CEVO's league, featuring a cash prize, has helped eSports enter a new phase of its development. However, along with this growth come new challenges. Tournaments in which one wins money online fall under the jurisdiciton of the state in which you live. While entirely different from games such as roulette, slots, or a single hand of poker, pay-to-play online leagues are lumped into the same legal category as poker tournaments called “skill based gaming.” The lack of distinction between poker tournaments and Counter-Strike tournaments can potentially create additional legal issues for those who run and participate in such Internet-based contests with prizes.

In order to understand this issue, the two distinct legal definitions of gaming must be discussed. Games of Skill are classified as contests which include paying an entry fee to join in the chance to win a prize based on personal results. The second definition, Games of Chance, are betting on individual games. The first is legal in every state, whereas the latter is a federal crime in the US, according to the Federal Wire Wager Act of 1961.

While this set of examples appears very simple and straightforward, the waters do get murky. What muddles them is how little media exposure eSports actually receives. For instance, a law passed to regulate online games of skill, such as spades, poker, or solitaire, could wind up crippling online leagues that offer cash prizes. In short, a well meaning law that was designed to, for example, protect children from poker or spades could make the required age to play in an online league 21. This is a very scary and plausible scenario.

In speaking with Charlie Plitt, the head of CEVO, he made one thing extremely clear and that was that in no way is CEVO gambling, and in fact they had several lawyers explore and investigate this issue. Their research into the legality of their league and has come to the conclusion that it is one hundred percent legal all across the United States and Canada. Here's the pertinent section from CEVO’s payment portal:

This Event is run in accordance with respective state laws which govern playing in "Games of Skill" online. "Games of Skill", if crafted correctly, are legal game promotions in every state. Their winner(s) are selected based upon the skill of the contestant. In contrast, "Games of Chance" are illegal lotteries in the United States unless one of the three traditional lottery elements -- prize, chance and consideration -- is removed. Under existing regulation, only government-sponsored lotteries may include all three lottery elements. With that stated players from Arizona, Connecticut, Florida, Louisiana, Montana, and Vermont must realize that their states have more restrictive laws in regards to "Games of Skill". If you are in one of these states you must clearly understand your states laws on "Games of Skill" and uphold all regulations in accordance with those states laws on "Games of Skill".

The statement offered by CEVO draws explicit attention to the fact that participating in CEVO’s online league is legal in every state. However, individuals in Arizona, Connecticut, Florida, Louisiana, Montana, and Vermont must take heed to their more restrictive laws than the rest of the United States.

Here’s part of the statute from Arizona’s Gambling law regarding Amusement gambling:

(iv) Skill and not chance is clearly the predominant factor in the game and the odds of winning the game based upon chance cannot be altered, provided the game complies with any licensing or regulatory requirements by the jurisdiction in which it is operated, 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 four (4) 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 four (4) 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 thirty-five (35) dollars.

What is clear, at least from Arizona law, is that online CS leagues that offer cash prizes are legal in that state. However, if you pay to enter a tournament where you can win prizes (cash or other meaningful product) for each match you win, this pushes the tournament into restricted territory and is illegal under Arizona law. These are the peculiarities of Arizona's legal code that residents must be aware of.

How can online leagues insulate themselves from possible legal issues? For starters they can make themselves "not online" games of skill. Leagues that offer LAN finals will protect themselves from possible legal issues surrounding online games of skill. Additionally, the gaming community can lobby to give gaming a special legal status for pay-to-play gaming leagues within their state laws. Educating the public and public officials will go a long way to protect and preserve eSports. In a legal system that often has severe unintended consequences being proactive is the best bet to protect our sport, hobby, and, for some, livelyhood.

Resources on this Subject:
Gambling Law US
Congress.org (contact info for all your Federal, State, and Local Representatives)

This article is not meant to give legal advice but only to bring attention to the issue. Gotfrag highly recommends that you speak with a lawyer before attempting any legal action.