Skin betting lawsuit against Valve could be the first of many

A class-action lawsuit accusing Valve of “affirmatively supporting” skin-betting sites and participating in an “illegal scheme designed to bypass state-by-state gambling laws” is causing concern from esports-industry analysts—but most of them think it’s going to be dismissed.

The lawsuit, filed on June 23 in Connecticut District Court, names Michael John McLeod as the plaintiff and Valve as the sole defendant. Since appearing on Scribd, the document has received nearly 150,000 views.

Both mainstream and industry media outlets have widely covered skin betting recently, and specifically its possible legal repercussions. The 31-page lawsuit, filed by attorneys in Connecticut, New York, and Kentucky, is similarly current in its treatment of the industry. Though heavily reliant on an April 20 exposé for Bloomberg for background, the lawsuit also mentions the recent CS:GO Diamonds scandal, where prominent streamer Moe Assad revealed he’d been told the outcome of bets by site representatives prior to making the wagers. The lawsuit goes on to name csgolounge.com, csgodiamonds.com, and OPSkins as co-conspirators, alleging Valve is liable for aiding and abetting their activities.

According to several esports-industry figures, however, the lawsuit is fundamentally flawed, riddled with factual errors and claims that are impossible to substantiate.

These are its main allegations:

– Valve has been “complicit in creating, sustaining, and facilitating” an illegal gambling market based on skins.

– Valve “has an ownership interest, partnership or otherwise a direct business relationship” with csgolounge, one of the largest skin gambling sites.

– Valve collects 15 percent of the money from skins sold in the game.

– Most of the people in the “CS:GO gambling economy” are minors.

The first claim, that Valve is complicit in sustaining illegal gambling, was disputed by a Valve employee, who spoke to the Daily Dot on condition of anonymity: Valve’s complicity in creating, sustaining, and facilitating skin-betting platforms “is simply an OpenID authentication that lets ANY site use the Steam API as an authenticated Steam account, used by many more sites than the defendants,” he said.

According to Bryce Blum, in-house counsel for Unikrn, this also calls the “ownership” claim into question. “I’m not aware of any evidence that Valve either directly profits from this illegal gambling activity or that it conducts, finances, manages, supervises, directs, or owns all or part of the illegal gambling business,” he said.

In support of its first two claims, the lawsuit reiterates the Bloomberg article’s claim that “the gambling sites run on software built by Valve, and whenever CS:GO skins are sold, the game maker collects 15 percent of the money.” Industry analyst Chris Grove, whose own analysis pointed to more flaws in the lawsuit, said this was not accurate, however.

“[Valve] collect no money directly related to skin gambling transactions that I am aware of,” Grove said.

The lawsuit also repeats Bloomberg’s description of skin betting as a $2-billion-a-year industry; Grove’s updated estimates put the figure at closer to $7 billion.

The Daily Dot made two calls to each of the three firms involved in the case, reaching only Jasper D. Ward IV of Jones Ward PLC in Louisville. Ward, who was lead counsel in a class-action lawsuit against DraftKings suit, said that “skins were part of the CS:GO culture,” adding that their purchase was an eventual necessity. “You’re at a disadvantage if you don’t have better stuff.” Skins are purely cosmetic and collectible items.

Ward said that an amended claim would be out later this week.

“That most of the people in the CS:GO gambling economy are teenagers and under 21 makes Valve’s and the other Defendants’ actions even more unconscionable,” the lawsuit claims. Many industry analysts agree that this is one of the industry’s most troubling ethical and legal aspects.

Grove says the claim of an underage majority is unverifiable. “I don’t think discovery would be sufficient to ascertain the exact number of underage bettors.” The named plaintiff, Michael John McLeod, was likely not a legal gambler for the time period laid out in the suit. He is a multiple-honor-roll student who recently graduated from high school, in Trumbull, Connecticut, a wealthy suburban town in Connecticut’s Gold Coast. McLeod did not respond to requests for comment.

Luke Cotton, a gambling analyst based in the U.K., characterized the lawsuit as “a shakedown.” He said it was “a chance for a law firm to get their name in lights and a chance for the plaintiff to recoup some gambling losses.” But he said that it was unlikely to work, pointing to the case of Mason v. Machine Zone, which determined a casino operating with virtual currency (like skins) did not violate California’s gambling laws, as an unfavorable precedent.

Blum was blunter: “I expect [the lawsuit] to be dismissed.”

The alleged co-conspirators in the suit, skin gambling sites CSGO Lounge, Diamonds, and OPSkins, will also likely be unaffected.

Ward acknowledged that even reaching these sites would be difficult. “Who are these sites?” he said. “We know Lounge is a real business in Poland, but for Diamonds, we have no idea … this can be a problem that prevents offshore-gambling suits from going forward.”

The Valve employee added: “I don’t think the rigged roulette sites in Russia give two fucks.”

Valve did not respond to requests for comment on this article.

“It doesn’t seem like Valve are willing to act,” Cotton said. If anything, Valve might be scared into inaction. Shutting down the API “might look bad for the purpose of the case.”

Still, the lawsuit is important will possibly herald more of its kind. “This is the first of what I’d expect to be a wide array of similar suits,” Blum said. “They’ll be filed in different jurisdictions and under different causes of action, but the underlying facts will be essentially the same.”

Even if this particular lawsuit is likely to be dismissed, a growing trend of such lawesuits might catch the attention of regulators: “The main question is whether this is the catalyst for the U.S. government to look more closely at skin betting,” Cotton said.

The Valve employee confirmed this was a fear, but also articulated uncertainty as to Valve’s intentions. “I don’t deny that government regulation in the tech and entertainment space is usually overreaching, misunderstands fundamental concepts, and with a cultural bent lagging by a generation, but I’m not of sufficient knowledge to make the assumption that self-regulation is the most suitable concept either,” he said.

Tech companies like Uber and Zynga also adopted riskier legal strategies early in their corporate lifespan, then became more conservative as they matured. In an earlier report on the Daily Dot, Grove and Cotton expressed hope that Valve would proceed with greater caution in skin betting.

And though Ward is representing the plaintiff, his assessment of skin betting as it stands now could have come from an industry insider. “Betting online should be legal,” he said. “But since it’s not, these unregulated sites can prey on anyone.”

CML, a writer in Seattle, has written for Gawker, the Seattle Weekly, and several other publications. He maintains a website at cmlwrites.com and a Twitter at @CMLisawesome. His book on Magic: the Gathering, an important precursor to esports, is out in July.