Shutting the Valve on Skin Betting

By: Nicole Kardell

A tried and true military strategy is to cut off your enemy’s supply lines: blow up a bridge and force a retreat. The tactic works in other situations too. It is regularly used by legislators and government agencies to address what they view as problem behavior from a particular industry. Instead of targeting the industry, they go after a major supplier, stakeholder, or intermediary. Want to take down online poker? Go after gaming sites’ payment processors (see Congress’ efforts through the Unlawful Internet Gambling Enforcement Act of 2006). Want to ensure U.S. taxpayers are paying up on their foreign income and assets? Force banks to do the reporting or pay an unconscionable penalty (see Congress’ efforts through the Foreign Account Tax Compliance Act of 2010).

Want to go after online skin betting? Shut off the Valve, so to speak.

The Washington State Gaming Commission is attempting to cut the supply lines in its initiative to crack down on online gambling of Counter-Strike: Global Offensive (CS:GO) skins. So it has put in its sites Valve Corporation, maker of the popular Steam API. Washington regulators have been investigating the company over the past eighteen months to determine whether it enables skin betting through Steam and–more importantly–what it can do to stop it. Regulators’ efforts include recently ordering Valve to stop allowing the transfer of skins via Steam. The company has carefully pushed back.

In a three-page letter dated October 17, 2016, Valve counsel, Liam Lavery, defended the company’s position and operation of Steam. He emphasized that Valve is not itself engaged in gambling or promoting gambling; that the company has discouraged third party sites; and that the company has otherwise cooperated with authorities. Lavery also challenged WSGC’s threats of criminal prosecution, requesting that the commission provide detail on what law–if any–the company is violating.

Lavery’s letter is bolder than it might at first appear. Those familiar with government enforcement actions know that when an agency approaches, it often makes strategic sense to follow the agency’s lead, especially when you are the intermediary, and not the target of the government’s actions. Time and money are generally on the side of government actors, who decide how extensively (or intensively) they want to investigate a company.  So companies generally cooperate, let investigators set the standard, and do their best to stay out of the government’s cross-hairs (this is something we’ve described as enforcement creep in our blogs and elsewhere).

Valve’s push-back may make most sense in the context of the game it supports: it’s CS:GO time in real time, and Valve won’t let its players be taken hostage.