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Casino Equipment in Second LifeSecond Life creator Linden Lab posted a policy clarification regarding gambling today, and it’s far more restrictive — and far more clear — than anything we’ve seen before. Though the subject of some debate, most commentators agreed that Linden Lab was flirting with trouble under its earlier policy given existing U.S. law. No longer.

Gone are the vague weasel words about advertisements “appearing to relate to simulated casino activity.” Gone are the easy outs for “Kasinos” and “Games.” They’re making it pretty clear here: “it is a violation of this policy to wager in games in the Second Life environment operated on Linden Lab servers if such games (1)(a) rely on chance or random number generation to determine a winner, OR (b) rely on the outcome of real-life organized sporting events, AND (2) provide a payout in (a) Linden Dollars, OR (b) any real-world currency or thing of value.”

They say they will actively enforce this, and outline some serious penalties that range from object removal to reporting the activity to real-world authorities.

The policy states, “If we discover gambling activities that violate the policy, we will remove all related objects from the inworld environment, may suspend or terminate the accounts of residents involved without refund or payment, and may report any relevant details, including user information, to authorities and financial institutions.”

My take on all this follows, and it might not be what you think.

Commentary – Linden Lab is Behaving Like a Grown-Up Company

Some of you aren’t going to like this policy, but you can’t deny that it’s clear. It’s points-with-subpoints-and-definitions-clear. It’s a 9-question-FAQ clear. You aren’t allowed to gamble in Second Life any more. Period. If you do, they’ll take your toys away. Some people aren’t going to like it, and I’m probably going to alienate some readers here, but I couldn’t be happier.

Why? Well, because though I don’t really care if they restrict gambling, or ageplay, or steampunk builds, or furry communes, or whatever (we’ll all just leave, probably to private grids, if we hate it enough) I do get upset when they don’t make it clear what the rules are. That’s been the problem all along with the gambling policy, and it’s also been the problem with the infamous policy against that which is broadly offensive. They fixed one of these today, and now the grid is a more certain place. That’s good for business, good for citizens, and overall, good for the future of Second Life.

It feels, to me, like Linden Lab grew up a lot here. For the first time in a long while, a potentially controversial policy statement has obviously been at least vetted, and probably written, by the legal department. Frankly, it reads better than a fair number of laws I’ve had to parse. So at the risk of alienating a lot of readers, I’m going to say… well done.

It is going to cost some people some money, and that’s too bad, but folks, get real. You had to know you were on thin ice here to begin with.

Is it perfect? No. For example, I already see a couple of potential loopholes. First, it looks like betting on real-world non-sporting events (e.g. the Oscars, Survivor, elections, etc.) isn’t prohibited. And second, it appears users can gamble on anything at all as long as the payout is in virtual goods. There are to be no payouts on games of chance in “(a) Linden Dollars” or “(b) any real world currency or thing of value.” So unless they are planning on sticking “(c) any” between the second “or” and the phrase “thing of value,” it looks to me like you’re allowed to bet a thousand Lindens against your bookie’s detachable penis on the outcome of a Reds game.

But really, even if they don’t patch up the text, are you going to bother? There are way better places to bet online anyway, and how long can it be before one of them opens a private server where you can make bets as your avatar?

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23 Responses to “Clear Policy Statement Bans Gambling in Second Life”

  1. on 25 Jul 2007 at 8:11 pm

    In order to complete their clean up of this issue, they need to address three problems:

    1. The Pachinko Problem – where someone uses a good to act as a surrogate for currency at a third party location (your detachable penis or, in Japan, a stuffed animal or toy). In Japanese Pachinko parlors, players take their prizes to an adjacent store and convert them to currency. Of course, in Japan, the Yakuza are very involved in all of this, allegedly.

    2. Skill Games – In the US, there are only 40 states where skill-based games are legal. It would be wise to address this scenario (skill games are games where payments are made to play, there is no element of chance (or, in some jurisdictions, different amounts of skill which allows poker, gin, and backgammon), and a prize).

    3. There is actually an interesting question related to contests, sweepstakes, and promotions which are regulated on a state-by-state basis – anyone considering these things should proceed with caution and consult a lawyer.

    It would have been corporate suicide to leave this loophole open in the face of the UIGEA which went in force earlier this month – especially for a US based business. Because Linden dollars can be converted to dollars, Linden also needs to be concerned if someone uses Linden dollars as a payment channel for an online casino with the game outside of SL (this would not be a terrible idea as Paypal does not process gambling payments anymore and many payment processors will not either since the UIGEA passed). Existing payment processors take a big percentage to handle gambling transactions, so simply handling the payments through SL would be financially beneficial.

  2. Whilst I think it’s a shame that US law is rather silly on this (and I’m not a gambler, RL or SL, I just don’t think they should stop you gambling if you really want to), I agree that LL basically had no choice.

    There is a lot of speculation about a couple of things. Does Tringo, Slingo etc. count as gambling? Do ‘sploders?

    In the UK Bridge counts as a game of skills, so you can gamble on bridge without a license, poker doesn’t… Is Tringo skillful and so not gambling, whilst ‘sploders are pure chance and so illegal?

  3. on 25 Jul 2007 at 8:30 pmBenjamin Duranske

    I’d say tile-games (Tringo, etc. — that’s probably the wrong word but you know what I mean) that depend on skill are okay under this policy because they do not rely on chance or random number generation to determine a winner. Chance might dictate the players’ starting position, but skill dictates the winner.

    They definitely do need to clear that up though (and the other questions raised by these comments). Excellent points.

    I’m not an expert on gaming law, so I’m really interested in hearing more from posters with a background in this stuff. Sounds like maybe Steven?

    And dumb question from me, Eloise, but what’s a ‘Sploder?  I assume it ‘splodes money somehow, but what are the details?  Does everyone pay it or something?

  4. on 25 Jul 2007 at 10:22 pmEloise

    Some group of people put money in it. After some time it “explodes” giving all those who put money in some random amount of money back. More, less, the same, it’s definitely all a matter of chance.

  5. on 25 Jul 2007 at 10:50 pmBenjamin Duranske

    Sounds like no ‘sploders to me then.

  6. on 26 Jul 2007 at 8:50 amAshcroft Burnham

    Maybe it’s time for Linden Lab to move to Sealand ;-)

  7. on 26 Jul 2007 at 9:43 am

    First off, I am not a lawyer, but I follow policy and legal issues related to online games and virtual worlds as I am a security guy.

    Games with an element of skill are not automatically exempted from gambling regulations. As I noted previously, there are about 10 states in the US that do not even allow games of skill. The easy way to check on the law is go get a McDonalds game piece and see what states you can’t play in.

    My latest understanding of what is going on in the UK is that even operators of games of skill will require a license (this is based on the opinion of a lawyer from the UK in regard to whether Sony’s Station Exchange will require a gambling license).

    The classic definition of gambling (in the US) requires 3 conditions to be met:

    1. Payment for participation.
    2. An Element of Chance (in determining the outcome).
    3. A potential prize.

    Thus, games that have both skill and luck are subject to 2. This is one of the areas where states in the US vary (preponderance of skill, any skill at all, etc.).

    Even free to play games (contests, sweepstakes, and promotions) are subject to some state level regulation – it is amazing how many people online don’t remember this.

    I cover these issues at length over at my blog:

    Check the Skill games and Gambling sections.

    The money issue for Second Life under UIGEA is relevant even if the company moved to Sealand :) . UIGEA puts an obligation to financial institutions wherever they are – it is quite disturbing from that perspective in terms of the precedent it opens.

  8. on 26 Jul 2007 at 9:54 amBenjamin Duranske

    Great comments, Steven. Lawyer or not, you know more about gaming law than any attorney I personally know. Not too many of us specialize in that. I appreciate your comments.

    I did look into the contest issue for a client at one point and I was shocked at the complexity of the state regulations. The sheer number of tiny hoops that had to be jumped through explain why we see disclaimers on contests like: “Not available in Texas, Hawaii, or Connecticut; only available to participants over 20 in Minnesota; only available to participants over 22 who have recently purchased a Ferrari in New Jersey; under no circumstances can this game be played in Wisconsin while wearing a hat.”

    I think it’s illustrative how a clear policy from Linden Lab moves the debate on this to the next level, which is where it really needs to be. Not just for Linden Lab, but so that they don’t unwittingly get a bunch of their users charged with crimes by virtue of taking too hands-off an approach.

    Thanks again for your comments. I’ll check out your blog, and I hope you keep coming around.

  9. on 26 Jul 2007 at 2:16 pmAshcroft Burnham

    It also shows just how wholly improper it is for a government to prohibit people from doing whatever they like with their own money, and how oppressive and arbitrary the results of such unjustified interference with liberty.

  10. on 27 Jul 2007 at 1:50 pmGxeremio Dimsum

    I’ve seen a lot of people (both defenders and attackers of Linden Lab) say that this move is about US law, but I have a few questions about that assertion:

    1. What laws would LL potentially be violating, IF it were charged, based on the way it operated before the wagering ban? I’ve read through the UIGEA as well as relevant California law and it’s not immediately obvious that LL could be convicted under any of its provisions.

    2. Linden Lab is ostensibly bound to obey California and federal law. But what if it broke the law of a more conservative state, like Utah? Could anything be done?

    3. Which elements of this change of TOS seem to match up with related laws, and which go further than the law? How would you account for these discrepancies?

    4. What is the likelihood of a mock trial on this issue (perhaps carried out within Second Life)?

  11. on 27 Jul 2007 at 2:48 pmBenjamin Duranske

    Gxeremio – thanks for your comments.

    Re: your 1st point, the two links at the end of the first paragraph in this article give a good outline of the problems Linden Lab was facing, imo.

    Re: your 2nd point, the interaction between various states’ laws is tricky, but I’m not aware of any big discrepancies between Utah and California that would matter to Linden Lab (People don’t *actually* drink alcohol or strip in Second Life, and there’s all sorts of protections at the constitutional level that Utah can’t change.)

    Re: 3rd, they didn’t officially change the TOS, but I get your meaning. It depends about where you’re talking about. I think they’ve moved to comply with, and not go beyond, Federal and California law. They’re clearly going beyond laws in, say, Antigua on online gaming, and they’re probably not going as far as, say, Taliban controlled areas (some folks get nekkid in SL clubs, and I don’t think I’ve yet seen a Burqa inworld).

    Re: 4th I’d love to see a mock trial of a gambling charge against Linden Lab conducted in Second Life! I’ll shoot a note to the folks at the Berkman Center at Harvard who run those and suggest it. That’s a pretty good idea.

  12. on 27 Jul 2007 at 5:09 pmHenri DeCuir

    Cheers, Ben, for noting that although this may take away some fun for folks in Second Life, it is a step in the right direction for Linden Labs and ultimately the stability of Second Life.

    Everytime Linden Labs talks about currency, though, I always think about their TOS. Particularly the point that makes me nervous:

    “1.4 Second Life “currency” is a limited license right available for purchase or free distribution at Linden Lab’s discretion, and is not redeemable for monetary value from Linden Lab. ”

    That line kept me from trying to make money in SL for quite a few months. Until I saw that it wasn’t even remotely true. Linden Labs redeems my L$ for monetary value nearly once a week. Although they claim that I’m selling it to another user, I don’t actually see any of that, and all of my correspondence on the issue comes from LL. In fact, they seem to take quite a cut of it. And my paypal account is creditted by Linden Labs, not by the third party buying L$ from me.

    So, anyways, when they start prohibiting gambling where the payout is solely in L$, it really makes me think. Although they say L$ is a “currency”, presumably distinguishing it from a “real” currency, aren’t they getting closer to it being a direct parallel to US$ when they make definitive statements like this? Particularly, and as you’ve noted above, have they differentiated between L$ and “virtual goods” to a point that L$ is now something more tangible than the bookie’s detachable penis?

    Vague thoughts, I know, but it’s the end of the week. Have a great weekend, all.

  13. on 27 Jul 2007 at 5:23 pm

    Running a commercial gambling venture without a license is not legal in almost any jurisdiction – even if gambling is legal. Gambling is a highly regulated industry everywhere. Companies and their officers are vetted to make sure that they aren’t associated with organized crime or have unsavory personal or financial relationships, casinos are required to retain substantial immediate cash reserves to pay customers, game equipment is reviewed by a state regulator or designated testing lab, software is evaluated, payouts are approved, operations are supervised, even game equipment manufacturers are subject to serious oversight.

    Even the internet gambling guys get a license from someone and go through some sort of process (even in Antigua)

    Second Life is in California and I am pretty sure that the laws there are the same as elsewhere. Since SL profits from the casino operations by the hosting of the service, charging the virtual casinos rent, and the exchange of currency, they could be at some risk. The business ventures inside of SL are certainly at risk (often governments will go after the deeper pockets first).

    The reason that SL may be at risk under UIGEA is that they are acting as a de facto payment processor for gambling operations (the SL casinos) and payment processors are the target of the UIGEA.

    There have been some disturbing cases where online businesses that are operating legally in their own state have been tried on obscenity charges in other states using local community standards laws. (sorry, I don’t have the cases at the tip of my fingers). The jurisdiction problem needs to be addressed for online services badly!

    If SL advertises or markets “in Utah” via web ads, ads that show up in magazines, etc., then a Utah DA could claim that they are operating in Utah and hence subject to Utah jurisdiction. The US has not really settled these matters as well as one would hope.

  14. [...] One prominent commentator, however, has expressed his approval: Some of you aren’t going to like this policy, but you can’t deny that it’s clear. It’s points-with-subpoints-and-definitions-clear. It’s a 9-question-FAQ clear. You aren’t allowed to gamble in Second Life any more. Period. If you do, they’ll take your toys away. Some people aren’t going to like it, and I’m probably going to alienate some readers here, but I couldn’t be happier. [...]

  15. on 29 Jul 2007 at 2:13 pmProkofy Neva

    Linden Lab was able to be clear because…*drum roll*….RL law was clear. That’s how it works! If RL law has sub-points and 9 FAQs, so can the Lindens. RL Internet gambling law is crystal-clear having been worked out not by 27-year-old Lindesidents in charge of “governance” but by…democratically-elected Congress? With lawyers and legislative assistants? And public accountability and input? Hello?

    Internet law is *not* as crystal-clear about these ageplay/child porn images in the U.S. That is, “Ashcroft” might be straightforward enough, but not 100 percent unassailable as some think it is, due to tests for obscenity that virtuality frankly hasn’t been put to. EU law about virtual or cartoon images is more clear as they went after it earlier and with more motivation after a lot of infamous child porn ring cases were prosecuted.

    RL law is going to go on getting more clear, and LL will be forced to get more clear, too — and that’s not to their credit.

    They could be driving RL law and its responses, instead of reacting to it.

  16. on 29 Jul 2007 at 2:16 pmProkofy Neva

    Running a commercial gambling venture without a license is not legal in almost any jurisdiction – even if gambling is legal. Gambling is a highly regulated industry everywhere.

    Right. And I’m not aware that there is uninhibited and unregulated gambling in Europe? Most likely there are less strict laws, as you can find casinos all over, in restaurants and airports and malls, where it would be harder to put them with licenses in RL. Still, they must be regulated somehow, and this slam on the U.S. as being Puritanical for regulating casinos seems merely the usual anti-American kneejerk reaction to me.

    Europeans brought us the SL ageplay ban, don’t forget. Let’s see who can top whom in being Puritanical *cough*.

  17. on 29 Jul 2007 at 3:49 pmBenjamin Duranske

    FYI – in comment #15 Prokofy is referring to the case Ashcroft v. Free Speech Coalition, not the Second Life resident who shares a name with the former U.S. Attorney General.

    Here’s a link to Wikipedia entry on that case:

  18. on 02 Aug 2007 at 8:48 pmVincent Valentine

    When are the control freaks of the world going to learn that the internet is all about freedom. Leave it alone and leave us alone!

  19. on 02 Aug 2007 at 8:57 pmBenjamin Duranske

    Vincent – Thanks for the comment. I personally think gambling should be legal everywhere, but it isn’t, and Linden Lab really didn’t have a choice here.

  20. [...] Second Life creator Linden Lab recently clarified it’s July 25 ban on gambling. The clarification FAQ, linked here, includes the following important passages, some of which clear up questions raised in VB’s earlier post and subsequent comments about the ban on gambling. [...]

  21. [...] Second, where there’s a gray area in the law (e.g. the validity of recent patent applications on virtual world technology, “ownership” of virtual land, and the value of real world currency) I generally try to point that out or approach the issue in a way that makes it clear it is up in the air. Those notes, of course, take a somewhat more neutral tone, and if I do miss a counterargument, readers usually catch it in the comments. Finally, there are some issues that VB confronts — like the illegality of ponzi schemes, the legality of virtual escort work, and the necessity of Linden Lab complying with the UIGEA — where the issues appear, from a legal perspective, to be rather black and white. On those, I’ll continue writing in my usual voice. [...]

  22. on 12 Sep 2009 at 5:55 pmFather Jones

    Any teenager can make a free account into the virtual world Second Life. In 2007, newspapers reported that Linden Lab had banned all gambling in Second Life. But now anno 2009 the opposite happened. There is now a form of UNREGULATED hardcore gambling going on with bingo-style games. Most popular one is called Zyngo. Any teenager and adult can freely gamble on those games. Too many people are losing too much money on ‘Zyngo’. And it is for sure a gambling game first class. Talking about too much money, I mean like people playing for 1000 USD in one hour. Did you guys ever searched for high roller places with Zyngo? You can play machines there for 5000 (17 USD)up to 50000 Linden Dollars (175 USD) a game, with pots to win up to 1 million Linden Dollars (3500 USD). I wonder when someone will have the guts to bring this to the right people, the press, the financial company’s Linden Lab is depending on, and also of course the US government,… There are lots of ‘casino’s’ in Second Life made for making huge money, not just the money you need to buy you a pair of shoes, a piece of land and a house to live in your virtual world. Millions of dollars are running around in this gamblingbusiness on Second Life. Anyone doubting my words: just take a look yourself inworld (look for Zyngo in the searchtool).

  23. [...] in this month’s Gaming Law Review. Of course, a mere few days later, Virtually Blind reports that Second Life has issued a clear “ban” on in game gambling, making some of the [...]

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