We have covered extensively the new ‘game of skill with prize’ regulations due to come into effect in Malta in 2017. These new regulations have been largely driven by the explosion of interest in daily fantasy sports, but they are not specific to these sorts of games. The natural question for entrepreneurs in this space to ask is what other games with elements of both chance and skill might benefit from gaining a licence under the new Maltese regime. Of the many candidates, the largest existing market that sits in this mix of skill and chance is poker, so will the regime impact on the relatively mature online poker market?
What are the new Malta regulations?
Let’s recap what Malta will soon be offering. Different jurisdictions have classified gambling differently and this has caused some uncertainty and therefore difficulty in the operations of companies providing games that have a mixture of skill and chance. For example, the US issued the Unlawful Internet Gambling Enforcement Act in 2006 which specifically states that daily fantasy sports (DFS) are permitted under federal law as they are determined to be a game of skill rather than a game of chance. Despite this, a majority of US states have taken an opposing position and confirmed that DFS are gambling and therefore prohibited. It is clear that DFS are an international grey area.
In response to the demand for clearer regulations, therefore, Malta this summer issued a legal notice that exempted fantasy sports from their gambling regulations, with a view to new ‘game of skill with prize’ regulations coming into force in 2017 and providing a separate licence framework. The new regulations define the games of skill as being a contest played for money or money’s worth and where the winning outcome is determined through the skill, knowledge and/or dexterity of the player, and where the results are determined by the accumulation of statistics.
What games are included within the definition of ‘skill’?
Malta’s proposed new Regulations identify that there are two types of skill based games and a new “light touch” regulation and licence will cover the following as games of skill:
Type 1: Games in which skill plays a predominant role, with a small element of chance still evident (for example, board games such as chess, card games such as rummy and some daily fantasy sports games)
Type 2: Games where the outcome is entirely dependent upon the skill of the player (for example, computer games such as FIFA and World of Warcraft)
Furthermore, the MGA have gone so far as to clarify the following in relation to Type 1 games;
“Games which are based on a random number generator at the start of the game such as cards or dice, but which rely on skill as the game progresses, such as is the case of games such as belote, tarot, rummy or backgammon, should be licensed, but in such a way as to be deemed different to gambling.”
So, where does Poker fit?
In light of the above, it is clear that the MGA wish to provide a clear distinction for some games to be identified as a game of skill. There is no clear mention of poker, however within the examples of skill games, despite explicit mention of similar card games such as rummy, where essentially the same format is applicable.
The argument of whether poker is a game of chance or skill is not a new issue but it will now become increasingly interesting to many poker operators who could potentially take advantage of a more relaxed regulatory perspective should they be able to obtain a licence under the new regulations.
The Fantasy Sports (Exemption) Legal Notice, 2016 explains that operators ought to expect to submit supporting evidence within their eventual application to illustrate why a game should be classified as a game of skill. As part of the application, it is advisable for operators to undertake a testing phase of the games and the MGA suggest a numerical test within this phase to identify the level of skill: “…if a skilled player is able to win more than 56% of his matches, then the game is one of skill, rather than chance.”
In theory, the numerical test should be relatively straight forward for a poker operator to pass by comparing skilled players and non-skilled players and whether the skilled players are able to win 56% or more of their games.
On the other hand…
Despite this, most poker operators will have already obtained the full MGA gaming licence or the equivalent in their respective jurisdictions and therefore the new regulations will not be relevant or as attractive as it would be for new start up operators. Additionally, if they wish to offer other games such as casino or sportsbook alongside their poker offering this new skill based licence would not be applicable. For new market entries looking for an advantage on a pure-poker site, however, the new regime could offer a real potential benefit as lighter regulation should translate into overall lower operating costs.
It’s not certain poker will be defined by the MGA as a game of skill; a lot rides on the final regulations when they come out next year. It is perhaps telling that poker has not been explicitly exempted by the legal notice, and there have been arguments to suggest that poker should remain closely regulated and scrutinised due to the high pay-outs available to players when they win. This inevitably turns attention to problem gambling and ethical gaming.
The jury is out, but the smart players are preparing just in case the result is favourable.
If you are interested in learning more about the new regulations and how to prepare for them, download our comprehensive report on 10 steps to gaining a game of skill licence.