In 2006, a guild on Lightbringer held a virtual raffle for the AQ War Effort with prizes consisting of virtual items like Guild Gold or Gear. Blizzard promptly shut it down and they called it "ILLEGAL GAMBLING."
In 2007, the FBI launched a probe into online gambling taking place within Second Life. As a precautionary measure, Linden Labs shutdown all gambling activity within Second Life and prohibited all forms of gambling. It was left as a grey area, and never deemed illegal, but Linden Labs didn't want to take the risk of potential prosecution. Most lawyers agreed however, that it was illegal gambling; you buy the game, play a game of chance within the virtual world, receive Linden dollars, cash out the Linden dollars into real money. In this situation, however, it was a player run economy and not gambling games created by Linden Labs. (However, they provided the means of facilitating the gambling.)
In 2007, the UK Gambling Act 2005 was revised to include MMOs. They redefined the definition of "gambling" as any and all games which involves the use of both chance and skill to win a prize (the definition of a "game of chance"). Prizes can be cash prizes, products, or virtual objects that can be exchanged for money. A similar change was made in US law in 2006.
Online Gambling
Online gambling is illegal in most countries, but I'm going to focus specifically on the USA. Every country (or region) has different regulations of course, and they go about different ways of trying to control online gambling. It's very convoluted from what I understand and a very unclear legal area, which is why they created the UIGEA.
It's not just for gambling sites, but also anyone or anything related to the gambling service (installation, maintenance, facilitation, etc.) The reason why online gambling was made illegal in the US is because it's difficult to license, regulate, and internet gamblers don't know who is operating the gambling site, if the games are honest, if winnings will be paid, or if the money wagered is used for criminal purposes. Players also have no recourse if they are not paid or cheated, they're put at risk to identity fraud, and internet gambling is an uncontrolled environment for problem gamblers and minors.
As you read through each of those examples, you could see how this already relates to Blizzard in the case of the supported gold and item selling; accounts can be banned with no recourse, money or gold can be seized and not returned, minors can play the game, there's no regulation, it's an addictive environment that is uncontrolled, there's no oversight, it's impossible to tell if the games are honest, and RMAH users don't know if any of the money is used for criminal activities. Blizzard has made posts (but no strong regulations and monitoring) regarding identity theft, so we also know for sure that it happens.
Blizzard has also stated that the Diablo 3 Real Money Auction House will be completely anonymous. So, players will never know who're they're playing against, who they are buying and selling from, if the sales are honest, if sales are being used in criminal situations, or if Blizzard or Blizzard employees are selling items. It's impossible to know and there's no third party oversight.
The generally accepted definition of gambling has 3 components:
* consideration (you have to pay to play the game)
* chance (a random game of chance in which skill can play a minor part)
* compensation (cash, something of value, or a reward)
Consideration and Compensation
Both of these can come in many forms, and it doesn't necessarily have to be in the form of cash. Basically, it's "value in" and "value out".
For example, you could cash in to play a game, but win a car. Or, gamble your car for another car. Value in and value out can be representative of chips, tokens, or virtual gold. Technically, you could apply value to almost anything, but online gambling laws are only interested in something that is cash or can be converted into cash (e.g. "it's liquid").
Gold in Diablo 3 is just a token representing cash value, in the exact same manner as casino chips. Your gold "chips" can be cashed out into real money, or used to play other games inside the virtual "casino" game world. Blizzard owns the virtual property and when you pay for items or sell items, you collect money, but the items ("tokens") are still owned by Blizzard. It's much like a casino owning their own proprietary chips.
Real world value of gold can also change, depending on the virtual economy. Some days it might be worth more than others. Just like in the real world, there are dynamic economies and variables that can adjust the value of money.
So, how does Diablo 3 exhibit these 3 components?
1. The most obvious one that everyone immediately thinks of is loot drops.
Blizzard has repeatedly stated that Diablo 3 is an "item centric game" but they have also stressed a major difference between WOW and D3. Whereas WOW had fixed loot tables and drops in an "Achiever Economy", Diablo 3 random wins are "indeterministic" and everything has a random chance of dropping varying levels of value. There is no skill required in WHAT drops.. you can't control it, it's like a roulette wheel. So, the "loot generation" is purely a game of chance with no skill. However, there is another game of chance (and skill required) to get TO the loot generation components.. and that's by killing a virtual monster. The gambling part is what the monster might drop when you roll that dice.
In regards to loot drops, there's consideration ($60 to play the game and/or gold "chips" to equip armor and play the game), there's a game of chance (loot drops are randomized and have real world value), and there's compensation (items have real value and can be sold.)
But this is where it gets interesting. You see, even though World of Warcraft already falls under this same example, Blizzard is free from legal prosecution because the compensation component is not maintained by Blizzard nor is it supported in any way. Blizzard has called gold sales illegal, and compensation can only occur in the black market. Most MMORPGs are free from prosecution, because gold selling (cashing out) is a violation of their rules, not supported, and there are preventative measures in place to prevent it. Without the "cashing out" component, it's not considered gambling.. even though a form of virtual gambling does take place.
In Diablo 3, it seems as though they're getting around this loophole by calling it a "Player Run Economy". The current beta client also has old references to actual "gambling" systems within the game, but I strongly suspect that the word "gambling" will be removed from all Blizzard announcements and communications and probably stricken even from the game itself.
In a "Player Run Economy", Blizzard is implying that any activities or gambling within the system will take place between the users and which they won't directly profit from. But, they still get a cut of all the action, they create the games and prizes, they collect consideration, they control the odds, and they can influence or change the economy. It's not really a "Player Run Economy" either if they can control and change the economy on a whim directly or indirectly. This is what Linden Labs tried with Second Life, and it didn't work out for them.
2. Player Gambling and Betting
The impression that Blizzard is trying to give is that the "Player Run Economy" will all take place between the players and they're completely hands off. We know that's not exactly true though. But, let's say for arguments sake that it truly was a player-run economy and that they profited in no way from gold or item sales.
What if players started gambling in game? What if they create virtual casinos like they did in World of Warcraft? (Which Blizzard had already banned and called "illegal.")
What if players engaged in gambling and placing wages in Arena PVP matches?
There are already some great communication systems in place to facilitate and support these exact activities.
The players might be doing something illegal, but Blizzard is supporting the activity, facilitating it, and maintaining it. And, as stated by Blizzard previously, since they don't view it as "gambling" in the first place, then that would mean it's not regulated, there's no oversight, minors can participate, and they're not stopping or preventing the activity from taking place.
Arena PVP would be an awesome betting and gambling system with very high stakes and risks. (And undetectable cheating.)
It might also encourage the development of virtual bookies, escrow services, and loan sharks. Don't have enough money? Just put your high level players up for collateral, if you lose, they're sold off. Gaming is becoming a professional sport, and it wouldn't be a professional sport without gambling and cheating.
3. "Gheed" Gambling and Artisans
As mentioned previously, there are references to gambling and a Gambling Vendor in the Diablo 3 beta files. They're right along side the General, Weapon and Armor vendors.
It appears that there was, at one point, a "Gheed" gambling vendor available in the game. I'm uncertain if it will be in retail or not, but I suspect that all references to "gambling" will be removed.
"Gheed" gambling is a gambling system within the game where you can wage gold, and there's a small chance to win a highly valuable item. That item can be, in turn, converted into real money.
Artisans also have a gambling feature. When you craft certain items, by inputting gold and materials, the item crafted has random statistics.. this means that you can gamble your money (gold) for a chance at winning an item of less, equal, or higher value. Salvaging of items is also gained through a randomized gambling system.. so you can gamble an item, to create random materials, which can be used for more gambling to increase overall value and win more cash.
You shake the dice when getting loot, you shake the dice when converting the loot into mats, you shake the dice when turning the mats into a random item, and you shake the dice when selling the item.
As you can see, there are layers upon layers of gambling systems within this virtual world.. and everything can be cashed out into the real world.
4. The Auction House Metagame
This is one of the activities that Blizzard lawyers might not have considered to be gambling. Blizzard has already boasted at great lengths about the new Auction House metagame within Diablo 3. They're completely right about the AH being a metagame.. it's a game of chance within a game of chance.
However, when you see how the system works, it's evident that "playing the Auction House" is actually a type of gambling.
Whenever you put an item up for sale on the Auction House, you must pay a mandatory Listing Fee. So, every time you post an item, you're taking a risk or a gamble that your item may or may not sell. If you don't win the AH gamble, you lose money. If you do win the AH gamble, Blizzard takes their cut and you get a cash prize.
There are inherent risks involved in every listing. And don't be fooled, there are a significant number of random variables that can alter your odds of winning or losing the AH gambling game; number of players buying or selling, when farmers are banned or allowed to play, when new patches are implemented, hotfixes, hacks and cheats, Blizzard changes listing fees or AH cuts, when certain regions have network access or others can't access the AH, Blizzard changes random loot, changes loot value, decreases loot drop chances, increases treasure drop amounts, changes skills or items that affect MF%, creates new items or loot, creates new bosses, changes number of monsters per zone, etc. All of these examples can drastically alter the economy and your chances of winning with just the simple flip of a number.
The RMAH metagame is like taking all of your winnings from various casino games, and then gambling with the casino to see if you can exit the building with your prizes. You also gamble to see how much they cut into your profits and how much you get to keep.
Bidding and Posting
Keep in mind that the RMAH "metagame" does involve chance and risk due to the non-refundable Listing Fee. But, there's very minimal case law when it comes to gambling and auction systems. There are a lot of websites or online games right now that are operating in murky legal waters because gambling commissions have not pushed the issue.. yet.
When you're posting items, you're playing a game against other players where very little skill is involved and it's mostly random chance. Bidding for items, on the other hand, is something different and more strategic.
So, forget auction listings.. what about just bidding in an auction?
When you examine the Unique Bid Auction system for example, it's considered gambling but not always enforced in most countries. The reason it's considered gambling is because BIDS are NON-REFUNDABLE.
(a) Paying a non-refundable fee
If no fee of any kind is required to bid, as with traditional auction models like EBay, the scheme is not a lottery because participants are not losing money or kind.
In Diablo 3, bids are refundable.. but posting items is not.
Last year, the Italian government shut down a number of online auction sites because they were charging non-refundable fees for bids. So, in Italy, unique bid auction sites are considered games of chance and they are illegal to operate without a gaming license.
And this was just for BIDDING on an auction, not even the POSTING aspect that I've been writing about.
There is also the Bidding Fee auction system (aka Penny Auctions) where players must pay a non-refundable fee to place on a small incremental bid. Some lawyers claim it's illegal and others say it is legal because bidding on the items is strategic. But, once again, it's very ambiguous because government regulators haven't pushed the issue.
In South Africa, however, this type of auction/gambling system is considered illegal. And, here's the interesting bit as to why:
(7) No fee may be charged for participation in an auction, but this does not apply to refundable deposits.
In other countries, though, they don't have any clear legislation about this type of auctioning system. Because of the advances in technology, gaming regulators just can't keep up and there are a lot of legal loopholes being exploited.
Swoopo is a good example in the US. They've gone bankrupt now, but it was under heavy criticism because of its gambling nature. This NY Times article was a funny read, the gambling industry consultant basically said: 'Well.. it's not really permitted in some states and most of Europe, but it's also not explicitly prohibited either." Brilliant.
I liked this part too from the sources in the Wikipedia entry: "the non-determinism comes directly from the actions of other users." That sounds very similar to the D3 RMAH, however Blizzard also has the ability to alter the non-determinism of LISTINGS by changing loot flow and random chance within the game.
If Blizzard and PayPal want to avoid any possible legal complications, they should remove the Listing (Non-Refundable) Fee to remove the definition of gambling from its auction system.
