Digital Gaming In The UAE: What We Have, And What We Need

The need of the hour is to devise a framework which distinguishes "games of skill" from "games of chance" to bring regulatory certainty to these questions in the region.

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At my company, Karm, we pride ourselves in being a singular point of contact for all things tech, and of late, we have seen substantial interest from entities looking to launch gaming operations from the UAE. This is hardly surprising, given that UAE is a cradle for all things new and innovative. After demonstrating its market leadership in sectors like blockchain and fintech, we now understand that gaming could be the UAE’s next area of focus.

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There are several factors that make the UAE particularly attractive for digital gaming, an industry that is touted to reach a valuation of US$314.40 billion by 2026. For starters, the UAE has the highest gaming expenditure per capita in the region. Further, an average of 14 hours per user per week is spent playing games, with 34% of the UAE’s population under the age of 25. On a broader level, the UAE is globally renowned for its business efficiency and superior infrastructure. Moreover, the UAE provides a gateway to the wider Middle East and the Asia-Pacific region, which is home to the biggest gaming markets in the world.

Bearing these facts in mind, the government of the UAE has moved quickly to put the relevant infrastructure in place to maximize the potential of digital gaming. For one, the government has facilitated the development of specific non-financial free zones supporting creative endeavors, such as twofour54 and Ras Al Khaimah Economic Zone. These free zones possess activity licenses that range from core and ancillary e-gaming services, to broadcast support services, digital media services, and event management services. This demonstrates vision and far-sightedness, as even companies that provide offshoot or peripheral services in relation to digital gaming are being welcomed to set up shop in the UAE.

Contrary to common conceptions, gaming activities can attract multiple sets of laws, depending on how the game is structured, and what is sought to be enabled in, and through, the game. For instance, games with native wallets are likely to attract stored value facility regulations. In a similar manner, all games that collect personal data must comply with extant data protection and privacy laws. That said, more than others, the one law that gaming companies must explore is the UAE Penal Code, which explicitly prohibits gambling. While this is a common theme across many countries, what sets the UAE apart is that the country’s definition of gambling is wider than those in other jurisdictions.

Related: Gaming Studio Sirius Play Debuts Starlite Racing In The UAE, Highlighting The Growth Of The Country's Esports Ecosystem

Gambling has been defined as a game where each party thereto “agrees in case he is the loser to pay the winner a certain sum of money or any other thing.” This is an overarching definition, and it does not explore secondary level nuances. Furthermore, in some jurisdictions, there are specific laws and regulators that govern gaming. Additionally, there is a distinction between legislations governing substantial penal offences and gambling, which may have its dedicated legislation. However, in the UAE, there is no specific law on gaming or gambling. Similarly, there is no dedicated regulator for gaming activities. As a result, the questions on gambling are governed solely by the UAE Penal Code.

Because of this, there is sometimes regulatory ambiguity around which regulator/licensing agency exercises authority to what extent, and that can case some regulatory gaps and overlaps. In practice, this translates into questions such as “Are in-app purchases legal if the currency used for the purchases comes from an in-game competition?” or “Is buy-to-play allowed?” or “Is pay-to-play allowed if users go head-to-head and are rewarded for their skill?” or even, “Are entry fees legal?”

On the non-monetary side, the UAE’s National Media Council is responsible for monitoring the content of materials published in the country, including electronic games. The principal regulations pertaining to the media licensing and age rating framework are Resolution No. (30) of 2017 and Resolution No. (26) of 2017 respectively. We at Karm believe that to provide regulatory certainty to entities interested in the region, a cross regulatory body should be formed that is able to provide greater clarity and regulatory focus to the issues that currently impede the growth of the otherwise fast-moving gaming sector.

The need of the hour is to devise a framework which distinguishes “games of skill” from “games of chance” to bring regulatory certainty to these questions in the region. Jurisdictions around the world have taken varied approaches to this question. In increasing order of severity, here are the three thresholds which the UAE may explore.

The first is the “predominance test,” under which one envisions a continuum with pure skill on one end, and pure chance on the other. For instance, chess would be almost at the pure skill end, while traditional slot machines would be at the pure chance end. Between these ends of the spectrum lie many activities containing both elements of skill and chance. A game would therefore be classified as a game of skill (and therefore not gambling) if the game falls predominantly closer to the skill end of the continuum.

The second is the “material element test,” which focuses on whether chance plays any significant role in determining the outcome of the game. Under this test, it does not matter whether skill plays a significant, or even dominant, role in determining the outcome. The game will be deemed gambling if chance plays a meaningful role.

The third threshold is the “any chance test,” which evaluates whether chance plays any role whatsoever in determining outcome. Under this test, if any element of chance affects the outcome, then the game is considered one of chance. This is the strictest test for classifying skill games, and it can render wagering on most any game illegal gambling.

The UAE possesses the market, the infrastructure, and most importantly the willingness to be a global leader in the field of emerging technology, and with the gaming sector increasingly overlapping with other Fourth Industrial Revolution technologies such as blockchain, artificial intelligence, and virtual reality, there is a lot of potential to be tapped. We hope that governmental, regulatory, and licensing authorities at the federal, emirate, and local levels work together to bring regulatory clarity to this matter swiftly.

Related: NFTs: The New Bedrock Of The Virtual Economy

Kokila Alagh

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Kokila Alagh is the founder of KARM Legal and STO LAB MENA.