Malta and the Booming eSports Industry

Malta’s plan to be the go-to jurisdiction for everything that is competitive gaming might seem, at first sight, to be unattainable in view of its East Asian, American and European counterpart jurisdictions, some of which having well-established ties to this sector.

Nonetheless, from its undisputed position as Europe’s iGaming hub to being dubbed the ‘Blockchain Island’, Malta is undoubtedly an attractive jurisdiction and its vision of becoming a hotspot for esports is certainly possible. Malta’s attractiveness emanates from the fact that it is a reputable jurisdiction with serious regulation in place, talent and know-how. This is further substantiated by the fact that the islands have attracted a host of gaming companies from big industry players to smaller innovative start-ups. It is also due to the fact that the Maltese jurisdiction is a one-stop shop when it comes to support – being the place where a number of data centres, online payment processors, security auditors, gaming software developers, platform providers and affiliate marketing firms have established themselves.

The Maltese legislative gaming framework has recently undergone an overhaul. Boasting to be technology neutral as well as game neutral, the framework allows itself the possibility of extending its reach to the offering of any kind of gaming activity.

Whilst the betting on esports can easily be classified as a gaming activity for which one would require a type 2 gaming licence, the organizing of esports competitions and/or tournaments is not considered to be a licensable activity under Maltese law.

Under the current legislation, games of skill are considered to be exempt games. Skill games are defined as “an activity the outcome of which is determined by the use of skill alone or predominantly by the use of skill, but excludes a sport event”.

The general rule is that, as their name entails, the offering of exempt games and thus, by default skill games in or from Malta negate the necessity of obtaining a licence from the Malta Gaming Authority (“MGA”), unless they are classified as a controlled skill game.

Pursuant to a ruling issued by the Authority on 1st August 2018 (as an extension of its previous ruling issued on 27th January 2017), in terms of the laws of Malta, the only type of game which is currently licensable as a type 4 ‘controlled skill game’ is fantasy sports.

Whilst esports is predominantly based on skill, an element of chance does exist with the presence of a random number generator affecting the outcome of the game.

Ultimately, it is within the MGA’s remit to determine whether a game is one of chance, skill or a controlled skill game with the burden lying on the party operating or promoting the gaming activity to show that the game is one of skill. In making this determination, the Authority will take into consideration a number of factors as are laid down in the Gaming Authorisations Regulations including, amongst other factors, the possible negative social impact the game may have on the player, the duration of the event or competition and whether skill gives a player an advantage over an unskilled player.

The reasoning behind the exemption of skill games lies in the fact that they don’t pose the same risks as games of chance and thus, the risks associated with these games don’t necessitate the imposition of stringent licensing requirements. Players of skill games participate therein for the entertainment and the satisfaction they get out of improving their skill rather than the achievement of a real money prize and often take longer to conclude than games of chance. Thus, it is considered that games of skill are adequately protected by means of general consumer protection legislation.

Nonetheless, the current Maltese legal gaming framework enables the Authority to extend its control over those games of skill which due to the additional risks they are considered to pose to consumers warrant the imposition of additional regulatory supervision and this through the requirement to obtain a type 4 licence.

However, with the esports industry currently facing the same risks encountered by traditional sports – doping, match fixing and other non-gambling corruption – it is questionable whether one can accurately state that the current general laws on consumer protection sufficiently protect esports. Players are still exposed to social risks such as spending excessive amounts of hours playing the game with the possibility of shifting from the playing of esports to real money gambling. As this niche industry is steadily moving towards the mainstream, these risks will only become more apparent, unless some form of regulation is implemented.

Malta’s pro-active approach to regulating the iGaming industry back in 2004, is evidence that regulation, as opposed to prohibition, is the most effective way forward to ensure the integrity and fairness of the games and the safety of the players, as well as the fans.

The establishing of common standards across the sector would seem to be the best way to achieve this but would nonetheless prove challenging. At this point therefore, operators should seriously consider self-regulation as a stepping stone to the expected next phase of enforced regulation which will follow in the near future. When policy-makers decide to step in, they should avoid over-regulation and should seek to strike a balance between ensuring the protection of consumers and the legitimacy and growth of the sector as a whole.
Certainly, all industry stakeholders are eager to see how Malta will transform itself into the next destination for the world of digital media. From a legal advisory perspective it would be even more interesting to see whether the Authority will consider the abovementioned risks as requiring involvement from its end and thus, whether it will consider esports to merit the same regulatory and supervisory requirements as fantasy sports.