Esports Laws in California, Colorado, and Arizona
Legal notice: This information is legal information only and we do not guarantee the completeness or accuracy of any legal information provided. If you have any questions as they relate to your company, you should consult an attorney.
In my previous articles here and here, I provided an overview of how state lottery and gambling laws can restrict esports tournaments. In this article, I will discuss state laws that can affect esports tournaments in Arizona, California, and Colorado.
As I’ve said before, esports competitions represent a rather novel, and largely untested field of law. Depending on a state’s internal dynamics and public views toward a given esport event and gambling in general, a state may take a more “lax” approach despite its stated laws, or a more aggressive one. The following is only meant to be an introduction to potential pitfalls in select states.
Arizona
Arizona follows the Predominance Test when determining whether an esport contest is a Contest of Skill or a Game of Chance, which seemingly allows for the kind of esports tournaments commonly found elsewhere. However, it has specific provisions which require tournament organizers to forego either offering cash prizes or collecting entry fees, even if the contest is in fact considered a Contest of Skill.
§ 13–3302 of the Arizona Criminal Code permits certain types of gambling, of which two are most relevant to esports: Amusement Gambling and Social Gambling.
Amusement Gambling: Entry Fees Ok, But No Cash Prizes
Many esports competitions could be considered to fall under Arizona’s definition of Amusement Gambling. There are a number of factors stated in § 13–3301(1), but the most relevant one is § 13–3301(1)(d)(iv), which states that Contests of Skill may be considered to be a form of Amusement Gambling, and as a result, allowed, only if:
“no benefit for a single win is given to the player or players other than a merchandise prize which has a wholesale fair market value of less than ten dollars or coupons which are redeemable only at the place of play and only for a merchandise prize which has a fair market value of less than ten dollars and, regardless of the number of wins, no aggregate of coupons may be redeemed for a merchandise prize with a wholesale fair market value of greater than five hundred fifty dollars.”
Unfortunately, this provision effectively prohibits cash prizes for esports tournaments, though there is some opportunity to provide merchandise prizes of limited value.
Social Gambling: No “Business” Allowed
While larger esports scenes are heavily restricted, Arizona’s does allow for Social Gambling, which can allow for smaller groups of players aged 21 or older to compete with entry fees for cash prizes, provided that the gambling is not conducted as a business and no one other than the winning players receives any portion of the winnings. §13–3301(7); §13–3302(A)(2).
So if you’re wondering if you and your Arizona friends can get together and run esports tournaments for cash prizes while charging entry fees, the answer is yes. But you can’t turn it into a business.
Intellectual Contests
§ 13–3311 of the Arizona Criminal Code provides another route for potentially hosting esports tournaments that it defines as “intellectual contests”. Think “Jeopardy” or a spelling bee. If your game can be categorized here, you could both require entry fees and offer cash prizes — but you are required to pre-register with the Arizona Attorney General first.
No Entry Fees
As stated in my previous article, your Arizona esport event can still avoid being classified as “gambling” altogether if no entry fee is required. § 13–3301(d) requires that something of value by risked by the player for event to be considered a form of “gambling.” If you do not charge entry fees, then nothing of value is risked, and you are free to offer cash prizes in your esports Arizona event.
California: Cash Prizes and Entry Fees OK — With Certain Strings Attached
California is more forgiving in that any game that involves a degree of skill will be categorized as a Contest of Skill, even if chance predominates. Haskell v. Time, Inc., 857 F. Supp. 1392 (E.D. Cal. 1994). Illicit lotteries are defined in § 319 of the California Penal Code as being distributions of property “by chance” and makes no mention of implicating skill games.
California Business and Professions Code § 17539.3 defines a “contest” as “any game, contest, puzzle, scheme, or plan that holds out or offers to prospective participants the opportunity to receive or compete for gifts, prizes, or gratuities as determined by skill or any combination of chance and skilland that is, or in whole or in part may be, conditioned upon the payment of consideration.
But while Contests of Skill with cash entry fees and prizes are not considered illicit gambling in California, California still requires certain specific requirements be followed.
BPC § 17539.1 provides a list of rules that Contests of Skill must abide by. Fortunately these are generally common sense and followed by most tournament organizes. The following acts are prohibited by California when running an esports competition:
· Failing to disclose entry fees, total number of contestants anticipated, and percentage of contestants that are anticipated to “win” in the event’s marketing materials
· Misrepresenting in any manner, the rules, terms, or conditions of participation in a contest
· Failing to clearly and conspicuously disclose with all contest games the maximum number of games that may be necessary to win the contest; the method of determining prizewinners if a tie remains after the last tie breaker game is completed; and all rules, regulations, terms, and conditions of the contest.
· Failing to clearly and conspicuously disclose the exact nature and approximate value of the prizes when offered
· Failing to award and distribute all prizes of the value and type represented
· Failing to obtain the express written or oral consent of individuals before their names are used for a promotional purpose in connection with a mailing to a third person
· Using or distributing simulated checks, currency, or any simulated item of value unless there is clearly and conspicuously printed thereon the words: SPECIMEN NONNEGOTIABLE
BPC § 17539.2 further provides a list of affirmative steps the event organizer must take in promoting and conducting their esports competition. Every person who conducts any esports contest in California shall:
· Clearly and conspicuously disclose on each entry blank the deadline for submission of that entry
· Refund all money or other consideration to contestants requesting such refund in writing within one year of payment and who are unable to participate in any aspect of any contest through no fault of the contestant
· At the conclusion of the contest send to all entrants upon their request the names of all winners, the prize or prizes won by each
· Maintain for no less than two years after all prizes are awarded all the following: copies of all contest solicitations; all correspondence sent by a contestant or copies or records disclosing details thereof and records of replies thereto; adequate records which disclose the names and addresses of all contestants, the approximate date each contestant was sent each puzzle or game, the number of prizes awarded, the method of selecting winners, the names and addresses of the winners, and facts upon which all representations or disclosures made in connection with the contest are based and from which the validity of the representations or disclosures can be determined.
Colorado
Similar to Arizona, Colorado is one of the most restrictive states when it comes to esports competitions. Even for Contests of Skill, event organizers are forbidden from charging entry fees to contestants.
As Colorado Revised Statutes § 6–1–803 (2017) states:
No sponsor shall require a person to pay the sponsor money or any other consideration as a condition of awarding the person a prize, or as a condition of allowing the person toreceive, use, compete for, or obtain a prizeor information about a prize.
In Colorado, contests are defined as “any game, puzzle, competition, or plan that holds out or offers to prospective participants the opportunity to receive or compete for gifts, prizes, or gratuities as determined by skill or any combination of chance and skill.”
Andre J. Castillo and his law firm, Castillo Corporate Counsel, PLLC, provide business law services to tech start-ups and small- and medium-sized businesses. In this capacity, he has represented companies in deals with the world’s largest video game publishers, Fortune 500 companies, and government agencies. An avid esports fan himself, Andre can carry his own against top players in the Street Fighter, Marvel vs. Capcom, and Samurai Showdown series. He graduated magna cum laude from the University of San Diego School of Law and holds an M.A. from the Johns Hopkins University-SAIS. He can be reached via email at info@cccp.llc.
