC). Violation of AML requirements can have serious consequences.

A real-money games company should set up procedures for verifying customer identities, tracking their activities, and reporting any suspicious behavior. This includes monitoring the source of funds used for deposits and withdrawals and maintaining detailed records of all transactions conducted through the platform.

Regulators in every jurisdiction, including the UK, Canada, and Singapore, require operators of these games and platforms to take reasonable steps to prevent counterfeiting, fraud, and money laundering. This usually includes verifying player identities and locations. Nevada, for instance, allows sites to operate online poker only for players physically located in the state or in other jurisdictions – currently Delaware and New Jersey – where online poker is legal.

Cybersecurity, Privacy, and Consumer Protection

Identity theft prevention has become standard for real-money gaming applications. Providing the highest level of consumer protection must be a key pillar of any successful business model, and this is especially true for applications that involve users’ personal information. Safe and secure approaches to data storage are required, as is an additional layer of privacy that prevents third-party access without express consent from customers. Whether it’s ensuring user anonymity or preventing app hijacking, security measures should be employed by companies looking to foster customer confidence in their services. By taking proactive steps like these, gambling sites can ensure their customers feel safe and secure.

Games should also provide users with assurance that any data they submit is secure in order to gain trust and build a loyal user base. Applications include protocols for managing access permissions, authentication, prevention of unauthorized data manipulations, and verification of user activities for complete end-to-end encryption. Developers should also implement preventative security measures to anticipate threats, reduce risks of compromised data, and provide their users with a secure gaming experience.