DFS Doesn't Need A Full Gaming License In Malta Because The Games Don't Pose A Consumer Protection Risk

Malta Exempts Daily Fantasy Sports From Gambling License Requirements, Proposes Skill-Based Licenses To EU

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The Malta Gaming Authority (MGA) conducted a consultation on its “Position Paper on Digital Games of Skill” in December of last year.

The responses it received have led to the decision to introduce a separate skill-based gaming license which will be subject to “light touch” regulation.

The proposals for the new licenses have been sent to the EU Commission for approval, and the MGA should be in a position to issue new licenses in early 2017.

In the interim, the MGA has issued a legal notice that exempts DFS from the Lotteries and Other Games Act with effect from August 1, 2016.

  • The MGA position paper is here.
  • The consultation responses are here.
  • The legal notice for the DFS exemption — Fantasy Sports (Exemption) Regulations, 2016 — is here.
  • The press release for skill-based gaming licenses is here.

The DFS exemption is not absolute

The original position paper separated skill-based games into two types—Type I and Type II.

Its position was that:

“With regard to Type II skill games, the Authority is of the opinion that an ex-ante licensing requirement is not warranted as the risks to which a player of such games may be exposed are currently adequately safeguarded by means of existent general and horizontal consumer protection legislation.”

The MGA determined that “Fantasy sports games also fall within this category, although the importance of skill in determining the outcome also depends on the format in which the game is offered.”

To distinguish between games which meet the skill-based standard, the legal notice includes a precise definition of DFS:

“”Fantasy Sports” and, or “Fantasy Sports Game” means a contest played for money or money’s worth whereby the winning outcome is determined predominantly through the skill or knowledge of the player, and where the results are determined by the accumulation of statistical results of the performance of a number of individuals in sporting events, but shall not include the forecast of the score, point spread or any other future occurrence of one or multiple events, and for the avoidance of doubt, the definition of a “bet” as defined in the Act shall not be applicable.”

The guts of the legal notice state that:

“The offering of a Fantasy Sports Game shall, by means of these regulations, be deemed exempt from the requirement to obtain a licence in terms of the Act and, or the Remote Gaming Regulations.”

As long as the games offered by DFS operators meet the definition, the MGA does not believe they merit the full weight of gambling regulation, however, the MGA adds the caveat that:

“The Authority may subject any person offering a Fantasy Sports Game to a requirement to notify the Authority of its operation, and, or to such standards, requirements or any other instrument as it may deem fit in pursuance of the functions of the Authority in terms of article 11 of the Act, and which instruments may be of a binding nature:”

The caveat isn’t a backtrack on the exemption, it’s a reservation of oversight rights just in case the exemption leads to consumer protection issues that fall within the MGA’s purview.

The impact for DFS operators is all good

When Oulala announced its deal with Game Interaction Group in mid-August, its press release pointed out that it hoped to be one of the first operators to secure one of the MGA’s new skill-based gaming licenses.

For operators who take advantage of the new MGA DFS license, they will be able to show that they have been assessed as responsible operators. Furthermore, the issue of an MGA license can be used to provide a legal basis under EU law for operating in any EU member state.

In addition, the conclusion that DFS does not provide a consumer protection risk sufficient to bring it into the gambling regulation regime may be useful in lobbying other gaming regulators who have yet to make their own minds up on the issue.

In particular, the large operators like FanDuel and DraftKings may be able to use the decision as evidence in their lobbying of US state legislatures.

Skill-based gaming licenses are a solution to the gambling gray area

The MGA concept for skill-based gaming licenses is that they will cover both Type II and Type I skill games.

The position paper described these as:

“Games in which skill plays a more predominant role than chance, although a considerable amount of chance still exists in the game (e.g. certain board games, certain card games);”

The MGA believes that these games require licensing but should be regulated with a lighter touch than pure gambling games, reflecting their power risks.

“Type I skill games are currently considered as being licensable in terms of the Act and the Regulations. Concurrently, however, the Authority is of the understanding that the risk to which a player is exposed when playing Type I skill games, as opposed to other forms of gambling-type games, is different, and in general, reduced. In this regard, the licensing and compliance requirements imposed on such operators should reflect the extent of consumer and other regulatory risk.”

Examples of games which the MGA considered to fit into this category included:

“Games which are based on a random number generator at the start of the game, such as cards or dice, but which rely on skill as the game progresses, such as is in the case of games such as belote, tarot, rummy or backgammon, should be licensed, but in such a way as to be deemed different to gambling.”

For the MGA, these games fall into the gray area between games such as chess, where even when played as a tournament for money prizes, the game is not considered gambling, and games where chance clearly predominates such as online slots.

“A specific licence for such games of mixed skill and chance should help consumers differentiate between such games and gambling.”

The MGA definition may re-define poker as a skill game

The MGA does not mention poker in its examples of skill games, but it does mention rummy.

To qualify for the skill-based gaming license, operators must submit their argument as to why the game they propose should be defined as such rather than as gambling.

It is hard to imagine any mechanism that would place rummy on the list of skill games that would not apply equally well to poker.

The MGA suggests a numerical test:

“A test that could be implemented is that if a skilled player is able to win more than 56% of his matches, then the game is one of skill, rather than chance.”

It would be easy for online poker operators to produce data showing that a number of their cash game players win more than 56 percent of their sessions. There’s no need to show that a lot of players do so, only that it is possible to do so if the player has achieved a high enough level of skill.

The standard is not so simple for tournaments. Highly skilled tournament players are unlikely to make a profit from 56 percent of the events they play—a figure of 20 percent in multi-table tournaments is a good standard at which the top players can make very large incomes.

Court rulings from the Supreme Court in India (paywall) and the courts in Italy — where rummy and live poker tournaments respectively have been defined as games of skill — may be used to help convince the MGA that poker should be treated as a skill game.

Since most of the major online poker operators already have an MGA license or equivalent from another EU jurisdiction, they have very little incentive to make the argument.

The lighter touch regulation may save a small amount of money, but they are still subject to the full burden of regulation for their other gambling games.

A start-up company seeking to offer only poker, or an innovative form of poker such as the International Federation of Poker’s Match Poker, may find the option of a skill-based license attractive and make its case for poker as a game of skill.

Any ruling the MGA then makes could then be used by DFS operators in applying for their own skill-based licenses.

DFS operators could use the ambiguity to qualify their DFS contests as games of skill

Any ruling that the MGA makes with regards to how the skill element in poker tournaments is assessed is likely to be directly translatable to DFS contests.

The criteria the MGA will use to make its decision have been left as wide as possible so that any new gaming innovations won’t fall outside the scope of assessment. The criteria listed in the position paper are:

  • The presence of random draws and their effect on the outcome;
  • The length of each game or match;
  • Whether the intention is amusement or competition;
  • Whether a skilled player is able to win more than an unskilled player;
  • Whether a player’s chance of winning is significantly increased by experience in playing the game;
  • Whether skill can be acquired through reading literature or other educational material;
  • Whether a rule-set or format that is used further nullifies the effect of any element of chance;
  • Whether the game is played against other human players, or against the house, though a skill game can also be played against the house;
  • Common sense and opinion of the player community.

The proof of the MGA’s concept of skill-based gaming licenses and exempting DFS from full regulation will be not be evident for some time. It is likely that the regulator will make the news more often than is usual in 2017 when it begins to pass judgment on specific skill games.

The solution the MGA has presented may not be perfect, but other global gaming regulators will take notice of the way the MGA has decided to approach the problem. They are all struggling with similar issues in their own jurisdictions.

For DFS operators, the MGA has provided a valuable precedent for the product to be treated as a low-risk game of skill, and an opportunity for light touch regulation.

Joss Wood
- Joss Wood, a former editor of Poker Industry Pro, has long focused on regulated online gambling issues and in particular the international market. For LegalSportsReport.com, Joss turns his attention primarily to regulated sports betting markets.With a degree in English from the University of Birmingham as well as a master’s degree in organisational development from the University of Manchester, Joss’s career has taken him from the British Army into the world of business and finance. For seven years he played poker professionally.