Skin in the game: A closer look at the impact of the world's first skins betting licence

In 2016 the Isle of Man Gambling Supervision Commission (GSC) added rules for virtual currencies to its regulatory framework for online gaming operators. Unlike some similar jurisdictions, however, these rules specifically included betting on ‘digital skins’ as well as cryptocurrencies. As a result, ESP.bet recently announced that it had secured the world’s first online gambling licence to specifically cover betting on digital skins on its eSports betting platform, using an Isle of Man licence.

This announcement from ESP.bet is significant for the industry as well as the jurisdiction. The eSports industry’s massive growth has been well documented and everyone with a pulse knows the potential that this former niche activity has to change the sports betting landscape.

In this new sports community, punters are more likely to be players rather than just spectators – participation and competition are high. Digital skins play a major part in that competitive environment; that is why their inclusion as a currency for gambling, and the Isle of Man’s move to licence that activity, makes so much sense.

So what exactly do the island’s revised regulations cover? The Online Gambling (Amendments) Regulations 2016 allow operators licensed by the GSC to accept two types of virtual goods in certain circumstances:

1. Deposits in ‘money’, known as convertible virtual currencies (CVCs). This means cryptocurrencies, such as Bitcoin and Ether, can be used to make deposits and withdrawals.
2. Deposits in ‘money’s worth’, known as non-convertible virtual currencies (VCs). This includes ‘skins’: tradable digital objects which have a function in a video game.

There are a number of different operating models regarding the mixture of deposits and withdrawals in different currency types (fiat, CVC and VC) that the GSC has deemed as licensable. However, there are also several models that it has specifically chosen not to permit, and these are models which treat the operator as an exchange – where they can convert between currency types solely using gambling activity. In-platform conversions using a third party exchange are permissible, however, so it is important business models are properly reviewed by a specialist before submissions are prepared.

There are also nuances with regards to what counts as a ‘new product’ and therefore requires a new licence, versus a modification of an existing licence – again, expert advice is strongly advisable. As part of the team that prepared the successful ESP.bet submission, I know first-hand that the GSC is very willing to consider unusual business models, but also that they are extremely thorough in vetting them, so the business and operating models have to be extremely robust.

The Isle of Man likely made this jump now for three reasons. First, it judged that digital goods are here to stay, which I think is evident from the volume of grey-market trading in these skins now occurring across the world. Second, they judged that there was little additional risk compared to cryptocurrencies, so regulating them together was a manageable exercise. Third, it makes commercial sense to be the first to offer it if you can do it well, and the Isle of Man certainly has a reputation for doing these sorts of things right, at the right time.

Other jurisdictions will almost certainly follow suit: the question is simply when they will get around to it. This will undoubtedly be a positive move for the wider eSports industry, as licensing and all of the protections it brings is crucial to the maturation and long-term commercialisation of the market. For the time being, the Isle of Man has underscored its reputation as a forward-looking jurisdiction and I would be very surprised if it doesn’t reap significant benefits in new licensees over the coming months and years.

Roxanne Sheeley – Boston Multi Family Office