Seven Questions Raised By Valve’s Skin Betting Announcement

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Seven Valve Questions

The esports skin betting industry has undergone significant change over the past few days following a statement Wednesday by Valve Corporation in which it asked gambling websites to stop using its Steam API.

At least three of the dozens of extant Counter Strike : Global Offensive skin gambling sites have announced they would shut down, while several others have either temporarily suspended activity or hinted at significant operational changes.

Several sites appear to have not yet been contacted by Valve, which could indicate that the game maker is taking a wait-and-see approach following its initial announcement and hoping that sites voluntarily comply.

While the ramifications of the announcement could be far-reaching, the announcement appeared to leave some wiggle room for certain parts of the skins economy to at least temporarily exist.

It also raised several questions about the future of the industry. 

Can wagerers use something other than Steam to execute bets?

Valve created the entire skin betting ecosystem: It developed the games and the marketplace in which skins are acquired and traded, and it created the API that allows those skins to be transferred between users.

As EsportsBettingReport noted Thursday, the onus then rests on Valve to be proactive and stem the flow of gambling sites using Steam.

It is unclear if a new parallel ecosystem, separate from Steam, could be built and operated for wagering purposes. Currently, CSGO betting sites link to Steam so that players can access their skin inventories, and then subsequently wager those skins.

Even if any sort of replacement API is even possible, it would likely require significant time and investment and not be nearly as seamless as something created by the game maker itself.

Perhaps more realistically, assuming skin trading can still occur both on Steam itself and on third-party sites, such as CSGOLounge, users could theoretically trade proportional amounts of items between one another to reflect the outcome of a win or a loss in a bet.

Such a system would be convoluted at best, but could still facilitate the transfer of items that have more or less become their own virtual currency.

Will Valve nominally target esportsbook skin betting?

As Genius Sports’ Head of Esports Moritz Maurer notes, many hold a distinction between esports skin gambling, which refers to casino-style games played with skins, and esportsbook skin betting, which can refer specifically to betting on the outcome of esports matches.

Valve, which has been reticent to comment on any form of wagering, may or may not have intended this same nuance in its announcement, which only used the word “gambling.”

Another distinction between esportsbook skin betting and casino-style gambling is that sports book skin betting definitionally drives specific engagement with Valve’s product, in this case, Counter-Strike: Global Offensive. This is because skin betting uses CSGO products (skins) and often focuses on the outcome of professional CSGO matches. 

The types of casino games involved in skin gambling, on the other hand, have no connection to Valve’s games.

Skin gambling occurs at sites like CSGOFast, CSGODiamonds and CSGOBlackjack. Sportsbook-style betting using skins, meanwhile, goes on at sites like CSGOLounge and Fanobet

Bryce Blum, general counsel at esportsbook UNIKRN, noted that the word “gambling” never appears in the site’s terms of use. Neither does the word “betting.”

Blum also pointed out the distinction between gambling and betting, and how Valve’s announcement only appeared to pertain to gambling.

CSGOLounge and Fanobet continued to be operational in the days after Valve’s announcement, while casino sites like CSGODouble, CSGOWild and CSGORumble have already initiated the process of shutting down.

Will Valve nominally address skins-to-cash sites? 

Valve noted in its announcement that, “Steam does not have a system for turning in-game items into real world currency.”

While this is true, Maurer noted that Steam does provide a system for turning real-world currency into in-game items, either in the form of players buying keys to open in-game crates that contain skins, or a player funding their Steam wallet with US dollars.

Furthermore, other websites like OPSkins do have a system for turning items back into cash.

Valve’s announcement targeted skin gambling websites. OPSkins, however, is not a skin gambling website, but a real-money marketplace to buy and sell skins.

Even if all skin gambling websites shut down immediately, skins will still exist in players’ inventories simply by virtue of people playing the game recreationally.

As long as these skin balances exist, players could be incentivized to convert those skins to cash by selling them on third-party marketplaces, which involve neither gambling or betting.

Valve could additionally restrict the use of its API by these sites, but it does not appear to have done so, yet. OPSkins said it has not heard from Valve in the days following its announcement and that it does not expect a disruption in its service.

The site said on Wednesday that it would continue to operate as normal in the near term.

Would an exchange or pool wagering system address some of Valve’s concerns? 

Even if OPSkins were a gambling website, which it is not, its primary function is to pair buyers and sellers of skins together in a marketplace, similar to Steam itself.

This also differentiates it from gambling sites, many of which rely more heavily on offsetting bets against “the house” by using bot accounts to facilitate the movement of skins to and from and bettors.

Valve appeared to address these bot accounts in its announcement, noting that gambling sites, “create automated Steam accounts that make the same web calls as individual Steam users.”

One potential work-around that skin betting sites could institute to curtail the usage of bots would be an exchange wagering type system. In this system, two bettors would be paired together, each wagering a proportional stake of items against one another, as opposed to one bettor taking on the house, as would happen at a traditional sports book.

Such a betting system, as well as a parimutuel style of esports betting, could theoretically eliminate the use of automated accounts used by the house, which constituted one of Valve’s two main concerns in the announcement. 

It’s unknown, though, if such a system would satisfy whatever overarching, general concerns Valve has with esports wagering.

As ESPN reported last year, some courts have found even exchange wagering operators to constitute bookmaking enterprises.

What affect will Twitch’s announcement have on skin wagering?

Twitch announced Thursday that streamers on its platform were not allowed to violate the terms of service or user agreements of third parties, such as Steam.

While it’s not clear where specifically Steam’s terms of service forbid gambling activities, Valve’s announcement Wednesday took the clear position that gambling via its API was not allowed.

The implication from Twitch is also clear: Don’t stream gambling content on our site.

As evidenced by the stream-based advertising for skin gambling sites like CSGODiamonds and CSGOLotto, skin gambling’s popularity is driven through its exposure on streaming services such as Twitch, as well as YouTube.

“The reason Skin Gambling got so massive is through the invasion of the entire CSGO space and its viewership,” Maurer told LSR. “Not being present on the biggest broadcasting platform anymore is a game changer.”

The advertising at both Diamonds and Lotto relied heavily on players on the sites streaming their winnings. The owners of Diamonds were later found to have been communicating the outcomes of dice rolls to m0E, the player advertising for the site through his stream.

The streamers who advertised CSGOLotto by casting their winnings, meanwhile, did not disclose that they also owned the site, and potentially could have had access in advance to the results of slot outcomes as they played against other users and won.

Even if skin gambling websites continue to go against Valve’s wishes and offer their products as is, the fact that their streaming content won’t be available to Twitch viewers could result in a substantial drop in exposure to skin gambling consumers.

Why did Valve not instead institute wagering safeguards?

Those who have previously criticized unregulated skin wagering have pointed out that gambling sites allow young and underage players to gamble skins.

While some skins sites have age verification processes, they are easy to subvert. There is also no standard, globally recognized age someone must be in order to wager skins.

Valve could have instead decided to require sites using its API to comply with all relevant local laws, and perhaps taking a page out of the daily fantasy sports industry’s book: institute stricter age verification and geolocation requirements, as well as other safeguards.

It did not take this approach, however. This could indicate that Valve would still prefer to be as hands-off as possible when it comes to addressing the problem of unregulated gambling associated with its products.

The company also might not be interested in continually policing third-party offshoots of its own ecosystem to make sure global gambling websites are complying with an intricate set of national gambling laws.

This approach, however, would seem to indicate that any potential future push for esports wagering regulation won’t come from the game makers themselves.

Will skin wagerers now flock to esportsbook cash gambling?

As ESBR noted last week, despite the superior convenience of players being able to wager items on websites directly from their linked Steam accounts, a widespread skin gambling site shutdown could nonetheless drive more players to turn to esports cash gambling at regulated sports books.

Esports cash gambling in the United States on the outcomes of professional matches is only currently legal in Nevada, and even that state is still sussing out regulations to nominally govern the activity.

In the regulations, expected later this year, the Nevada Gaming Control Board could either classify esports as another sport, like football or basketball, or as an event.

Meanwhile, the New Jersey Division of Gaming Enforcement promulgated temporary regulations earlier this year to govern the esports tournament, or head-to-head wagering market, whereby players in an esports tournament pay an entry fee and compete to win a cash prize. (As of this time, no licensed New Jersey casinos have come forward to offer this product. (Of course, New Jersey is also fighting to allow sports betting, and already offers NJ online casino products.)

Skin gambling, though, remains the dominant form of esports wagering.

According to a report from Narus Advisors and Eilers & Krejcik Gaming, the average monthly projected skin wagering handle in 2016 (~$618 million) is more than the projected esports cash wagering handle for all of 2016 (~$594 million).

Despite being a small subset of the overall esports wagering market, esports cash gambling at sports books like Pinnacle, Betway and Bet365 could see an increase in betting volume from non-American markets as more skin gambling websites shut down.