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What are skill-based games, and what is their risk of gaming fraud?

There’s no denying it–mobile games are big business. Estimated to be worth $138 billion by 2025, mobile gaming is the preferred gambling avenue among post-baby boomer generations. While brick-and-mortar casinos are still raking in an impressive amount–$45 billion in 2021–it’s clear that mobile gaming is the gambling industry of the future. 

But just like the in-person casino that has both slot machines and poker games, the mobile gaming industry is home to more than just sheer chance. With the wide variety of the mobile gaming market, more and more players are putting their skills to the test–and their money on the line. 

What are skill-based games? 

As the name implies, skill-based games are games that rely on the player’s skill in order to win. In pure skill games, there is no element of randomness and the outcome is entirely reliant on the player’s talents and techniques. There can also be hybrid games which incorporate some elements of randomness–the cards one draws in poker, for instance–but in which skill still plays an important role, such as the ability to bluff. 

Skill-based games can be anything from chess to puzzle games to arcade-style games, and they don’t necessarily have to involve money. However, it’s also possible to bet on skill-based games, thus creating new monetary opportunities for the online gaming world.  

Betting on skill games can be a lucrative alternative to traditional gambling because it isn’t regulated the same way. The legal definition of gambling necessitates the element of chance (the literal “gamble” in question), and thus, games of skill are largely exempt. 

How do skill-based games differ from games of chance? 

Games of chance or randomness games are the opposite of pure skill games. These games rely entirely on correctly predicting an outcome that skill cannot influence. For example, there is no special way to push the button on a virtual slot machine that will make it hit the jackpot. Instead, game of chance players take the gamble that their prediction will be correct or that the outcome they desire will happen. 

Key TakeAways

  • Unlike chance-based games where players rely on luck to win, skill-based games put the user's skills to the test 
  • Regulators use three main tests to decide whether a game is a chance or skill based
  • While players can bet on the outcome of skill games, they aren't regulated as gambling at the federal level, unlike chance-based games
  • Games of skill are just as vulnerable to gaming fraud as chance-based games: players may cheat, collude, or engage in payment fraud 

How do regulators determine which games are skill-based? 

As mentioned above, some games are hybrids between skill and chance, meaning they can represent a legal gray area when it comes to whether or not the game is gambling. Because gambling is highly regulated and skill gaming is not, it’s important for officials to have a way to determine the difference. There are three basic tests used for this purpose.

Any chance test 

The strictest test for gambling is known as the “any chance” test. That is to say, if “any chance” is involved in determining the outcome of the game, then that game is gambling. 

For example, in the game of poker, players rely on their skill at bluffing and determining when to fold or raise. However, they also rely on a randomized deal, meaning that chance affects how well they do in the card game. Thus, under any chance test, poker is gambling. 

Predominance test

The predominance test imagines skill-based games and games of chance on a sliding scale, with pure-skill games like chess at one end and pure chance games like slot machines at the other. 

Regulators then rank the game in question on this scale. If the game falls closer to the skill-based end of the spectrum, then it’s sufficiently skill-based to not count as gambling. If the game predominantly relies on chance with only some elements of skill, then it is considered gambling. 

Material element test 

The material element test determines whether chance plays a meaningful role in the game’s outcome. Unlike any chance test, the material element test doesn’t determine if a game is gambling if there is any chance involved–only if that element of chance is materially important to the outcome of the game. And unlike the predominance test, the element of chance doesn’t have to play a large role. 

All the matters to satisfy the material element test is whether chance is one of the deciding factors in the outcome of the game. 

What are the fraud risks with skill-based gaming? 

Unfortunately, mobile skill games are just as vulnerable to online gaming fraud as traditional gambling. Here are a few examples of gaming fraud that affects the skill gaming space. 

CNP fraud

Players can place wagers on an online skill game, but because they don’t need a physical credit card to do so, fraudsters might use stolen credit card numbers to place their bets. CNP or card-not-present fraud is a type of payment fraud used in transactions where a physical card isn’t necessary. In these cases, the fraudster uses stolen financial information from social engineering, phishing, or a data breach to place their wagers. 

When the original cardholder discovers the unauthorized transactions, they file a dispute with their bank, and the gaming app loses out on the revenue and any associated transaction fees. 

Player collusion

The odds may be more in the player’s favor than with chance-based games, but that won’t stop some fraudsters from tipping the balance even further. In these online gaming scams, two or more fraudsters will spoof their location so that it appears they are in different places. Then, they join a group game together and use their in-person connection to strategize against the other players. 

This type of online gaming fraud decreases the user experience for players who game fairly, and it can cost the other players and app money in terms of unfair bet winnings. 

Compliance violations

Though games of skill aren’t regulated at the federal level, some states do have regulations around betting against them. For example, in Florida, wagering on skill games is illegal, as-is traditional gambling. 

In states like New Jersey, however, skill-based game betting is legal so long as game operators follow guidelines such as plainly explaining the rules of the game to players before taking money. 

Compliance violations can be costly for the gaming app involved in them, even if it isn’t the parent company’s fault. For example, fraudsters using location spoofing can play from a location where skill-based game wagering is illegal, causing a compliance violation that could turn into a hefty fine if discovered. 

Bonus abuse

Online gaming apps often offer bonuses to encourage new players to sign up, such as a certain amount of free play or credits. In bonus abuse mobile game scams, fraudsters use a device farm or even a single device with a spoofed location to sign up for hundreds of accounts and scam game apps out of this bonus money. 

Skill-based gaming fraud detection 

Detecting online gaming scams is crucial to maintaining the profit margins and user experience of skilled gaming apps. Luckily, many of the fraud detection practices used for online gambling work just as well for these less-regulated games. 

For example, spoof-resistant location technology can be used to stop bonus and player collusion. By using a combination of location signals and device intelligence, spoof-resistant location can detect the use of emulators and other spoofing tactics and return a high fraud risk assessment to app administrators. Location technology can also provide real-time address validation to stop compliance violations

For other types of fraud such as CNP and account takeovers, fraud prevention professionals can rely on multi-factor authentication and passive authentication to keep users safe. 

Skill-based games may not rely on chance the way that traditional gambling does, but that doesn’t mean that players have to take chances with their trust and safety when participating.