New Ukrainian Gambling Law adopted and in effect: what are the implications for eSport and eGaming industry?

New Ukrainian Gambling Law adopted and in effect: what are the implications for eSport and eGaming industry?

On 14 July 2020, the Ukrainian Parliament adopted the Ukrainian law “On State Regulation of Organising and Conducting Gambling” (Gambling Law) ending more than a decade-long ban on gambling in Ukraine. Despite the prevailing opinion that the President would likely veto the adopted Gambling Law due to the conflicting provisions in the law, on 11 August, the Gambling Law has been signed into law. The next day after the President put his signature on the text of the law, it was officially published resulting in entering the Gambling Law into force as of 13 August 2020.

In this overview, we provide our first thoughts on the new gambling regulations in Ukraine with a focus on the possible effect on the eSport and eGaming industry. The adopted Gambling Law is complex, so further careful studying is required. But the first check of the introduced basic gambling regulations appears to be sufficient to now conclude that even the basic regulations have fundamentally changed arguably raising more regulatory risks for the eSport and eGaming industry.

Definitions matter

The definition of ‘game of chance’ given in the adopted Gambling Law differs from what the eSport and eGaming industry has used to rely on since 2009, i.e. since when the Law of Ukraine “On Prohibition of Gambling Business in Ukraine” (Gambling Ban Law) – now repealed by the Gambling Law – had been in effect.

In particular, by definition given in the Gambling Ban Law, ‘game of chance’ meant any game where (i) paying money, including through e-payment system, is a mandatory precondition for participation in a game; (ii) paying money for participation and participation in the game give an opportunity for a participant to win an award (prize) in any form, (iii) which the participant may get (or not) depending on a chance.

The Gambling Law now defines the ‘game of chance’ as any game where (i) placing a stake is a precondition for participation in a game; (ii) due to placing the stake and participation in the game, a participant is granted the right to win an award (prize), (iii) probability to win and extent of the award (prize) fully or partially depends on a chance, as well as knowledge and mastery of the participant.

Moreover, by contrast with the Gambling Ban Law, the Gambling Law also suggests a broader meaning of the stake. The Gambling Ban Law expressly stipulated that only money could be paid to enter the game. The Gambling Law defines that a stake shall mean money or a Ukrainian Hryvna substitute that is given by a participant to a house; constitutes a pre-condition for entering a game; and where the extent of the award (prize) depends on the stake amount as per the game rules. The Gambling Law also defines what should be considered as the Ukrainian Hryvna substitute.

The revised and extended key definitions, especially the revised ‘game of chance’ definition now with reference to knowledge and mastery of the participant, likely increase regulatory risks for eSport and eGaming companies which operation also covers Ukraine. And, as further reading of the Gambling Law reveals, not only definitions.

Revised and replicated derogations

If compared to the Gambling Ban Law, the new Gambling Law contains a shorter list of activities that should not qualify for gambling (game of chance). In particular, the following activities have been excluded from derogations:

  • drawings in the form of contests (games, quizzes) which rules envisage (a) free of charge acquisition of a participant status, as well as (b) obtaining an award in monetary or material form for a win by the participant who showed better knowledge and skills.
  • free of charge drawings for entertainment, charity, and cognitive purposes.

The Gambling Law also provides for that organizing and conducting creativity competitions, sporting events, and the like also should not be considered as gambling irrespective of whether the game rules envisage or not an award in monetary or material form. However, this derogation replicated from the Gambling Ban Law does not seem to be well applicable to the eSport industry.

A brief insight into betting regulation

Paragraph 3 of Article 31 of the Gambling Law provides for general permission for betting companies to take bets on the outcomes of events. However, it is prohibited for the betting companies to:

  • take bets on the outcomes of virtual games and events which are created or defined by random number generator.
  • take bets (conduct a wager) on virtual events and/or virtual games.
  • set up in a betting area a gaming equipment which provides access or independently creates (generates) virtual (artificial) events or games, including with the use of random number generator, as well as take bets on such events and games.

The Gambling Law defines what should be treated as virtual game but is silent when it comes to the virtual event. It seems that the virtual event requirements will need to be interpreted at least using the notions of ‘event’ and ‘chain of events’ definitions, as both given in the Gambling Law.

Next stake step for e-sport industry

Ironically, for the gambling industry, the number 13 (a day when the Gambling Law is entered into force) is associated with bad luck (though some gamblers challenge fate striving to buck the trend). Obviously, it is not a moment for all potentially affected to feel drawn to the number 13 but to show their disdain for superstition and carefully navigate through the new complex regulations. The amended ‘game of chance’ definition (i.e. now with the reference to knowledge and mastery of the participant) and lack of two derogations (discussed above) apparently increase the risks that the Gambling Law can potentially apply to some extent and in some cases to the eSport and eGaming. It is therefore advisable for the eSport and eGaming companies to reconsider and update their established approaches in respect of the gambling regulations in Ukraine as well as re-assess the regulatory risks.

 

For further information, please contact Oleg Klymchuk (oklymchuk@brandsfield.legal).

Information contained in this overview is for general information purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for specific professional advice tailored to particular circumstances.