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This covers a range of activities including integrating skill-based games with games of chance, such that a player increases their chance of winning based on their own skill. While these three elements seem to be fairly simple terms, their interpretation is not. One implication of this is that if eSports is a sport, wagering on it is likely sports betting. This has lead to a patchwork of regulation, requiring fantasy sports operators to exclude players from a number of states. Some states have not yet acted. These evolutionary changes in the games industry have raised a number of gambling-related issues. Social casino games also became popular. In states where lotteries are legal, they typically authorize state-run lotteries, but prohibit private-sector lotteries. A significant debate is occurring. These issues will be addressed in detail below. The advent of DFS, coupled with the aggressive marketing and huge prizes offered by some of the industry leaders, led to a flurry of legal activity. The rise of eSports has also implicated sport betting issues. For some games, players paid a subscription fee. The financial success of these monetization techniques has led to greater legal scrutiny. Gambling is regulated in the United States via federal and state laws. However, just because PASPA was struck down does not mean that esports betting is legal under state law. In other games, such as massively multiplayer online games or MMOs and other strategy games, various chance-based mechanics and mini-casino games have become very popular. With few exceptions, most of the substantive laws defining gambling are state laws. With the advent of home-based game consoles, players purchased a game console and prepackaged game cartridges. A number of states have done so and others are in the process of doing so. Many gambling statutes require something more than just any form of consideration. This question is central to a number of ongoing legal disputes involving the question of whether certain games involve gambling. The first was the reinterpretation of the Wire Act. Those looking to offer eSports betting likely will benefit from the favorable changes to the sports betting laws described above. Despite the huge appetite of U. This paper will not resolve that debate. However, it will:. The end game is still playing out, but a number of states have passed legislation to legalize DFS, subject to licenses, taxes, and other conditions. Significant state law changes have occurred concerning online gambling, sports betting, fantasy sports, and skilled-based games, to name a few. Players could play for fun, but could not cash out any virtual chips that they won. Many debate whether eSports is actually a sport, but in many ways it is being treated as such. Their meaning varies from state to state. Others claim games have become addictive and include elements that constitute gambling. As games continued to evolve, free-to-play games and downloadable content became prominent. Nevada was one of the first to pass an eSports-specific betting law. Secondary markets often unauthorized can complicate the analysis. If a new version of the game was created, players would have to buy a new cartridge. This had been interpreted to prohibit all forms of gambling across state lines i. Another factor is the popularity of casino-style games.{/INSERTKEYS}{/PARAGRAPH} With online games, the content could be changed on the server so the game could be continually updated. Of course, the video game industry has evolved since its inception. Various factors have contributed to this. If chance is eliminated, the activity can be a skill-based contest. A number of courts have ruled that not every payment for a chance to win a prize is a bet or wager. Payment of some form of consideration 2. {PARAGRAPH}{INSERTKEYS}Recently, there has been a frenzy of legal activity with U. Instead of selling games, publishers made money by selling virtual goods and virtual currency. As detailed below, this can be significant to games where players pay to buy virtual items. Players could obtain certain virtual items through in-game achievements or buying them. In addition to the general sports betting laws being passed, some states have or likely will specifically legalize eSports betting. The following is an overview of some areas where state gambling have recently changed. As a result, states became free to legalize online gambling other than sports betting. Many games could be played for free, but players could buy content to be downloaded into the game. Video games started in arcades, where players dropped coins into a machine to play. Paying for goods or services is typically not a bet or wager, but rather a bona fide commercial transaction. Some significant recent changes under federal gambling law have also occurred. If payment of consideration by the user is eliminated, then the result is typically a sweepstakes. State gambling laws have changed at a more rapid pace. Esports tournaments with huge prizes and millions of viewers created a new channel for the game industry. In addition to the monetization techniques that the game industry has adopted, a variety of unauthorized monetization has occurred as well. While the gambling laws have been changing, the video game industry has been evolving as well. To the extent that these markets exist and involve real money purchases, this may be relevant to the determination of whether the virtual goods or currency have value. Many states gambling statutes include factors similar to the prize-chance-consideration test for lotteries. This unauthorized monetization includes skin gambling which typically happens outside of the game in which the skins are used and the selling of virtual items on secondary markets i. A result determined by chance and not skill 3. The act itself does not define what constitutes unlawful gambling, but instead generally refers to activities that are deemed illegal gambling under other federal or state law. Historically, some of the most important federal gambling laws are those provided immediately below. Some of the top grossing mobile games include ones that are based on simulated, gambling activities, such as poker, slot machines and other casino-style game mechanics, but with an important limitation. Legislative action and licensing will likely be required on a state-by-state basis. This evolution includes changes to the business model. As video games have evolved, the content has become more dynamic. Much of that represents illegal sports betting. Lastly, the rise of blockchain technology has led to a genre of games referred to as blockchain-based games. As a result of the demise of PASPA, there has been a flurry of state legislative activity related to sports betting. The evolution of certain aspects of games by the game industry— particularly those involving loot boxes, casino-style games, and chance-based mechanics with virtual items— has raised the perception of certain gambling-related issues. Some argue the game industry is so profitable because it delivers a compelling entertainment experience to a broad demographic of people who are willing to pay for that entertainment. Other federal gambling statutes are primarily enforcement statutes and do not define what constitutes gambling. For example, international competitors are obtaining visas based on classification as professional athletes. In general, if all three of these elements are present, that offering may be an illegal lottery and may also constitute illegal gambling. The gambling-related legal issues with video games are still being resolved. Many states expressly exempt from their gambling laws bona fide business transactions enforceable under the law of contracts. Nonetheless, there are a number of unauthorized secondary markets that enable players to do so. To make the acquisition of virtual items more interesting, loot boxes and other chance-based mechanics were included to give players the perception of winning certain items. It forbids financial institutions from processing payments associated with certain illegal gambling activity. This activity included enforcement actions by the New York Attorney General and others. Companies like Gameco have emerged as leaders in the commercialization of this activity. But when virtual items e. But the pace of evolution seems to be accelerating. Other states have currently pending sports betting legislation. With limited exceptions, the legality of fantasy sports was not challenged. In anticipation of this decision, a number of states passed laws favorable to sports betting, conditioned on PASPA being struck down. This enables video games and other skill-based activity to be incorporated into casino games. In most states, an illegal lottery involves three elements:. A prize. However, the gambling laws can and do differ from the lottery laws. The terms of service for most games that use virtual items prohibit players from selling or trading virtual goods, virtual currencies, or player accounts. Over the past few year, some fantasy sports upstarts evolved the business model from season-long to daily fantasy sports DFS. However, recent cases have found that they do not, at least where the game publisher does not run the market. Federal gambling law remained static after the enactment of UIGEA until two important changes occurred.