Wagering With Videogame Loot Draws Regulator Scrutiny

ENLARGE Spectators watch a gaming competition in Atlanta in May, where 24 teams were playing ‘Counter-Strike: Global Offensive’ for $1.4 million in prize money. Photo: David Goldman/Associated Press

Players of the terrorist-hunting videogame “Counter-Strike: Global Offensive” like to swap virtual pistols and machine guns through the game publisher’s online store and third-party websites.

Now a state regulator is stepping in, saying digital weaponry bought and sold on some sites are being wagered as virtual currency on the outcome of videogame contests and online casino-style games.

The Washington State Gambling Commission last week sent a letter to Bellevue, Wash.-based Valve Corp., demanding it provide evidence by Oct. 14 that it isn’t facilitating the betting of the virtual weapons. Failure to comply could result in civil or criminal charges against Valve employees, according to the letter.

Valve, in an email, referred to a statement it made in July denying any business relationships with gambling sites.

Wagering virtual items has proliferated in recent years, fueled by two booming areas of the nearly $100 billion videogame industry: the live-streaming of games on sites like Amazon.com Inc. AMZN -0.32 % ’s Twitch and the rise of team-based competitions, called eSports, watched by millions of people around the world on such sites.

Gamers obtain virtual loot free as rewards while playing. Some rewards are doled out less frequently, making them more valuable. Gamers also have been spending real money to buy such goods online for years, with prices sometimes stretching into the thousands of dollars. Activision Blizzard Inc., ATVI -1.21 % for example, added a marketplace to its popular “Diablo III” game in 2012 to cash in on loot trading, but it shuttered the experiment less than two years later, saying it ultimately undermined the player experience.

In the case of “Counter-Strike,” decorative “skins” for virtual weapons can be bought and traded inside Valve’s popular online store Steam. They also can be bought and sold for real money on third-party sites. Regulators now say the skins are being wagered like currency and Valve facilitates it by letting people use their Steam accounts to log into some third-party gambling sites.

In a letter dated Sept. 27 sent to Valve Chief Executive Gabe Newell, Washington regulators said the company hadn’t responded to requests for information sent in February and March.

Valve still hadn’t responded as of Thursday, said Chris Stearns, Washington state’s gambling commissioner. The company “knowingly allows players and third-party sites to transfer skins for gambling activities,” Mr. Stearns said in an interview.

The regulator’s action comes after a Bloomberg Businessweek article in April sent waves through the competitive-gaming community, saying rampant wagering of digital loot was turning teenagers into serious gamblers.

In July, Valve released a statement denying any business relationships with skins-gambling sites. “We have never received any revenue from them,” the company said at the time. “And Steam does not have a system for turning in-game items into real world currency.”

Valve’s position hasn’t changed, a spokesman said in an email Wednesday. Since July, the company has sent cease-and-desist notices to more than 40 skins-gambling sites that had been accessing Steam users’ account information through the platform’s software, the spokesman said. Several of the sites responded by cutting off betting skins.

On Tuesday, a federal judge in Washington state dismissed a proposed class action filed by lawyers on behalf of adults and parents of teens over losses they say were incurred from gambling “Counter-Strike” skins. The suit alleged Valve’s skins market facilitated teenage gambling. The judge ruled that a disappointing gambling loss wasn’t sufficient to support the case on federal grounds. Attorneys plan to refile the case in state court in Washington.

Washington state regulators said they received complaints from residents about skins gambling and want Valve to work with them on a solution. “This is a new frontier and highly complex,” Mr. Stearns said.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

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