Opinion: Can Valve realign the ecosystem of esports gambling?

Counter-Strike: Global Offensive gambling has come under heavy fire due to its lack of regulation. Game developer Valve has traditionally been hands off but with recent scandals involving the betting of decorative skins, it's issued a statement. Getty Images

The past few months have seen a meaningful surge in coverage surrounding the betting side of the esports industry, and it hasn't been pretty. Back in April, Bloomberg published a significant investigative piece detailing the scope of the Counter-Strike: Global Offensive skin betting marketplace and many of the issues stemming from that industry. This article, coupled with a public scandal involving the skin betting site CSGO Diamonds, helped spur a class action suit against Valve. Then two weeks ago, a video from prominent YouTuber h3h3Productions helped shed light on a wide array of issues, including potential fraud, related to the prominent betting site CSGO Lotto.

Valve had remained silent throughout this mounting controversy, but its silence ended yesterday. Valve issued a statement entitled "In Game Item Trading Update" that could mark the demise of skin betting as we know it. While Valve's stance seems relatively black and white, the language used in the statement leaves open as many questions as it answers. I will parse through that language to offer more insight into Valve's decision and what it means for the future of betting surrounding Valve titles, including Counter-Strike: Global Offensive.

Analyzing Valve's statement

"In 2011, we added a feature to Steam that enabled users to trade in-game items as a way to make it easier for people to get the items they wanted in games featuring in-game economies.

"Since then a number of gambling sites started leveraging the Steam trading system, and there's been some false assumptions about our involvement with these sites. We'd like to clarify that we have no business relationships with any of these sites. We have never received any revenue from them. And Steam does not have a system for turning in-game items into real world currency."

As far as I know, this is completely true. It could be argued that Valve has supported gambling sites to a certain extent by allowing users to log in via Steam, and Valve games have certainly become more popular as a result of these sites. But that is not the same thing as receiving revenue from their operations. Perhaps more information will come to light over time to support the allegations leveled against Valve in the class action lawsuit filed in Connecticut, but I haven't seen any credible evidence that contradicts Valve's assertion in its public statement.

"These sites have basically pieced together their operations in a two-part fashion. First, they are using the OpenID API as a way for users to prove ownership of their Steam accounts and items. Any other information they obtain about a user's Steam account is either manually disclosed by the user or obtained from the user's Steam Community profile (when the user has chosen to make their profile public). Second, they create automated Steam accounts that make the same web calls as individual Steam users.

"Using the OpenID API and making the same web calls as Steam users to run a gambling business is not allowed by our API nor our user agreements."

This is the crux of Valve's position, and judging from the public reaction thus far, it has been largely misunderstood. It does not appear that Valve is banning third-party sites from using Steam accounts to facilitate skin betting. At least, not yet. If you run a search in the Steam Web API Terms of Use and Steam Subscriber Agreement, the word "gambling" is nowhere to be found. In fact, the API Terms of Use haven't been updated since July 2010, before the trading marketplace was even implemented and long before skins were introduced to CS:GO in 2013 through the "Arms Deal" update.

Instead, Valve's issue seems to be with the fact that gambling sites "create automated Steam accounts that make the same web calls as individual Steam users." This naturally begs two questions: Does this affect sites that use automated Steam accounts to make API calls for purposes other than gambling? Can gambling sites continue to use the API so long as they don't make automated calls?

The dominant skin marketplace website, OPSkins, released a statement yesterday that it doesn't believe it is impacted by Valve's statement because it is not a gambling site. While it is certainly true that OPSkins users cannot gamble on the site, it does not appear to address the fact that OPSkins makes precisely the same type of automated API calls as betting sites in order to facilitate the large volume of transactions.

Meanwhile, gambling sites such as Bets.gg have stated that they will continue to operate, and intend to "implement changes to comply with the ToS update from Valve." While it's not entirely clear how Bets.gg or other gambling sites could alter their behavior in order to comply with the API and other Valve user agreements, the fact is that Valve's current position leaves room for them to do so.

Thus, Valve's statement creates a level of uncertainty that will have to be addressed. At present, it's far from clear which sites will and will not be allowed to access the API moving forward.

"We are going to start sending notices to these sites requesting they cease operations through Steam, and further pursue the matter as necessary. Users should probably consider this information as they manage their in-game item inventory and trade activity."

This is where the rubber meets the road. At the end of the day, the real impact will come from Valve's enforcement, not from the statement itself. Will Valve enforce the API restrictions against all third parties, or just gambling sites? Will Valve actively monitor the situation and eliminate new sites as they arise, or will it take a more passive approach?

Perhaps the biggest uncertainty surrounds whether Valve will go after all forms of gambling (including betting on the outcome of esports matches), or if Valve is targeting traditional gambling activities such as coin flips, lotteries and similar games. In its statement, Valve consistently uses the word "gambling," as opposed to "betting." This could be an attempt to draw a distinction between certain types of wagering activities, or it could have no significance at all.

Only time will tell how all of this plays out. But from where I'm sitting, there simply isn't enough information in Valve's short statement for anyone to do more than speculate.

Impact on the esports landscape

Despite the uncertainty surrounding yesterday's statement, it's great to see Valve taking action in this area. We are rapidly approaching a critical mass of negative publicity that could have a significant impact on the longevity of the second-most popular esport in the world, as well as the interests of every party involved in that competitive ecosystem. If unregulated skin betting is allowed to continue unchecked, broader backlash and the advent of regulation from parties who do not understand our industry is inevitable.

I sincerely hope that Valve's statement marks the beginning of the end for unregulated, unlicensed betting sites that prey on underage users and offer no safeguards against fraud, threats to competitive integrity and much more. That being said, I'm not sure today is that day.

The fact that Valve's statement relies on API misuse is particularly telling. So long as sites can find a way to comply with the terms of use, they may be allowed to continue operating.

There is also the potential that Valve's stance could be overboard, eliminating all skin-based betting, not simply the sites that operate illegally.

It is often overlooked that skins offer a unique type of betting unit that could change the face of gambling as we know it. While many people buy, sell and gamble skins purely as a form of currency, skins are designed to be used, not merely held. In stark contrast to pure cash, a skin may become less valuable to a user over time while maintaining its value to another user who doesn't own that particular skin. As such, it offers the rare opportunity for gambling with reduced negative consequences for the loser. It is a fundamentally different type of gambling transaction, one that could represent a watershed opportunity for the gambling industry.

I don't think it is good for anyone to simply eliminate the potential to bet using skins, and I hope Valve isn't going down this path.

The problem isn't betting. The problem is unlicensed, unregulated betting. So long as it is done responsibly, betting can drive engagement and additional revenue streams, with manageable negative impacts. There is ample empirical and anecdotal evidence that shows gambling can be good for esports viewership. But that doesn't mean we should stand by and allow the fraud, false advertising and other illegal behavior that has surfaced over the past few months to go unchecked.

I'm glad to see Valve acknowledge that it has a role to play in eradicating bad actors. As it moves forward and enforces its position, I hope that Valve will strike the right balance between eliminating problematic behavior while permitting gambling in a legal, regulated and responsible manner.

Disclosure: Bryce Blum is the General Counsel at Unikrn.