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Skill Shot

How casual or skill games skirt the law banning internet gambling

   FUN Technologies will reap more than million from customers wagering on its internet games and tournaments this year. The bulk of the company’s business comes from Americans, and one of its most important offices is located in

Newton,
Massachusetts, but FUN is not the slightest bit deterred by last year’s internet gambling prohibition bill. How can this be?

  
FUN’s online games are actually distinct from traditional gambling games in fundamental ways, at least as far as most gambling laws are concerned. The games typically pit human players against other human players, rather than against a dealer or the house or a random number generator. More importantly, the outcome is largely dependent upon players’ mastery of the game rather than upon chance. Checkers is a perfect example. A customer on a website operated by FUN could find an opponent to play checkers against, place a friendly wager on the game, and then collect the prize if she wins or forfeit it to the opponent if she loses.

Casual Wagers

 
Games of this sort are commonly referred to by individuals in the sector as “skill games” or “casual games,” to reflect their important distinction from games that are based on fixed odds propositions and are therefore subject to restrictions by gambling laws. When it comes to traditional gambling games like roulette, craps and blackjack, skill is a relatively insignificant factor because players face the same sets of fixed odds propositions in every contest. Even if a player were to utilize perfect strategy in such a game, he or she would still be expected to lose to the house edge in the long run.


    Gaming regulators all over the world seem willing to accept that wagering on one’s own successful performance in a contest does not constitute gambling as long as the contest is a game of skill rather than chance. There is therefore a very broad array of skill games on the market. Classic games like chess, checkers, backgammon and mah jong have proven popular, so have card games like spades, free cell, speed solitaire, hearts and rummy. Other favorites include word games like Bookworm, Lingo, hangman and Scrabble. Puzzle games, simple arcade games and sports games are also standard offerings. Wagering on larger, more sophisticated video games such as Warcraft and Halo and has also carved its own small niche.


   

Because their games fall outside the scope of current gaming laws, skill games operators are exempt from most of the checks and oversights that are imposed on traditional gambling businesses. Skill gaming operators do not require wagering licenses or software and systems certification in most jurisdictions, nor are they required to maintain minimum prize payout levels or pay taxes on their wagering revenue.


    Yet despite the seemingly sharp distinctions in legal treatment between online skill games and internet gambling, the two industries are actually very familiar bedfellows.


    “A lot of people coming from the online gambling industry saw the writing on the wall with the prohibition legislation coming up in the

U.S., and they wanted to do something legal,” said Mark Balestra, vice president of publishing for River City Group, which is now part of Clarion Gaming. “They needed another way to make money, and they needed a way to do it in the

U.S.”

Fun for All

FUN Technologies, for example, was actually spun from two individuals who were former directors of CryptoLogic, which was at the time and remains today one of the world’s most successful developers of internet gambling games and software systems. In 2002 Andrew Rivkin (who had served as president and CEO of CryptoLogic) and Lorne Abony founded a new company called CES Software, whose initial plan focused on the development, licensing and operation of internet sports betting exchanges. CES’ big entry into the skill games market didn’t come until July 2004 when it purchased SkillJam, one of the largest skill game operators at the time with more than 5 million registered users. The SkillJam business model consisted of not only operating its own network of games, but also hosting private label skill games networks for major media partners such as MSN, iWon/Excite, Disney’s Go.com, iVillage and Boxerjam.


    Upon its purchase of SkillJam, CES issued a statement declaring its belief “that person-to-person skill gaming and exchange betting businesses are complementary to one another, and closely aligned.” The company then proceeded to sign juggernaut online media companies to the SkillJam platform throughout the rest of 2004, including America Online and GSN Network for Games. It also entered deals with online gambling operators, including

Golden
Palace, Virgin Games and the Sunny Group.


    By 2005 the beginning of a trend toward consolidation and corporitization for online gambling companies was already underway. The industry had matured to a point that it was no longer practical to consider internet gambling businesses as “fly-by-night” companies without accountability. Investors were eager to swipe up shares as companies floated on European markets, and the cash injections meant more mergers and acquisitions for companies in the sector.


    Higher levels of cash on hand for businesses in the quickly evolving industry led operators began striving to become “one-stop-shops” for online gaming entertainment. It was no longer sufficient for an operator to have just a good casino or a good sportsbook; in order to stay competitive for the long-haul it was becoming necessary to have both a casino and sportsbook, in addition to poker and whatever other complimentary offerings might happen to be the next big rage.


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Video games like Halo (r.) and Warcraft draw legions of online players who offer place wagers on the outcomes.


Separate but Equal

FUN certainly wasn’t the only company that believed skill games were complimentary to online gambling offerings. New companies have emerged, specializing solely in the development of skill games systems and software, and the online gambling industry provides a great source of new clients for the fledgling companies. Officials with skill games companies now flock to conferences and trade show events for the internet gambling industry, and conference agendas have begun featuring discussions about operating successful skill games operations. Clarion Gaming has even begun producing trade shows devoted to skill games.


    There are some pretty obvious problems with the legal classification of skill games, however.


    “In talking about the legality of skill games, you assume that there is a bright line between gambling and non-gambling activities, which is not always the case,” said internet gambling lawyer Martin Owens. “Poker is a perfect example.”


    Indeed, it is difficult to argue that skill does not play a very important role in the outcome of poker events. It should be easy to see why an expert like Daniel Negreanu would easily dismantle a newbie. It should also be easy to see how the newbie could improve his chances of victory significantly through practice. Sure the distribution of cards is obviously subject to chance, but the inevitable outcome depends upon what the players choose to do with those cards.


    Earlier this year U.S. Rep. Robert Wexler (D-Florida) introduced a bill that would classify poker (as well as mah jong and backgammon) as a game of skill that is exempt from last year’s Unlawful Internet Gambling Enforcement Act. The legislation is being pushed hard by the Poker Players Alliance, a grassroots organization of American poker players with more than 30,000 members. Were it to pass, the legislation would permit operators of internet poker to offer their games to American customers.


    Josh Rogin, a spokesman for Wexler, has stated that the bill “allows Americans to play poker online as they should have every right to do,” based on its nature as a game “you win or lose based on your ability.” The odds on successful outcome for the bill appear slim however, at least in the near term.


    All in all, when looking with large scope, it appears that skill games in their standard sense—that is without grouping poker as one—is not something that is going to lead to busting revenue figures or robust amounts of traffic for online gambling companies, however. The stakes for most skill games wagers is only a dollar or two, and the primary audience is typically women, not the sports bettors and poker players who make up the bulk of a company’s customer base.


    “I don’t think skill games are ever going to be a major revenue channel,” said Balestra “but gambling sites are still definitely trying to offer them. It’s certainly not a passing fad, but it’s really just another product they’re going to add.”


    FUN does not even do business with internet gambling companies anymore, a practice it began implementing in 2005. The company so adamantly wishes to distance itself from online gambling that it refused to be interviewed for this article on those very grounds. And a survey of the internet gambling world’s landscape today reveals only a meager presence for skill games. Today, true skill gaming platforms with a wide variety of games on offer are typically found only on the websites of longstanding land-based juggernauts such as Ladbrokes, William Hill and Paddy Power.


    “I think the skill games companies are going to make most of their revenue from entertainment giants like Virgin, Yahoo and MSN,” said Balestra. “Somebody who goes to Ladbrokes wants to place a bet, they don’t want to play yahtzee.”

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