Making sense of the Counter Strike gambling scandal

You may have heard murmurings in the last couple weeks about a “betting scandal,” involving shady websites and Valve’s popular competitive shooter, Counter Strike: Global Offensive. As with a lot of legal quagmires, this one’s tricky to sort out, so we’ve tried breaking it down for easier reading.

What We Mean When We Say ‘Esports Gambling’

“Esports” is a broad term used to encompass a few different competitive game scenes, from the fighting game community (FGC) with tournaments like Evolution, to sponsored tournaments built around multiplayer online battle arena (MOBA) games like Riot’s League of Legends and Valve’s Dota 2. Although they get much less press, first-person shooters like Valve’s Counter Strike: Global Offensive (CSGO) also enjoy a robust competitive scene.

I don’t want to waste digital ink on whether esports are “real” sports — they’re treated as such for the purposes of athletic visas, they’re covered on sports television networks, and perhaps most indicative of a thing’s legitimacy under capitalism, it moves a hell of a lot of money. So it should come as no surprise that in addition to cash prizes and player salaries, there are less sanctioned methods of making money through esports — like gambling.

At issue here with CSGO are in-game collectibles including different colors and patterns for weapon models (“skins”). Unlike a lot of in-game collectibles, CSGO skins can be traded and sold for local currency through Valve’s Steam client, and thus have a real-world value. So while they’re not intrinsically valuable on their own — they’re just a few ones and zeroes lined up to make a digital artifact — they can be treated the same way poker chips are treated in a casino, because players have deemed them to be worth a certain amount in Steam’s marketplace.

An example of multiple color skins for an in-game knife (via Counter Strike's official site).

An example of multiple color skins for in-game knives (via Counter Strike‘s official site).

Enter: alleged gambling sites CSGO Diamonds, CSGO Lounge, and OPSkins. According to a lawsuit filed in a Connecticut district court on June 23rd, these sites facilitate betting by allowing users to trade and put up these skins as collateral. While it’s not done through the Steam client itself, these sites do link with users’ Steam accounts.

Valve’s Involvement

The June 23rd lawsuit, filed on behalf of Connecticut resident Michael John McLeod against Valve Corporation, alleges that Valve “knowingly allowed, supported, and/or sponsored illegal gambling” by allowing its customers to link their Steam accounts with these third-party sites. While the actual gambling takes place off of Steam, collected bets can then be traded or sold to other players for Steam wallet funds, with Valve taking a tiny cut from each transaction. That’s why “knowingly” is the key word here: the McLeod suit argues that Valve knew what players were doing on these third-party sites and was content to profit off the activity.

This is not chump change we’re talking about, by the way. One Bloomberg story — cited in the McLeod suit — alleges CSGO gambling is a multi-billion dollar business, meaning that even Valve’s small commission per marketplace transaction would add up to a hefty chunk of revenue.

“Valve is like a bar owner who lets people set up roulette wheels and blackjack tables in the back, sells chips to teenagers on their way in the door, and then makes people cash out at the pawn shop across the street.” — Jasper Ward, lawyer for the plaintiff

Valve itself, meanwhile, has stayed completely mum on the subject since in the two weeks following the filing. It hasn’t commented on the suit, even to indicate whether it’s doing some kind of internal investigation. This sort of official silence isn’t unknown out of Valve, and you could come up with a few reasons why the company might want to avoid making a statement it might later regret — but unfortunately, silence speaks volumes as well.

“Valve is like a bar owner who lets people set up roulette wheels and blackjack tables in the back, sells chips to teenagers on their way in the door, and then makes people cash out at the pawn shop across the street,” says Jasper Ward, one of the lawyers representing the plaintiff. “Even a quote on the record from someone at Valve about the skins gambling economy would be a good start. Valve’s public silence while privately helping gambling sites operate in the Steam Marketplace is unconscionable.”

We’ll update this article if and when Valve issues a statement.

Where Does YouTube Fit Into This?

Apart from the three sites listed above, there’s another Counter Strike betting site, CSGO Lotto. Valve briefly blocked it on Steam, then unblocked it, something Ward has criticized at length. It’s also turned up in discussions on YouTube, after it was revealed that two popular YouTubers, Trevor “TmarTn” Martin and Tom “ProSyndicate” Cassell, had promoted the site to their viewers without disclosing that they, in fact, owned it.

Martin and Cassell initially denied hiding their involvement, but Martin has since issued something like an apology video, in which he acknowledges he and his partner should have been more transparent about their relationship to the site, and that he is “committed to making sure that my YouTube channel, as well as all of my other businesses, are in compliance with the law.” The video is brief and does not address some of the concerns with CSGO Lotto, including the lack of any sort of age verification system (one of the lawsuit’s repeated points is that many of CSGO’s gamblers are underage). As of current writing, Martin has removed the video from YouTube.

What’s Going To Happen Now?

There are a few common-sense things to keep in mind when talking about any lawsuit: who brought the suit (lawyers representing a private citizen), through which court (a civil one), who the defendant is (a major corporate entity), and what legal precedents might exist (very few).

Basically, it’s important to remember that McLeod’s lawsuit against Valve Corporation is a civil suit, not a criminal case. The state of Washington and U.S. federal governments are not investigating whether Valve violated state or federal gambling laws, although one of them rightly could at some point down the line, if they found reason to. Instead, the goal of a lawsuit like this is to establish, legally, a defendant’s wrongdoing and get them to address the problem. Civil cases often involve payment for damage caused — like suing the guy who drove his car into you for the hospital bills that ensued — but that figure is not specified here, probably because it’s still seeking additional plaintiffs to turn it into a class action lawsuit.

What’s more notable than the plaintiffs here are actually the lawyers involved, particularly Jasper Ward, who serves as one of the lead counsels in a similar case concerning gambling in fantasy sports. That suit is also ongoing as of this writing, which brings us to another point: these things take time, often years. We might be through the next console generation before we hear of a court’s verdict on this, and that’s supposing it isn’t settled through a mediator (with an undisclosed payout) before it even gets there.

(It will probably still come out sooner than Half-Life 3, at least.)

A screenshot of one of the betting sites named in the suit, CSGO Lounge.

A screenshot of one of the betting sites named in the suit, CSGO Lounge (via OklahomaD).

So the short answer to what’s going to happen to Valve, CSGO gambling sites, etc, in the immediate future is: not a whole lot. In the long term, however, this may have far-reaching implications, not just for Valve but for online marketplaces and esports overall. There isn’t a lot of legal precedent in the realm of videogame-related gambling (or what even qualifies as such) so this may end up setting that precedent.

Whatever the outcome, the onus is mainly on Valve here, way more than the betting sites, since those are hosted in other countries and aren’t beholden to the same gambling laws (also, international lawsuits are a pain in the ass). Even if the betting sites were hosted inside the United States, none of this would work if not for Valve permitting the sites to link with its customers’ Steam accounts. So Valve may decide, for reasons of maintaining its public image if nothing else, to revise its policies ahead of any movement in the court system. That won’t have any bearing on the suit itself — courts make their assessments based on what conditions were at the time, not what happened later — but it’s an optics thing. You probably don’t want people saying your company profits off minors gambling through offshore betting sites, whether or not a court eventually finds that to be true.

As for CSGO Lotto, Martin, Cassell, and Youtubers promoting their other businesses without proper disclosure — that’s an even tougher one to pin down. I can’t see YouTube parent company Google or any other entity finding a way to successfully regulate that. And given that the entire revelation was brought about by a fellow YouTuber, this seems a case of a community handling its own, for better or worse.

August Developments

CSGO Lounge — one of the skin gambling sites named in the MacLeod suit — has announced it will embrace its reputation as a gambling hub and officially bar players from countries where the site’s activities are illegal.

September Developments

CSGO Lounge has reversed course on its decision to go legit as a gambling site. Instead, it has elected to ban skin gambling and rebrand itself as an esports site.

Unrelated to CSGO, on September 16th, two men in the United Kingdom were charged with promoting unlawful gambling, both related to FIFA betting operations. One of the men faces an additional charge of marketing one of these sites to children. The U.K. has historically come down hard on anything smacking of scams to do with minors. This may represent a world first in criminal charges for videogame-related gambling.

We’ll be updating this explainer as more details emerge, so stick with us!

Disclosure: Zam and League of Legends developer Riot share a corporate parent. Riot has no control over editorial.