James Scicluna, Partner and Co-Founder at WH Partners, has recently written an article entitled ‘Skills games – Malta’s cutting edge approach to regulation’ for EGR Intel. The article assesses Malta’s decision-making and regulatory legislature used to define which games are based on skills and which are based on chance alone.

The matter of how, and indeed whether, to regulate games of skill has been pondered and discussed over the years at national level in several jurisdictions, and in international fora such as meetings of the International Masters of Gaming Law (IMGL) and the International Association of Gaming Attorneys (IAGA).

It always seemed to me that contributions to these discussions by European stakeholders tended to follow the approach of the UK, France and several other European jurisdictions which consider a game to be one of chance if the outcome involves any element of chance at all, whilst contributions by American stakeholders, most notably from the U.S., tended to take a more open approach and make allowance for the possibility that a game the outcome of which was preponderantly skill based should not be considered to be a game of chance.  The laws of several U.S. states do allow a strong argument to be made that a game the outcome of which is prevalently dependent on skill should be classified as a skill game. It followed from this that recently several U.S. states have regulated fantasy sports, including daily fantasy sports, on the basis that it is really and truly a game in which skill makes the difference.

The narrative of the discussions which I followed over the past years tended to revolve around whether or not the presence of any element of chance would implicitly mean it was gambling and whether it would not then automatically follow that the game could attract or encourage compulsive behaviour, what the risk of money laundering could be and that therefore the game should be strictly controlled.  It remained more or less undisputed that games of skill – let’s call them games of pure skill – such as quizzes, chess and a few others would not be considered to be gambling and would therefore remain unregulated even in a scenario where a player staked money on, for example, him beating a machine at a game of chess.  On the other hand, those who considered that a preponderance of skill implied that a game was not gambling often seemed to suggest that no regulation of such games was necessary or desirable.

The discussion rarely evolved to consider whether offering skill games for money actually in and of itself deserved to be regulated, licensed or somehow overseen not so much because of issues of potentially compulsive behaviour but because of consumer protection from a payments, player account, and absence of bias point of view.

This is all by way of background, but the context is important when considering how Malta now approaches games of skill.

Malta is course a full member of the European Union. It has been since 2004. It has also become the beating heart of the European remote gaming industry, not only gambling, and increasingly of games which are quite far removed from those traditionally associated with a gambling environment. Irrespective of what anyone might say, the Maltese regulator of all-things-gaming, the Malta Gaming Authority (“MGA”) is probably the regulatory authority which has globally seen and continues to see the greatest diversity of gaming and gambling products and the newest and most cutting edge games, before they are offered in any other market. It is also an authority set up by law with the clear objective to regulate not only gambling but also gaming, including games of skill. It has had this function for years.

Some six or seven years ago the MGA (or as it was known then, the Lotteries and Gaming Authority (LGA)) started to look closely at how it might regulate, further to the powers and responsibility already granted to it by law, certain games other than gambling the provision of which online (or otherwise remotely) was becoming far more widespread. At the time the MGA was looking at social games, digital games, massive multi-player games and certain other games the outcome of which was preponderantly skill based.  However, that initiative never gained enough momentum or focus to get off the ground.

It was more recently, and specifically in January 2015 that the MGA opened a consultation process pointing out its concern that aspects of how skill games were being provided might not be adequately covered by legislation and regulations in force at the time. In particular, the MGA expressed its concerns on:

  • the increased trend for games based on skill to be played for the opportunity to win a prize, whether monetary or having monetary value,
  • several online skill game operators holding money in some form of “virtual wallet” on behalf of their customers,
  • there being effectively no supervision at all of whether the outcome of games said to be based on skill was actually such and on whether prizes or winnings were being distributed fairly,
  • there being no guidance, regulation or supervision whether monetary transactions were being entered into by minors.

In a position paper published in December 2015 on Digital Games of Skill with Prize, following a strong response from industry, NGOs and government agencies that the MGA advocated for the separate regulation of certain types of skill games.

The Maltese government, persuaded by the strong public interest rationale set out by the MGA, spent the best part of 2016 working on regulations which focus on consumers, ensuring that skill games are conducted in a fair and transparent manner and ensuring that the sector is kept crime-free. This led to the Skill Games Regulations of 2016 (“Regulations”) being published and coming into force on 24 January 2017.

The Regulations govern the provision of certain games of skill, in or from Malta. They key consideration for a game to potentially be subject to the Regulations is that its outcome must be predominantly, but not solely, based on skill. The regulations are intended to address a range of games which vary substantially from typical games of chance. They seek to distinguish between areas where the state’s intervention is deemed necessary, and others where it is not, by referring only to certain types of skill games (which include fantasy sports and daily fantasy sports) as “Controlled Skill Games”.

It is evident that Malta would not like to impose a regulatory burden on the provision of services where additional state supervision is not necessary or justifiable.  At the same time, and in line with the prevalent trend already noticeable in the United States, Malta has recognised that an entire new sector of the economy deserves specific and separate recognition.

The Regulations empower the MGA to issue licences of a period of validity of 5 years (and renewable for further periods) for the provision of Controlled Skill Games and even Controlled Skill Games Supplies. The former covers games for the participation by consumers, whilst the latter covers supplies made from one business to another.

Importantly, Malta has recognised the need to afford protection to consumers who play certain games of skill online, including Fantasy Sports, whilst differentiating these games from games of chance.

Activities carried out under a Controlled Skilled Games licence are clearly not gambling under Maltese law. It is interesting to consider what the applicable cross border rules are when services provided under this type of licence are provided by a Maltese licensee to persons in another EU member state. An argument can undoubtedly be made that country of origin principle for the free movement of services should apply. In other words, that the rules to be observed by the providers of these services are those which apply in the EU member state from which they are offered. As readers will know, the provision of gambling services does not benefit from this principle.

The burden of proving to the MGA that a game is a skill game is entirely on the applicant for a Controlled Skill Game licence.  When carrying out its analysis of the game the MGA will follow the list of criteria set out in the Regulations which include looking into the game structure and the number of variables built into a contest to subvert the elements of chance.

The Regulations have been well received with around 25-30 applications for Controlled Skill Game licences reportedly filed with the MGA since February 2017 and it looks like this is a sector which will grow in Malta with increased interest being shown by fantasy sports and other skill game providers.

 

A full copy of the article can be found on EGR Intel. Click here to download.

For more information please contact:  gaming@whpartners.eu