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LICENCE TO SKILL – AN OUTLINE OF MALTA’S REGULATION OF SKILL GAMES

February 2017 - Corporate & Commercial. Legal Developments by GVZH Advocates.

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Gambling, from a legal and policy perspective, has been consistently defined by reference to the constitutive elements of involving a monetary consideration, an element of chance, and a prize having some inherent value. Although definitions can vary significantly from one jurisdiction to another, the general consensus has been that a game or scheme that requires players to stake something of value for a prize that is awarded due to the outcome of an uncertain event should be treated as “gambling.”

This long-standing concept of gambling, however, is rapidly changing with the authorization and expansion of skill-based gaming. Skill-based gaming redefines gambling by either removing or dramatically reducing the amount of chance involved in a game. While games of skill have traditionally been beyond the remit of gaming regulators, recent changes in law and policy have broadened the scope of gaming laws so that such games may be authorized, approved and regulated. And operators are actively interested in seeking such licensing in order to provide players with security and reassurance that is so critical in the building of a credible B2C brand.

The necessity of regulating skill games in Malta was formally acknowledged in December 2015, when the Malta Gaming Authority (‘MGA’) issued a position paper entitled Digital Games of Skill with Prize, (the ‘Position Paper’) and which sought to establish the Authority’s stance in respect of different types of games, which involve an element of skill. The MGA outlined that due to the ever-growing number and types of games available on the market, games of chance and skill include a wide spectrum of games – ranging from those the outcome of which is pre-dominantly based on chance but include an element of skill, to those games which whilst including an element of chance, are predominantly based on the skill of the players. The MGA took the stance that the games classified on one side of this spectrum should not be regulated in the same way as those classified on the other end of this spectrum, primarily since games falling into the latter category do not impose identical risks on the players and therefore should not be subject to the same licence requirements under the Remote Gaming Regulations (S.L. 438.04 of the Laws of Malta).

As a result of an overwhelming response from the gaming industry, NGOs and government agencies, on the 30th January 2017 the Maltese Government issued the Skill Games Regulations 2017 (S.L. 438.11 of the Laws of Malta) (‘the Regulations’) which seek to regulate such skill games and to ensure that the highest standards are maintained by operators through ensuring that games are conducted in a fair and transparent manner and free from crime or other irregular activity.

Limitations and requirements that go beyond what is necessary to ensure the objectives of the regulations would be counter-productive. With this principle set clearly in mind the MGA has established a clear distinction between ‘skill games’ and ‘controlled skill games’.

TO SKILL OR NOT TO SKILL

Under the Regulations, a ‘skill game’ is defined as a game for money or money’s worth and offered through means of distance communications, the result of which is determined by the use of skill alone or predominantly by the use of skill and is operated as an economic activity, but does not include a sport event.

Although a ‘skill game’ does not require a licence, the burden of proving that an activity is a ‘skill game’ rests on the party operating or promoting the activity. Skill games with a negligible element of chance did not previously fall within the scope of gaming legislation but within the scope of general consumer protection legislation. The MGA sought to capture this group of games under its competence to provide an extra layer of protection to consumers of such activities in order to ensure a safe and fair gaming environment at all times.

The MGA is vested with the discretion to classify games as ‘skill games’ or otherwise, on the basis of the criteria listed in Schedule 1 of the Regulations. The provision of a game in or from Malta, which is classified as a ‘controlled skilled game’ will require a licence in terms of the Regulations. An operator who currently holds a Class 3 or a Class 4 Licence as issued in terms of the Remote Gaming Regulations will not be required to duplicate the administrative requirements imposed by the Regulations and will be exempt from paying the annual licence fee (currently set at €8,500 per annum).

The MGA has left no room for doubt when it comes to the classification of Fantasy Sports- a formal ruling was issued by the Authority in terms of the Regulations, stating that Fantasy Sports are to be considered as a controlled skill game and therefore the provision of such games in or from Malta will require a licence. Persons offering fantasy sports as defined in the ruling, in or from Malta, are required to apply for a controlled skill game licence. All existing operators must comply before the 27th April 2017.

A licence issued in terms of the Regulations may be a licence to offer a controlled skill games service which is a licence available for operators transacting directly with players (B2C) or a controlled skill game supply licence which is available for business-to-business service providers offering the gaming platform to controlled skill game service licensees (B2B).

Therefore the licensing requirement of a game for money or a prize with monetary value is determined on the determining element in producing the result of the game.

PURE SKILL

Pure skill games have traditionally been excluded from the realm of ‘gambling activity’. However the debate on what constitutes a pure game of skill is still open, with many arguing that there is no human activity that does not include an element of chance.

Games traditionally deemed to be pure skill, such as draughts (checkers) or chess, could be said to have an element of chance, as the player who has the first move has a slight advantage over the other player. These games do not fall under the current definition of gaming and hence do not require a license in terms of present Maltese legislation due to the element of chance that is negligible. This classification includes games such as Fifa and Call of Duty. Developers of such games ensure that the element of chance is as negligible as possible and this is of utmost important to the players. The players of these games take pride in becoming better at the same and beating those less skilled than they are. What is most important to the players of these games is not winning a prize of money or money’s worth, but rather the win itself as confirmation of their superior skill. Prize is seen more as compensation for the winner’s hard work rather than the sole or main motivation for playing the game.

These skill games take a longer time to conclude and include transactions that are much smaller than those registered for gambling – therefore, the risk of such games being used for criminal purposes such as money laundering is much lower, as would be the possibility of a player ending up in financial ruin. In its Position Paper the MGA has committed itself to intervene only in areas where intervention is warranted to mitigate and address risks to consumers and only to the extent necessary within the current and forthcoming regulatory framework.

A TIME TO SKILL

With the new regulations in place, Malta’s position as a centre for robust regulation of daily fantasy sport games and other games of skill involving an element of luck has been further galvanized. The service ecosystem so vital to the gaming industry has evolved in leaps and bounds, with numerous affiliate marketing companies, payment institutions and technical development companies setting their roots deeply in Malta. These developments bode well for the industry and the coming months should see the further revision of the existing regulatory framework to streamline it and make it more attractive for international operators to establish a presence in Malta as part of their international licensing strategy. There has been no better time to consider Malta as a centre for the regulation of gaming operations within the European Union.