Guide To Internet Skill Based Prize Contests

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Wagering On Online Skill Wagering On Online Skill Games in the United StatesGames in the United States

Anthony Cabot


Fantasy Sports & Casual Games Fantasy Sports & Casual Games


First Person Shooter, Role Playing, First Person Shooter, Role Playing, Sports & Strategy Games Sports & Strategy Games


Are Skill Games the Future of Prize Are Skill Games the Future of Prize Gaming?Gaming?

• Gambling is the king with a $50 Billion industry.

• What is the next generation going to play?– Interactive skill games “or” traditional slot machines

• Even if the market for skill games only reaches 20% of the slot machine market on a domestic basis, this could equate to a $7 to 10 billion annual industry.


Policy and Regulatory Policy and Regulatory ResponsesResponses

• Growing governmental interest in understanding the popularity of skill games may lead to possible policy and regulatory responses.

• Individual industry members need to understand the legal perimeters of their activities and compliance requirements.

• The industry as a whole should consider a government education and public relations campaign to address inquiries and promote the industry.


The Legality of Prize GamingThe Legality of Prize Gaming

• Laws governing skill games developed separate from gambling laws. They were initially designed to govern carnival and midway games and coin-operated prize redemption games in arcades.

• Skill games were deemed to have social merit often by teaching valuable skills. – Spelling bees and science competitions

furthered academics; – Athletics promoted physical prowess.


• Skill, rather than chance, is the element that separates legitimate prize contests from regulated or restricted gambling.

• But most games and contests have some element of chance.

Mixed Games of Skill and Mixed Games of Skill and ChanceChance


Measuring ChanceMeasuring Chance

• Three main tests are used across the US for measuring chance. These are:

– The Predominance Test– The Material Element Test– The Any Chance Test


Predominance TestPredominance Test

Most states follow the predominance test.

Where skill is predominant in determining the outcome of the prize event, the event is not determined by chance.


Imagine games of pure skill, such as chess, on one end

Imagine games of pure chance, such as slots, on the other end

At the midpoint, skill and chance are equal in determining the outcome of a game.

Standards for the Standards for the Predominance TestPredominance Test


Material Element TestMaterial Element Test

• The court determines whether chance is a material element affecting the outcome of the game.

• A state may prohibit wagering on the game if chance has more than an incidental effect on the game.

• This test is more subjective.

• This test is adopted in about nine states.


Any Chance TestAny Chance Test

• The role chance plays in a game by determining whether a particular game contains any chance that affects the outcome of the game.

• As virtually every game has some element of chance, most skill games may not survive scrutiny in these states.

• Adopted in a minority of states.


The Concept of Chance The Concept of Chance

• Systemic Chance– A randomizer that is an integrated part of game play.– In Scrabble, it is the random selection of tiles.– In poker, it is the shuffle and deal of the cards.

• Incomplete Information - The result is influenced by not having complete information of all

factors that can impact game- The game of rock, paper and scissors. - Duplicate bridge, you do not know what cards are in your

opponents’ hands.

• Other forms of chance may exist – I.e. Imagine administering a multiple choice test on quantum

physics to ordinary eight year olds.


The Concept of SkillThe Concept of Skill

• Skill is the exercise of quickness or acuteness of sense perceptions; intellect, keenness of discernment or penetration with soundness of judgment; shrewdness; or the ability to see what is relevant and significant.

• The State of Perfect information – A state of complete knowledge about the rules of

the game, factors that can impact outcome and information about the actions of other contestants that is instantaneously updated to allow a skilled response.


A Question of FactA Question of Fact

• Whether a particular game is a game of chance or a game of skill is a question of fact, not of law.

• Each side must introduce evidence of the chance and skill elements of the game and try to convince the jury or judge that the game has the requisite legal standards of one or the other.

• Proof that a game is skill-based can come from many sources:– Expert witnesses – Books and articles – Statistical trials

• But, does all this really prove that a game is a game of skill?


Other State Law Concerns Other State Law Concerns

• Some states identify specific games which are gambling games despite the skill/chance analysis– Some states identify card games– Others identify any games using dice or balls– Others include games using cards and dice

or balls– Others include contests where entrance fees

make up the prize.


Online Skill Game OperatorsOnline Skill Game Operators

• The real goal is adequate preparation to avoid legal problems after a company decides to offer games where contestants can risk money on their own skills to win cash or other prizes.


Step 1: Review Skill Levels of Step 1: Review Skill Levels of GamesGames

Some key questions that should be asked are: Does the game have defined rules without

predetermined odds of success? Are there genuine skill elements whereby persons

possessing the requisite skills have a consistent and decided advantage over non-skilled competitors?

Does the format of the games allow the skilled competitor to exercise these traits?

Is the competitor’s skill the determining factor in the outcome of the game and not fortunate circumstances in receiving an easier game or draw?

Does every stage of the game meet the requisite skill levels including tie breakers?

Has the designer removed as many random events in the game as possible?

Has or can the company develop sufficient evidence to support that the game meets the requisite skill levels under the tests described above?


Step 2: Conduct a 50-state Step 2: Conduct a 50-state ReviewReview

• Legal counsel will individually review the case law, statutes, attorney general opinions and other available legal materials for each state.

• This review will look at the type of game and the method of play including entry fees and prizing.

• States will then be categorized by risk. • Ultimately, the company must decide those states

from which the site will accept contestants and those it will not.


Step 3: Adopt a Compliance Step 3: Adopt a Compliance ProgramProgram

• No specific procedures are mandated but sites have implemented several measures to meet the legal requirements: – Geo-blocking software;– Address verification services;– Credit verification services; – Proof of government identification before issuing prizes.

• The system needs to be audited and tested for exceptions.

• The compliance program must have procedures for immediately implementing new or remedying old procedures.

• Written policies and employee training.

Documents

Guide To Internet Skill Based Prize Contests