Counter-Strike: Global Offensive's Skin gambling scandal

Valve's first-person shooter Counter-Strike: Global Offensive has become involved in a gambling scandal which resulted in a lawsuit being filed against Valve and three prominent YouTube users; Trevor "Tmartn" Martin, Tom "Syndicate" Cassell, and Josh "JoshOG" Beaver. The former two were discovered to have been the owners of one gambling website for the game titled CSGO Lotto, and the latter supported the former two in equity.

Background
In August 2013, Valve introduced the Arms Deal update to Global Offensive, which added new cosmetic items known as "skins" into the game. These skins changed the gun's appearance but didn't alter the gameplay. Initially, Valve believed that skins which resembled camouflage would be used by most players to help them hide on some maps, but they found that the community was more interested in brightly colored skins. Specific weapon skins have several qualities such as rarity, which determines how often a player can earn a new skin and other in-game rewards. Special souvenir skins could be won in worldwide competitions.

After August 2013, skin market formed a virtual economy due to their rarity and other high-value factors that influenced their desirability. Due to this, the creation of a number of skin trading sites enabled by mh:awesomegames:Steam's API were created. Some of these sites began to offer gambling functionality, allowing users to bet on the outcome of professional matches with skins, which in 2016 was estimated to handle around $5 billion of the virtual goods.

Lawsuits
In June 2016, Valve was sued in the American state of Connecticut by resident Michael John McLeod. The lawsuit cites "illegal gambling" issues "knowingly" created by Valve and three of the trading sites, CSGO Diamonds, CSGO Lounge and OPSkins, including potentially gambling by minors, stating that Valve not only provides the currency in the form of skins for gambling, but also profits from the resulting trades when such skins are won. McLeod's lawyers are seeking to treat this as a class-action lawsuit once proceedings begin.

A second lawsuit, also filed as a class-action, was initiated against Valve, Trevor "Tmartn" Martin, Tom "Syndicate" Cassell, and CSGO Lotto by a Florida mother in July 2016 shortly after the CSGO Lotto discovery. This suit states that Valve enables gambling by minors and users such as Martin and Cassel promote this, all considered illegal activities under federal racketeering laws and Florida consumer protection laws. ESPN outlined the story of Elijah Ballard, one of the 44 plaintiffs in the case, who had become addicted to skins gambling when he was twelve years old, using his parents' credit cards and bank accounts to purchase skins.

Part of both suits asserted there were Racketeer Influenced and Corrupt Organizations Act (RICO) violations at play, requiring part of the suit to be heard at the Federal Circuit Court. The presiding judge in the first case ruled in favor of the defendants' motion to vacate this aspect of the case in October 2016, stating that "gambling losses are not sufficient injury to business or property for RICO standing". Valve successfully lobbied to transfer the case to a federal court in Seattle in August 2016, and subsequently had the case dismissed on juridical grounds in November. The plaintiffs attempted to refile in King County Superior Court in Seattle, but Valve also lobbied this to federal court and similarly received juridical dismissal. The plaintiffs were joined by additional plaintiffs in Washington and Illinois and filed in federal court in Seattle; the new filing includes the actions of the Washington State Gambling Commission as part of its assertions. Similarly, the second case against CSGO Lotto was kicked out of federal courts on the same RICO arguments, and was refiled in Florida state courts where CSGO Lotto was incorporated. Ward noted that Martin had moved out of the United States to the United Kingdom around the time the lawsuits had been filed, making it difficult to see any legal action towards him.

Reaction by Valve and others
Shortly after the second lawsuit above, Valve's Erik Johnson stated in a July 13, 2016, letter to Gamasutra that they will demand the third-party sites that use Steam functionality to aid in gambling to cease their use of Steam in that manner, as their methods of connectivity and use go against Steam's acceptable use policy. Johnson also stated that Valve has no business relationships with these sites, and will pursue legal action if they continue to violate their service terms. On July 20, 2016, Valve followed by issuing several cease and desist letters to 23 sites they believed involved in skin gambling that were inappropriately using their services, giving them ten days to discontinue use of the Steamworks API. Another 20 sites were issued similar cease and desist notices by Valve a week later.

In the wake of Valve's statement, several of the gambling sites either went dark, closed off the use of the site by United States residents, or formally announced their closure, such as CSGODouble. Valve warned users that they should move any skins they have transferred to such sites back to their Steam inventory, while several affected sites have promised users they will automatically return skins in the near future. One site, OPSkins, remained active, saying in a statement that they were not a gambling site and do not anticipate Valve would take action against them as a result. CSGO Lounge had announced plans to obtain legal gambling licenses in the countries it plans to operate within, and restricting access to users from countries with these licenses. However, the site announced the following month that they were shutting down all virtual item gambling, offering users an opportunity to recover their virtual items, while shifting to a general eSports entertainment website. By January 2017, only about half of these sites contacted by Valve had been shut down, with more off-shore sites being set up around the time. Further, the newer skin gambling sites have kept low profiles, making skin gambling more of an underground economy that is more difficult to track. Around the same time, Valve announced that they were going to take similar action to block sites and accounts that engaged in gambling using Team Fortress 2 items.

Impact
The revelations of several problems with skin gambling during June and July 2016 highlighted the nature of gambling as a significant problem for eSports. Todd Harris of Hi-Rez Studios, a developer of several eSports games, believed that these events signaled the end of an era where eSports went mostly unregulated, requiring publishers and tournament operators to exert tighter control on their games to reduce gambling problems. Psyonix, the developers of Rocket League, announced plans to bring a similar loot-drop and trading system to their game as with Global Offensive, but purposely opted not to use the Steamworks API to manage player inventory, seeking to avoid a similar situation with gambling that happened with Global Offensive. Brendan Greene, lead designer for PlayerUnknown's Battlegrounds, believed that by mid-2017, Valve had put enough safeguards in place to use the Steam marketplace to manage the trading and selling of cosmetic items for Battlegrounds without worrying about skin gambling. However, by November 2017, several Battlegrounds skin gambling sites of questionable legality began to appear. PUBG Corp, the developers behind Battlegrounds, disabled Steam trading in May 2018 as they found players were still abusing the system.

When the existence of the skin gambling situation was discovered in mid-2016, estimates for the economics of skin gambling market had dropped, but by early 2017, these analysts found the market did not drop as much as they expected, and with gambling sites still open and growing, they do not expect to see this diminish in the near future unless the legal matters are resolved. Analysis firm Naruscope estimated in early 2017 that even with increased awareness of the legal ramifications of skin gambling, there could be as much as $12.9 billion gambled this way by 2020, compared to their previous estimate of $20 billion made in mid-2016. Grove places much of the future of skin gambling on Valve and its control over the Steam API that enables the third-party websites; Valve had stated that changing the API to cut off these websites would also affect other legal activities that could be performed with it, making it difficult to enforce without more direct oversight and monitoring by Valve. It is unclear if the two lawsuits against Valve will come to a full trial, and thus attention is being placed on the Washington State Gambling Commission's pending actions to resolve the situation.