Despite operating under strict legal restrictions concerning online gambling, Chinese videogame ‘skin gambling’ websites have found ways to continue their activities by reframing them as being part of the esports industry.
The study titled ‘Skin gambling in mainland China: Survival of online gambling companies’ was carried out by Junqing Zhang, from the Kyushu University School of Integrated Sciences for Global Society.
The study claims to be the first to explore the situation of Chinese online gambling and analyze why certain sites have survived under strict regulations.
According to the report, “skin gambling,” a form of online gambling, has emerged in China’s online realm, and grown in popularity in recent years.
A skin is a graphic download that changes the appearance of characters in video games, with players usually able to pay real money for skins, and the rarer the skin the more it’s worth.
Going back to 2013
The whole trade began in 2013 when Valve, a US-based company, launched a tradable skins system in Counter-Strike: Global Offensive, a popular first-person shooter videogame.
Research conducted by Eilers & Krejcik Gaming and Narus Advisors, stated that at one poiint about 5 billion skins were wagered globally in 2016 with approximately $7.4 billion wagered worldwide in 2016.
In the same year, Valve was investigated by several state institutions for conducting activities deemed illegal under federal racketeering laws and state consumer protection laws, and in response, the company suppressed skin gambling websites, which led to a dramatic decrease in skin gambling.
The crackdown worked, and the number of skins used in gambling was estimated to have dropped to $670 million worldwide.
According to the researcher, skin gambling is considered illegal under Chinese law, as Chinese authorities expanded the applicability of Article 303 of China’s Criminal Law to include online gambling, and actively prosecuted large online cash gambling websites.
In 2010, the government issued an interpretation of the Supreme People’s Court concerning the handling of cyber gambling cases involving gambling, which states that “for those who directly or indirectly exchange funds into virtual currency, game property, and other virtual items and use them as chips for betting, the number of gambling funds shall be determined according to the number of funds required to purchase the virtual item or the number of funds actually paid”
‘Thus, if virtual items, such as game skins, can be exchanged for real currency, such exchanges will be considered illegal gambling and are punishable by law.’
‘China remains the largest single-country market in the world with $403.1 million in esports revenue in 2021. With the rise of the Chinese video gaming and esports market, skin gambling has emerged as a part of the online gambling industry and has become a topic of study in Chinese gambling research,’ Zhang argues in his research.
Catching the eSports wave
The study shows examples that reveal that different kinds of companies involved in skin gambling have shielded themselves from official scrutiny in the country by operating under the guise of trading virtual items or because of their connections with powerful business partners.
Income from the Chinese esports industry and video games market has grown dramatically in recent years, rising from RMB70.61 billion ($9.8 billion) in 2017 to RMB182.6 billion ($25.4 billion) in 2020.
‘Chinese authorities may have overlooked these skin gambling websites for the following reasons: ambiguity regarding the legal definition of “virtual assets” under Chinese law and the Chinese police’s focus on cash,’ the study points out.
The General Rules of the Civil Law of the People’s Republic of China, only accept the existence of “virtual assets” and does not provide definition of such assets, which according to Zhang leaves the concept ‘beyond the scope of regulation’
‘The police have not been able to gather evidence of gambling against these websites because gambling using skins does not leave a traceable cashflow,’ he points out.
The researcher states that even under strict legal restrictions, Chinese skin gambling websites have managed to continue their operations between 2015 and 2021, with the research citing the three popular websites at the time, VPgame, Max+, and C5game.
‘Gambling has been seen as a vice or a negative activity associated with addiction and financial ruin, especially in China, which has enacted anti-gambling regulations. However, Chinese skin gambling companies managed to reframe the concept of “skin gambling” into “entertainment” instead of equating it with traditional gambling,’ Zhang concludes.
‘VPgame presented itself as a part of the esports industry, Max+ as a game forum, and C5game as a virtual item trading market. These disguises made these companies difficult to regulate’
The author also carried out an estimated calculation of the value of one of the Chinese skin gambling companies, stating as an example that nearly $47 million worth of wagers were placed over a year.
According to the researcher, this amount is much higher than the RMB10 million of a Guangdong’s internet gambling case, which was the subject of a crackdown in July 2019, and was defined by authorities of a considerable size.
Still, the author admitted that the extent of the industry is still uncertain, and more research would be required to assess the actual amount of values wagered.
