With the recent and ongoing legalization of sports betting and online gaming across the country, as well as the rise of esports and competitive video gaming, there is tremendous consumer demand in the gaming industry.
According to the American Gaming Association, U.S. commercial gaming revenue reached a quarterly record of $16.60 billion in Q1 2023 with growth across every gaming vertical, including legal sports betting and iGaming. With this exponential growth in gaming comes increased interest and awareness from regulatory authorities, including state attorneys general (AGs), who have authority to evaluate companies’ business practices and whether those practices harm consumers.
This article provides a helpful checklist for gaming companies to ensure that they remain in compliance with the relevant laws and regulations.
State AGs Are Paying Attention to Gaming Companies
A recent annual meeting of state AGs and AG staff from 32 states and territories, along with the legal and business communities, included a panel entitled Player’s Club: Emerging Trends in Esports, Fantasy Sports, & Online Gaming. The online gaming panel noted the growth of players and consumers in this space, but also highlighted that the rise in legal gaming has been accompanied by an uptick in illegal gaming operations and related consumer protection concerns in areas such as data security, responsible marketing and responsible gaming. State regulators on the panel made it clear that online gaming companies have a duty to act responsibly and protect consumers, and it is imperative that every gaming company take proactive and practical steps to ensure this.
Below are 10 tips for companies operating in this space to ensure they remain in compliance with the relevant regulatory regimes and avoid AG scrutiny.
- Avoid Illegal Gaming Operations
Skill-based games rely on the player’s skills in order to win, such as strategy, decision-making and problem solving. On the other side of the spectrum are games of chance, which essentially rely on correctly predicting the outcome of a game or contest that a person’s skills cannot influence. With some games being hybrids of both skill and chance, where a game lands on the spectrum could determine a company’s liability under a state’s gaming regulations which cover games of chance such as casino games and wagering.
For example, daily fantasy sports and esports, two gaming industries that most states agree are predominantly or materially based on skill, fall outside states’ illegal gaming regulations. Therefore, unlicensed gaming companies should ensure that that chance plays no material role in the outcome of their games to prevent them from moving under the umbrella of an illegal gaming operation.
- Ensure Minors Are Excluded
Another priority of state AGs is the well-being of minors. Gaming companies should have established age verification or “know your customer” protocols (using commercially and technologically reasonable means) to prevent minors from participating in any prize-eligible contests. These should include parental control procedures to allow parents and guardians to exclude minors from access to games and contests that include betting and winning money, whether the outcome is based on chance or skill.
- Engage in Responsible Gaming
A priority for state AGs is to prevent gaming from leading to gambling addiction or interfering with overall wellness of consumers. To this end, many states have mandated an option for self-exclusion, such as New Jersey’s Self-Exclusion Program.
This requires companies to honor requests from consumers to voluntarily ban themselves from all contests, set limits on entry fees, limit play to contests with contest fees below an established limit, or to set self-imposed deposit limits. Accordingly, gaming companies should ensure that there is an option for players to voluntarily limit or ban themselves from gaming activities that involve depositing money, entry fees or wagering.
- Engage In Fair and Truthful Advertising
State AGs rely on their states’ consumer protection laws to scrutinize whether a company’s acts or practices are unfair, deceptive or misleading. Advertisements that could be seen as false or misleading could prompt a state AG to open an investigation into a gaming company.
Therefore, it is important for companies to ensure that advertisements or promotional offers on their gaming websites or elsewhere are at all times accurate, fair and truthful, and include all of the material terms of the promotional offers. Any material terms and conditions on the website should also be clear and conspicuous, particularly regarding the chances of winning, potential prizes and the number of winners for any contest. Most of all, gaming companies should avoid any advertisements targeted at minors or self-excluded individuals.
- Assure Fair Gameplay
If a gaming competition includes head-to-head tournaments or contests for money or prizes, it is imperative that companies put in place a system that assures fair gameplay and prevents “sharks” from taking advantage of “minnows.” Head-to-head gameplay that promises a matchup with a player of similar skill must deploy a player matching system or algorithm that is accurate, and it is critical that companies monitor accounts to prevent “sandbagging” by highly-skilled players to take advantage of less-skilled players. Winning outcomes must reflect the knowledge and skill of the consumer, and protocols should be in place to limit each authorized player to one active account.
- Protect Consumers’ Data
As discussed at the annual AG meeting referenced above, the protection of consumers’ private and personal information is one of the major issues right now for state AGs, particularly in light of the fact that gaming experiences increasingly rely on online platforms and services. State AGs frequently work together on data breach matters resulting in significant civil penalties and added protections.
State AGs will investigate instances of data breaches, unauthorized data collection or inadequate security measures by gaming companies, especially when it involves personal information of players. Therefore, every gaming company should confirm compliance with all applicable state and federal laws for data security and privacy, and openly disclose the use of any consumer information in an applicable privacy policy.
- Protect Consumers’ Funds
With the increasing number of deposits and transactions in online gaming websites, the potential for internet fraud or money laundering is also growing. It is important to ensure that all funds are protected upon deposit and segregated from operating funds, and that cash winnings are distributed in a timely manner. Gaming companies also need to have procedures to prevent unauthorized withdrawals and to allow consumers to close accounts at any time and for any reason.
- Take Care in Deploying Microtransactions and Loot Boxes
The debate surrounding microtransactions[1] and loot boxes[2] and their potential classification as a form of gambling has garnered significant attention. The rise of microtransactions and in-game purchases has raised concerns about fair pricing, transparency, and the potential for deceptive advertising. State AGs are interested in whether loot box mechanics comply with existing gambling regulations, particularly those involving real-world money transactions or that target vulnerable populations, such as children. Therefore, it would be smart for gaming companies to provide clear and meaningful information to consumers about in-game loot boxes and related microtransactions, including the odds of winning, and potentially set up parental controls for in-game purchases.
- Provide Clear Terms of Service
Terms and conditions of service must be adequately disclosed and easily found by a customer, not hidden on a website or app, especially those terms material to the consumer. Material terms may include any fees charged to the consumer or cancellation and refund policies.
- Have Clear Consumer Complaint Procedures
Some of the most common complaints by consumers of gaming companies are related to poor customer support and communication. The more a gaming company can prevent complaints from piling up, the better chance at avoiding the attention of a state AG. Therefore, companies should develop procedures by which a consumer may file a complaint, and respond to each complaint in a timely, reasonable and consistent manner. All consumer complaints should be documented, retained and analyzed for any key trends.
Following these 10 tips will help companies integrate safer gaming protocols for online consumers, ensure that they are in compliance with state consumer protection laws, and mitigate the risk of a costly state AG investigation that could have major impacts on the gaming company’s operations and even its very existence.
[1] A video game microtransaction refers to an in-game purchase for a small fee.
[2] Loot boxes are video game microtransactions in which the consumer purchases mystery bundles of virtual items for use in a game. They can be won by a gamer as a reward or can be purchased with real money.
