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Law of the Game on Joystiq: MMORPGambler


Each week Mark Methenitis contributes Law of the Game on Joystiq, a column on legal issues as they relate to video games:

Well, it's GDC week, which likely means no one will be reading 'Law of the Game on Joystiq.' I can't say I blame you ... However, I just got back from the Gaming Law Minefield conference, and I feel like writing about MMORPG gambling. So, if you can pry yourself away from the real-time GDC updates for a few minutes, it's time for this week's Law of the Game on Joystiq. But first, a little shameless self promotion in the way of background: I've been writing about the MMORPG gambling idea since December 2005, which, best as I can tell, makes me one of the earliest legal commentators on the matter, and my commentary spans my SSRN account and Law of the Game. If you want a pretty complete background on MMORPG gambling legal issues, feel free to read up. If, on the other hand, you'd rather get a summary and get back to your GDC coverage, read the next couple paragraphs.

MMO gambling, when linked to currency with a real world value, is essentially the same as any other online gambling. The first major issue in the early years of MMO gambling was what constituted a tie to "real world value," as games with eBay economies were a gray area. Games such as SecondLife were much more clearly linked to real currency. Given that MMO games have the freedom to incorporate practically anything imaginable, they can have any of the types of online gambling integrated into the game, or to a lesser extent, acted out by players (i.e., player sponsored tournaments with a gold buy in and prize) without integration. So, like any other online gambling system, there were the perpetual issues of access by minors, taxation, and, of course, the endlessly murky waters of differing gambling regulations worldwide. Things took a rather abrupt turn with the passage of the Unlawful Internet Gambling Enforcement Act in the United States at the end of 2006.

The passage of the UIGEA triggered a panic of sorts among online gambling companies, most of which pulled out of the US market all together. There has been some ongoing question as to how the UIGEA might apply to MMOs and MMO currency exchanges, most notably SecondLife before its gambling 'ban,' and nothing has really been clarified in that regard. Although recent developments with the implementation of the UIGEA may have placed the legislation in jeopardy, so much of this may still become moot. If it does, the possibilities for MMO gambling will greatly increase. However, given the complex state of online gambling restrictions in the US, which are largely regulated at the state level, MMO gambling is theoretically illegal in most, if not all of the US.

This state of affairs, however, will likely be resolved one of these days. At which time, online gambling will be sanely regulated rather than lambasted by senators who likely need their grandkid's help to make it to Google or chased around the internet by a mob with digital pitchforks and pixelated torches. But simply because something is available doesn't mean people will use it. Mark Clayton of the Nevada Gaming Control Board gave a fascinating presentation about a study done in Nevada on internet gambling, showing that online gambling largely bore little impact on people's real life gambling habits or choices, arguing that the social aspect was simply absent from online gambling. I find this view to be mildly shortsighted. I am of the opinion that the current state of online gambling certainly lacks the social elements some gamblers desire, but as time passes, I believe technology will fill the gap rather than the status quo of mixed online and real life gambling.

MMO games and virtual worlds, along with whatever web 2.0 type buzzwords you'd like to toss in, fill the 'social' element that is missing from many online games. Say what you will about the social habits of the online generation, but ultimately, it's social interaction that has fueled everything from MySpace to SecondLife, FaceBook to World of Warcraft. As more and more people reach the legal gambling age, I anticipate far more younger people will find great appeal in being able to get together and gamble with friends virtually, rather than try to coordinate an actual trip to a casino. After all, pretty much anything can be programmed, from slot machines to sports book-like betting on PvP tournaments to entirely new card games.

Even though I can't predict how the internet gambling regulations will actually be drafted, I do think I can offer a glimpse of what the future may hold. Of course, since there are so many MMOs, there will undoubtedly be tweaks and twists to some of these overall ideas, since I generally believe there will continue to be many virtual worlds available to explore. Accordingly, I imagine that there will be some worlds who may opt to avoid real money transactions altogether. These theories are limited to the companies who opt for real money transactions (RMTs) and wagering, otherwise the points become far more moot.

First and foremost is the tax issue. If I had to estimate, I imagine that the IRS won't get involved in taxing anything virtual in any manner other than on a "cash out" basis. Essentially, when you take cash out of the system, the IRS finds out about it. I imagine, similarly, that the systems will likely be able to track the inbound versus outbound cash flow, as net profit is generally what is taxed on wagers. A more complex version of the system that could be used in, say, SecondLife 2.0, would be one that can track both traditional transactions and wagering separately, so that taxes can be reported for ordinary income and gambling income separately.

Secondly, I could imagine a system whereby some servers opt for RMTs and others do not. Think current server divisions along PvP lines. Given that there are fans of all ages who would prefer to act in an RMT free environment, non-RMT servers may be a welcomed option. They would also give gamers below gambling age a server to play on without restriction. The two could co-exist, but balancing would be interesting in a server scheme whereby RMT players face no monthly fee but those who opt out of RMT play have to pay up.

Speaking of "under age" players, the age verification process may become far more complex. There is also concern for what to do in games that have RMTs and gambling with under age players. These could vary from restrictions on payment into or out of the system to restrictions on participation in certain activities. Again, much of this may depend on the actual regulations that go in place.

There is always concern for the "integrity" of the game. It is likely that the gambling portions of the engine will be subject to higher scrutiny to prove randomness and payouts. As you may or may not know, machines in, say, Las Vegas, are highly regulated to guarantee a certain degree of randomness and payout over the life of the machine.

Those are just some of my thoughts on what may be around the corner. More than likely, though, it will be a few years before all of the regulations are ironed out and products actually see the light of day. However, when the day comes, and MMO gambling is a legal reality, rest assured it will be a day that is well publicized and ushers in the next generation of gambling.

Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with The Vernon Law Group, PLLC and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.

The content of this blog article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this blog, replying to its posts, or any other interaction on this site does not create an attorney-client privilege between you and the author. The opinions expressed on this site are not the opinions of AOL LLC., Weblogs, Inc.,, or The Vernon Law Group, PLLC. As with any legal issue that may confront you in a particular situation, you should always consult a qualified attorney familiar with the laws in your state.

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