Legal risks in the conversion of social to real-money

It is widely predicted that significant revenues will be made by those who are able to convert social gamers into real-money gamblers. Stuart McMaster, a Partner at Mishcon de Reya, considers the legal implications in the UK of turning a casino-style social game into a real-money gambling product, and whether social games will retain their essence once converted.

Social games are often designed with mass appeal in mind, and a great deal of thought is poured into the science of consumer acquisition. A key consideration from a legal perspective is whether all of the design features which work for social games will be able to survive the conversion to regulated real-money gambling. For the purposes of this article, it is assumed that a casino-style social game would not currently be regarded as regulated gambling for the purposes of the UK’s Gambling Act 2005, although it should be noted that the law is not certain on this point1. Social games are already subject to some level of regulation by virtue of general consumer protection laws in the UK. But once a social game moves into the real-money arena, the operator will need to hold a gambling licence issued by the Gambling Commission, or an acceptable overseas regulator, if the game is actively promoted in the UK; if any of the key equipment used in the delivery of the game is located in the UK, then only a licence from the Commission will be sufficient2.

Going it alone or in partnership

A key decision for a game publisher wanting to monetise its social game will be whether it applies for a gambling licence itself, or whether it releases the game in partnership with a licensed operator (as occurred with the recent launch of ZyngaPlusPoker and ZyngaPlusCasino through the partnership between bwin.party and Zynga). This decision will be primarily driven by business considerations rather than legal factors. The partnership model offers economies of scale in respect of compliance procedures, and allows a game developer to focus management time on games development and marketing. By contrast, a developer who obtains their own gambling licence will retain full control of its cost base and customer database, and will have sole control over how the game gets to market.

However, control over releasing the game will never be complete. Once a social game becomes a real-money gambling product, the law will impact on how the product can be operated, and how it can be marketed. A game developer may prefer to partner with an experienced licence holder who is already familiar with navigating these issues, even if this means ultimately ceding control on how these issues are dealt with.

Bonus restrictions

Social games use a range of rewards to keep consumers playing, with daily bonuses and comeback bonuses being common. It may not be financially viable to use the same range of bonuses when a social game is converted to a real-money model. But there are also legal restrictions on the bonuses that can be offered under a UK gambling licence. In particular, rewards cannot be dependent on a consumer gambling for a ‘pre-determined length of time or with a pre-determined frequency’ (i.e. a bonus cannot be based on someone playing every day). And bonuses cannot be based on how quickly someone is able to reach a particular target.

For these purposes, a bonus is ‘money, goods, services or any other advantage (including the discharge…of any liability)’; it remains to be seen whether this will be deemed to capture virtual goods. From a policy perspective, it was interesting to see how this issue was addressed under the European PEGI age-rating system for computer games (under which games which encourage or teach gambling will receive a minimum age rating of 12). A complaint relating to the use of scratchcards in ‘Mario and Sonic at the London 2012 Olympic Games’ (in which a player received a scratchcard each time they completed an event; a winning scratchcard would unlock additional items in the game) was dismissed on the basis that this type of content was a reward system used in many computer games, and was not regarded as gambling.

Reverse compatibility

The Commission has flagged the concern that the odds in social gaming may not be sufficiently transparent, or may be adjusted to make the game more attractive (for example, by giving higher pay-outs or better odds to first-time players to make the game seem more exciting). The Commission has already addressed this issue in the context of gambling companies releasing free-to-play versions of their products (often done so that consumers can get comfortable with the game mechanics). It is a requirement that the same game rules are used in ‘corresponding games’; the same ‘acceptably random’ RNG should be used (where technically possible) and prize distribution should be the same.

If the sequence is reversed, and a game developer with a successful social game decides to release a real-money version of the same game, it may effectively be a requirement that the original social game becomes compliant with the same technical standards, which apply to the subsequent real-money product. The Commission requires this for ‘corresponding’ versions of the same game. This gives rise to issues about how far the look and feel of a game would need to be changed before a subsequent real-money version would no longer be deemed to correspond to the original social game. Although regulated in Gibraltar rather than the UK, it is interesting to note the recent report3 that the real-money ZyngaPlus products mentioned above would use different look and colour schemes to avoid user confusion.

“If a game developer with a successful social game decides to release a real-money version of the same game, it may effectively be a requirement that the original social game becomes compliant with the same technical standards, which apply to the subsequent real-money product”.

Cartoon graphics

Many social games incorporate cute, cartoon graphics designed to give them mass appeal and emphasise their fun factor. This presentational style may run into a number of legal issues once the game is converted to a real-money product, if the graphics are deemed likely to appeal to children. Advertising to children is generally regulated in the UK (and the OFT has recently begun an investigation into whether freemium games unfairly pressure or encourage children to pay for additional content). The CAP Code, which governs online adverts, contains a broad set of child protection provisions. If a social game is turned into a real-money product, then a more strict series of child protection requirements will apply, both under the Gambling Act and the CAP Code. The Act provides that it is a criminal offence to invite, cause or permit someone aged 17 or under to gamble, and licensed operators are required to use age verification systems, and carry out additional checks on anyone who deposits money using any type of payment method other than a credit card. Licensed operators cannot give prizes to minors, and must return their fees/stakes as soon as reasonably practicable. The CAP Code provides that gambling adverts must not be ‘likely to be of particular appeal to children or young persons, especially by reflecting or being associated with youth culture.’ And they must not be ‘directed at those aged below 18 years through the selection of media or context in which they appear’ (i.e. by appearing on websites regularly viewed by minors).

There are risks in using cartoon-style characters to promote real-money gambling. Although the use of furry cartoon characters by Bingo Friendzy was not banned by the Advertising Standards Authority, this was only on the basis that minors would be prevented from seeing them at all through the use of age-gating techniques. By contrast, the ASA has ruled against the use of Spiderman to promote real-money gambling products because the graphics could be seen by children, regardless of the fact that it might be unlikely that children would in fact see the adverts (e.g. because the adverts were in the business-section of a newspaper); it was also irrelevant that age-verification procedures would prevent children from being able to play the game. Of course, it is possible to design more mature characters, which will be acceptable.

Of particular note in the context of social games was the ASA’s 2009 ruling against Midasplayer.com Limited, which found that an advert featuring puzzle games with brightly coloured tokens and characters, cartoon images and pocket money-level winnings of 20p was likely to be of particular appeal to minors.

Conclusion

It is likely that a number of social games currently in the market would need to be modified when being converted to real-money gambling products. The use of cute cartoon graphics in particular may not always sit easily with one of the Gambling Act’s core objectives, namely protecting children from being harmed or exploited by gambling, although Bingo Friendzy is an example of how it can be done with careful planning. It is not clear what view the regulators will ultimately take on a number of the issues examined here, and as the Gambling Commission has indicated, its response is likely to depend on the level of responsibility and good citizenship demonstrated by operators.

To read this article on the World Online Gambling Law Report website, please click here. Please note it is a subscription only based website.

 


1 In January 2013, the Gambling Commission stated that it is ‘looking more closely at the prizes available in social gambling as in some cases the virtual currency or credits could be considered money’s worth. If so, social gambling is already within the scope of gambling regulation. This is untested law but certainly arguable.’

2 If passed into law in its current form, the Gambling (Advertising & Licensing) Bill 2013-14 would change the current system extensively by requiring overseas operators to hold a licence from the Commission if their gambling facilities are used in Great Britain (even if no equipment is located here) and the operator knows, or should know, that the facilities are being used or are likely to be used in Great Britain.

3 http://venturebeat.com/2013/07/10/zynga-readies-its-real-money-gambling-apps-for-facebook/

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