Photographer: Andrey Rudakov/Bloomberg

Game Maker Valve Ordered to End Support of Black-Market Gambling

  • Firm received cease-and-desist letter from state regulator
  • $1 billion in ‘skins’ bets handled by one site through July

The Washington state gambling commission has taken action against game maker Valve Corp., the first time a U.S. regulator has attempted to crack down on a multi-billion-dollar online gambling market that uses virtual items earned in video games as currency.

“In Washington, and everywhere in the United States, skins betting on sports remains a large, unregulated black market for gambling,” Commissioner Chris Stearns said in a statement. “And that carries great risk for the players who remain wholly unprotected in an unregulated environment.”

In a cease-and-desist letter to Valve Chief Executive Officer Gabe Newell, commission director David Trujillo said the company didn’t respond to requests for more information following a meeting in February. If the firm, which is based in Bellevue, Washington, doesn’t comply with gambling laws, the commission could seize any property related to illegal gambling activities, according to the letter.

The gambling itself takes place on websites that are mostly small and based overseas. Valve, on the other hand, is a powerhouse of the video game industry that publishes the best-selling game Counter-Strike: Global Offensive. The company has taken action in recent months against the gambling sites, but the commission’s letter make clear those steps weren’t enough. It also supports a common opinion in the industry that this form of gambling couldn’t exist without Valve’s implicit approval.

For about five years, Valve has encouraged players of games like Dota 2 and Counter-Strike: GO, commonly referred to as CS:GO, to acquire virtual items like decorative weapons through game-play or by buying them through Valve’s Steam platform. Users can also trade the items (known as skins), sell them for cash or use them to place bets on other websites, most of which rely on Valve’s software. The biggest site, CSGO Lounge, handled about $1 billion in bets in the first seven months of the year, according to a report for Narus Advisors by Legal Sports Report analyst Will Green.

Valve has benefited from this kind of gambling, albeit indirectly. The ability to bet drives demand for the skins, which people can buy through Valve. It also keeps people interested in the games, by many accounts bringing the Counter-Strike series back from obscurity.

But skins gambling has become increasingly inconvenient for Valve in recent months. This spring, the owners of two betting sites were accused of wagering on their own marketplaces without disclosing their ownership stakes, and the operator of another site admitted it had rigged the outcomes of some of its games to benefit a paid sponsor. A lawsuit also named Valve, alleging that it was violating gambling laws and engaging in racketeering. A federal court dismissed the case this week, but a lawyer for the plaintiffs said they’ll pursue it in state court.

In July, Valve sent a cease-and-desist order to 23 skins betting sites, saying they were violating its terms of service. While some shut down, others found a work-around: they began taking bets in virtual coins, which could be traded for skins, which could then be traded for cash, adding a layer of abstraction while allowing the basic activity to carry on. In late September, CSGO Lounge launched a coin-based betting system, although it’s not clear how it will connect to the cash economy.

Green says that Valve could shut down the entire skins gambling industry instantly by restricting access to the Valve software that allows websites to trade skins. But until the game maker takes a more thorough approach, "the future of skin gambling could be subjected to a continual game of cat and mouse," Green wrote.

Valve did not immediately respond to a request for comment. It has until Oct. 14 to respond to the state gaming commission’s letter.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE