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Navigating Challenges: The Complex Landscape of Gambling Regulation in Germany

Explore the intricate challenges faced by licensed gambling operators in Germany as they contend with increasing competition from the black market.

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Licensed gambling operators in Germany are facing increasing pressure from the black market. Experts agree that a well-regulated gambling industry is the best way to counter the expanding demand. At a gambling conference, Wes Himes from the Betting and Gaming Council (BGC) emphasized that a competitive, regulated market is the way to combat activities.

While there have been criticisms about reform progress in Great Britain, Germany’s Gambling Act white paper is a successful model for refining gambling regulations through collaboration and proportionality. One significant difference lies in Great Britain’s focus on moderation rather than prohibition, evident in their implementation of EUR 1 limits on online slot stakes and monthly deposit caps of EUR 1,000.

Critics argue that these strict measures, including deposit and betting limits, drive consumers towards operations. On the other hand, personalized affordability checks implemented in Great Britain are seen as a practical approach.

The impact of re-regulation on licensees can be observed through Rootz as an example. They experienced a decrease in customer deposits and gross revenue per player. An important point is the connection between regulations and the increase in gambling, emphasizing the importance of finding a balanced approach to protect players.

Despite the difficulties, it is recognized that operators hold more data than authorities or lawmakers. Sam Brown, CEO of Rootz believes that adopting an approach based on individual player behavior would be more effective than Germany’s restrictions. Brown, like Wes Himes emphasizes the responsibility of operators to prevent harm. Acknowledges the impact that addicted customers have on their business.

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However, there are concerns that Germany’s strict regulatory measures unintentionally strengthen the market. It is estimated that 80% of slot play occurs illegally, contradicting claims made by the new federal regulator.

These challenges go beyond gambling. Also included are illegal gaming machines and unlicensed Kaffe Kasinos. Experts in law enforcement highlight how criminal groups find illegal gambling highly profitable, with its risks making it an attractive avenue for money laundering.

Legal operators face obstacles when introducing games, as each game must be certified, and specific permissions are required. On the other hand, black market counterparts can exploit loopholes in regulations to their advantage by avoiding licensing requirements.

Efforts made by players to recover their losses from brands have been unsuccessful, as German courts and customers continue to hold operators accountable for the damages incurred during the delays in implementing the State Treaty. Legal experts are now considering an approach with specific conditions outlined by Professor H. Köhler, an expert in German civil law, requiring operators to reimburse these losses.

Experts highlighted the importance of Malta’s Bill 55, which safeguards licensees against claims. The European Commission and the European Court of Justice are expected to evaluate Malta’s approach and Germany’s controversial Interstate Treaty on Gambling.

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Germany has a complicated gambling landscape where regulatory measures, market competition, and the allurement of the market create intricate challenges for licensed operators and regulatory bodies alike. Striking a balance between consumer protection and market competitiveness remains a topic of ongoing discussion within the industry.

Image by: artbutenkov

Author

  • Gilberto Ceballos

    Gilberto is a Mexican law student at Universidad Panamericana in Mexico City, one of the top law schools in the country, with an unwavering passion for various legal subjects like international law and arbitration. He is part of the full immersion program, designed to provide students with a deep understanding of international law. This experience aims to delve into the complexities of global legal systems, international relations, and dispute resolution mechanisms. In addition to this, Gilberto participated in the youth parliament organized by the Mexican Senate, representing the voice of the Mexican youth, as well as having various international academic experiences in Canada, United Kingdom and France. He is a passionate gamer and looking forward to contribute to ELN.

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Alleged Video Games Addiction Leads to Lawsuit (Updated)

In a developing legal battle reminiscent of the Colvin et al v. Roblox Corporation et al case that challenged Roblox’s alleged facilitation of illegal gambling with minors, a new lawsuit has been filed in Missouri against major players in the video game industry alleging video games addiction.

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Video Games Addiction

This lawsuit, just like Casey Dunn et al. v. Activision Blizzard et al., on which ELN reported before, accuses companies, including Epic Games, Mojang Studios, and Roblox, of designing games that create an excessive video games addiction in children, leading to serious detrimental effects on their physical, social, and mental health.

Context and Background of the Case

In a legal filing that marks a significant escalation in the scrutiny of video game companies’ practices, a lawsuit has been filed in the U.S. District Court for the Western District of Missouri, Central Division. The case, bearing the number 2:24-cv-4055, has been initiated by Carey Courtwright, representing her minor child K.C. This legal action addresses serious concerns about the design and operation of video games that allegedly lead to addiction among young players. K.C., who began engaging with video games at the tender age of six, is presented as a victim of these manipulative gaming practices.

Defendants in the Lawsuit

The defendants listed in this lawsuit are some of the most prominent names in the gaming industry:

  • Epic Games, known for Fortnite
  • Mojang Studios, the creators of Minecraft
  • Meta Platforms, the conglomerate formerly known as Facebook
  • Roblox Corporation

These companies are accused of creating and maintaining gaming environments that exploit psychological vulnerabilities in children.

Detailed Allegations of Video Games Addiction Triggers

The lawsuit articulates specific tactics employed by the defendants which are purportedly designed to foster addiction:

  • Reward Systems and Feedback Loops: Games are structured to release dopamine in response to achievements within the game, perpetuating a cycle of engagement that can lead to excessive and unhealthy gaming habits.
  • Limited Transparency and Predatory Monetization: The true costs of in-game transactions are often concealed or minimized, exploiting cognitive biases and leading players, particularly young ones, to spend money without a full appreciation of the cumulative costs.
  • Fear of Missing Out (FOMO): By introducing time-limited events and exclusive in-game items, the games tap into a player’s fear of missing out, which can compel continuous or increased expenditure to remain competitive or included in gaming communities.
  • Targeting of ‘Whales’: These companies strategically identify and exploit major spenders within their games — often referred to as “whales” — by encouraging them to spend large amounts of money through tailored incentives.
  • Lack of Parental Controls: The complaint criticizes the insufficient mechanisms provided to parents to monitor and control their children’s gaming activity effectively, which exacerbates the problem of unregulated access and expenditure.

Human Costs and Plaintiff’s Burden

The complaint vividly describes the adverse effects on K.C.’s life due to the alleged gaming addiction. These include a noticeable decline in academic performance, social withdrawal from peers and activities, and the development of physical symptoms such as pain in the hands, eyes, and back, as well as disrupted eating patterns. Moreover, K.C. has reportedly suffered from mental health issues, including depression and anxiety, which were intensified by the inability to disengage from gaming. The plaintiff, Carey Courtwright, shares the emotional and financial burden inflicted by this ordeal, emphasizing the considerable expenses accrued through medical treatments and in-game spending by K.C.

This lawsuit is part of an emerging trend where legal actions are increasingly highlighting the potential negative impacts of video games on minors. Similar to the issues raised in Colvin et al v. Roblox Corporation et al, this case underscores the urgent need for the industry to adopt more ethical practices in game design and marketing. The outcome of such lawsuits could potentially lead to stricter regulations and standards governing game development and marketing, particularly regarding the mechanisms that promote prolonged engagement and spending in games.

Entertainment Software Association’s Statement (Update)

Having read our article, the Entertainment Software Association (ESA) has provided a statement that offers a broader industry perspective. The ESA, a trade association that represents the U.S. video game industry and includes several of the defendants in the lawsuit as its members, has articulated its stance on the issues central to the lawsuit.

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The ESA emphasized its commitment to player safety and digital wellness, stating:

“Video games are among the most dynamic, widely enjoyed forms of entertainment in the world. We prioritize creating positive experiences for the entire player community and provide easy-to-use tools for players, parents, and caregivers to manage numerous aspects of gameplay.”

Moreover, the ESA addressed the claims made in the lawsuit directly, noting:

“Claims that say otherwise are not rooted in fact and ignore the reality that billions of people globally, of all ages and backgrounds, play video games in a healthy, balanced way.”

This statement underscores the ESA’s viewpoint that while the lawsuit raises important concerns about player safety and addiction, the claims do not necessarily reflect the broader reality of gaming as an activity enjoyed healthily by a vast global audience.

Conclusion

This lawsuit could set important precedents regarding the accountability of video game developers and platforms in safeguarding the well-being of their youngest and most vulnerable users. The broader implications for the industry could include a reevaluation of game design ethics, the introduction of more stringent parental controls, and a more transparent communication regarding the costs associated with in-game content. The video game industry may need to balance commercial interests with a heightened responsibility towards its user base, especially children, in light of growing legal scrutiny.

Image source: DallE3

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Carey Courtwright, individually and on behalf of K.C., a Minor v. Epic Games et al

Court: United States District Court for the Western District of Missouri, Central Division
Case No.: 2:24-cv-4055

Defendants

  1. Epic Games
    • Counsel not listed
  2. Mojang Studios
    • Counsel not listed
  3. Meta Platforms
    • Counsel not listed
  4. Roblox Corporation
    • Counsel not listed

Plaintiff

  1. Carey Courtwright (Individually and on behalf of her minor child, K.C.)
    • Counsel to Carey Courtwright:
      • Tyler W. Hudson, Eric D. Barton, and Melody R. Dickson of Wagstaff & Cartmell LLP
      • Breean “BW” Walas, Tina Bullock, and Danielle Ward Mason of Bullock Ward Mason LLC
      • Charles M. Stam of Thompson Stam PLLC

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

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Another Roblox Litigation – An Illegal Gambling Ring for Kids?

In an era where digital platforms intertwine with daily activities, the lawsuit against Roblox Corporation has sparked significant legal and ethical debates. This case, officially cited as Colvin et al v. Roblox Corporation et al, No. 3:23-cv-04146, filed in the Northern District of California, brings to the fore critical issues surrounding gambling in video games and the responsibilities of platform providers.

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Roblox Litigation

Case Background of the Roblox Litigation

Roblox, a platform that combines gaming with social networking, has been accused of facilitating illegal gambling activities targeted at minors through its virtual currency, Robux. Plaintiffs Rachelle Colvin and Danielle Sass allege that Roblox’s system enabled minors to engage in gambling via third-party sites that were intricately linked to the Roblox platform, thus breaching the Racketeer Influenced and Corrupt Organizations Act (RICO) and other pertinent statutes​​. This is just one of many cases against Roblox.

Specific Allegations Against Roblox

  1. Misleading Representations: Roblox’s terms of service claim that it does not allow activities involving simulated gambling using Robux. However, the lawsuit asserts that Roblox has misled consumers, particularly parents, about the safety and appropriateness of its platform for children​​.
  2. Facilitation of Gambling: Despite these terms, Roblox is accused of actively facilitating and profiting from gambling activities by tracking and recording the flow of Robux used for gambling on third-party sites, thereby enabling this ecosystem​​.
  3. Profit from Illegal Activities: It is alleged that Roblox profits significantly from these transactions by charging a transaction fee, including when Robux are converted back into real currency by these gambling entities, effectively receiving a cut from the illegal use of its platform​​.

Claims Made in the Roblox Litigation

The lawsuit brings multiple claims under both federal and state laws, including violations of the RICO, the California Unfair Competition Act (UCL)1, and for negligence, among others. These claims focus on the creation and maintenance of an illegal gambling operation, misleading business practices, and the unjust enrichment of Roblox at the expense of its users​​.

Relief Sought

The plaintiffs seek monetary damages, restitution for the losses incurred by the minor users and their guardians, and injunctive relief to prevent further illegal gambling operations. They also demand a jury trial to adjudicate these claims​​.

The Motion to Dismiss

On 26 and 28 March 2024, the court partially granted Roblox’s motion to dismiss. The court dismissed the RICO claims which was significant. The court held that the plaintiffs failed to demonstrate that Roblox was engaged in a “qualifying enterprise” under RICO, as they could not show a common purpose or concerted action beyond regular business operations. The court’s findings demonstrate a challenge plaintiffs usually face when applying traditional legal frameworks like RICO to the fluid, expansive, and often nebulous operations of digital platforms, which are designed to maximize user engagement and revenue through complex, layered interactions that may not neatly fit into existing legal categories.

Claims Advancement

However, the advancement of claims under the UCL and for negligence opens substantial grounds for legal debate and analysis. The UCL’s broad scope, aimed at combating unlawful, unfair, or fraudulent business acts or practices, provides a robust framework for addressing alleged misconduct in digital settings. The court’s decision to let these claims proceed suggests a recognition of potential oversight and management failures by Roblox in preventing the use of its platform for gambling activities, especially those involving minors.

The negligence claims hinge on whether Roblox failed to exercise reasonable care to avoid foreseeable harm to its users, particularly children, who might be drawn into gambling with real-world economic consequences.

Unjust Enrichment

The court also allowed the unjust enrichment claim to proceed. By allowing this claim to proceed, the judge recognized that the compensation sought by the plaintiffs might not be covered fully by direct monetary damages. This decision emphasizes the need to consider a broader economic context of transactions on platforms like Roblox, where the company’s revenue model directly benefits from the engagement and expenditures of its users, including those activities that skirt or cross legal boundaries.

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Implications for Digital Currency and Platform Liability

This litigation spotlights the need for stricter regulatory scrutiny of digital currencies like Robux or gambling aspects in video games in general. As these currencies blur the lines between virtual assets and real-world value, the potential for misuse increases, necessitating clearer regulations and standards. This case could prompt lawmakers and regulators to examine more closely how digital currencies are managed on platforms, especially those accessible to minors.

The case also raises critical questions about the duty of platforms to protect users from harm. The allegations suggest that Roblox could and should have done more to prevent its platform from being used for gambling.

Conclusion

Colvin et al v. Roblox Corporation et al is an interesting case at the intersection of technology, law, and ethics, offering a crucial legal precedent for digital platform governance. As the case progresses, it will provide valuable insights into how digital platforms can be held accountable for the activities they enable and profit from.

This case will likely have far-reaching implications for legal practices, platform operations, and the legislative landscape governing digital interactions and economies, making it a critical watchpoint for legal professionals and platform operators alike.

Colvin et al v. Roblox Corporation et al

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Court: United States District Court, Northern District of California
Case No.: 3:23-cv-04146

Defendant Roblox Corporation

  • Counsel to Roblox Corporation: Cooley LLP
    • Kyle Wong
    • Robby Lee Ray Saldana, Washington, DC
    • Tiana A. Demas, Chicago, IL

Defendant RBLXWild Entertainment LLC

  • Counsel not listed

Defendant Satozuki Limited B.V.

  • Counsel not listed

Defendant Studs Entertainment Ltd.

  • Counsel not listed

Plaintiffs Rachelle Colvin and Danielle Sass

  • Counsel to Plaintiffs: Weitz & Luxenberg, P.C.
    • Aaron Freedman, New York, NY
    • Devin Lynn Bolton, Los Angeles, CA
    • James J. Bilsborrow, New York, NY

Minor Plaintiffs G.D. and L.C.

  • Represented by the same counsel as Rachelle Colvin and Danielle Sass.
  1. Cal. Bus. & Prof. Code § 17200 et seq. ↩︎

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

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The Legality of Esports Betting Across 7 Jurisdictions

The world of esports has seen exponential growth over the past decade, not only in terms of audience size but also in the complexity and scale of its betting industry. Esports betting, the act of wagering on the outcome of competitive video gaming events, has become a significant part of the global betting market. However, the legality of esports betting varies widely across different jurisdictions, reflecting a patchwork of regulations that can be challenging for both operators and bettors to navigate. This article explores the legal landscape of esports betting across various regions, highlighting the diversity of regulatory approaches.

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Esports Gambling in 7 Jurisdictions

Esports Betting in the United Kingdom

In the UK, esports betting is regulated under the Gambling Act 2005, which provides a legal framework for all forms of gambling, including sports betting, casino games, and lotteries. The UK Gambling Commission (UKGC) is responsible for licensing and regulating gambling operators. Esports betting is treated similarly to traditional sports betting, and operators offering esports betting must obtain a license from the UKGC. The Act ensures that gambling is conducted fairly and transparently, protecting children and vulnerable individuals from being harmed or exploited by gambling.

Esports Betting in the United States

The legality of esports betting in the USA varies by state, following the Supreme Court’s decision in Murphy v. National Collegiate Athletic Association in 2018, which struck down the federal ban on sports betting. This decision allowed states to legalize and regulate sports betting, including esports betting, at their discretion.

  • Allowed States: Nevada, New Jersey, and Pennsylvania are among the states that have explicitly legalized and regulated esports betting. These states have established regulatory frameworks that include esports within their sports betting legislation.
  • Restricted States: In contrast, states like Utah and Hawaii maintain strict anti-gambling laws that extend to esports betting, with no legal sports betting operations.

The regulatory landscape is complex and rapidly changing, with other states considering or in the process of legalizing esports betting.

Esports Betting in Germany

Germany’s esports betting scene is regulated under the State Treaty on Gambling 2021 (Glücksspielstaatsvertrag 2021), which came into effect on 1 July 2021. This treaty allows for the licensing of sports betting, including esports, under strict regulatory conditions aimed at ensuring player protection, preventing addiction, and combating fraud. Operators must obtain a license from the Regional Council of Darmstadt to offer esports betting legally.

Esports Betting in France

In France, esports betting is regulated by the French Gambling Authority (Autorité Nationale des Jeux, ANJ), which oversees all forms of gambling. The legal framework for esports betting is provided by the Digital Republic Act (Loi pour une République numérique) of 2016, which recognizes esports and allows for regulated betting on esports events. Operators must secure a license from the ANJ to offer esports betting services legally.

Esports Betting in Canada

Canada’s approach to esports betting has been evolving, particularly with the passage of Bill C-218, the Safe and Regulated Sports Betting Act, in June 2021. This legislation amended the Criminal Code to allow for single-event sports betting, including esports, across the country. Each province and territory has the authority to regulate and license sports betting within its jurisdiction. For example, Ontario has established the Alcohol and Gaming Commission of Ontario (AGCO) as its regulatory body for sports and esports betting.

Esports Betting in Australia

In Australia, esports betting is regulated under the Interactive Gambling Act 2001 (IGA). The IGA prohibits online gambling services from being provided to customers in Australia, with certain exceptions such as sports betting. Esports betting is permitted as long as it is offered by a licensed operator and bets are placed before the start of the event. The Australian Communications and Media Authority (ACMA) oversees the enforcement of the IGA and works to protect Australians from illegal online gambling operations.

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Esports Betting in South Korea

South Korea has a unique stance on esports betting. The country is known for its vibrant esports scene, but gambling, including esports betting, is heavily regulated and mostly illegal with few exceptions. The Sports Promotion Betting Tickets (SPOTO) issued by the Korea Sports Promotion Foundation (KSPF) is one of the legal avenues for sports betting, including a limited form of esports betting. However, the scope is quite restricted, focusing primarily on traditional sports.

Conclusion

The legal landscape for esports betting is diverse and rapidly evolving. While some countries have established clear regulations that allow for legal betting on esports events, others are still navigating the complexities of this new form of gambling. For stakeholders in the esports betting industry, staying informed about the legal status in different jurisdictions is crucial to operating within the bounds of the law and ensuring the integrity of esports competitions. As the popularity of esports continues to rise, it is likely that more countries will develop and refine their legal frameworks to accommodate this growing market.

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris.

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