Skin gambling in mainland China: Survival of online gambling companies

Abstract “Skin gambling” is a new form of online gambling that has gained significant popularity over the last decade in the People’s Republic of China. Drawing on government reports and business media, this study employed two case studies of three leading Chinese skin gambling businesses to investigate how these companies survived and thrived despite Chinese laws that regulate online gambling. The findings revealed that the industry used the division of online gambling into virtual “skin” items and the separate exchange of these items for cash to shield businesses from the crackdowns ordered on online cash gambling events. Further, the skin gambling businesses were found to operate under the cover of the “esports industry,” “predictive games in public forums,” and “virtual assets markets.” The study demonstrated the significance of cultural framing in negotiating the regulation of illicit market practices.


Introduction
Gambling is a prevalent activity within global Chinese communities (Loo et al., 2008), despite China's stringent gambling laws outlined in Article 303 of the Criminal Law (1949).Recently, "skin gambling," a form of online gambling, has emerged in China's online realm.This trend began when Valve, a US-based company, launched a tradable skins system in Counter-Strike: Global Offensive (CS: GO) in August 2013 (Grove, 2016b).These skins, used to personalize weapons in games, do not affect gameplay but have gained significant value due to their popularity and tradability (Parent Zone, 2018).Valve's Steam platform enables the secure trading of these skins for real or virtual money.However, unauthorized third-party websites have emerged, facilitating real currency skin trades outside of Steam's marketplace.These sites leverage Steam's Web API to access users' inventories, but they function independently of Valve and its regulations.

ABOUT THE AUTHOR
Zhang Junqing is a doctoral student at Kyushu University's Graduate School of Integrated Sciences for Global Society.His research focuses on Chinese esports, online gambling, video games, virtual items, and cryptocurrency.The research on Chinese skin gambling directly relates to wider projects and issues concerning the Chinese esports and video game industry, Chinese law regulation on gambling, and virtual assets.By investigating Chinese skin gambling, the research contributes to understanding the intersection between gambling and video games.This research holds valuable insights for policymakers, regulatory bodies, and industry stakeholders working towards creating a safer and more regulated environment within the esports industry and addressing the challenges posed by gambling and virtual assets.
China's video gaming and esports market has seen considerable growth recently, reaching RMB 182.6 billion in 2020 from RMB 70.61 billion in 2017.In 2021, China had the highest single-country esports revenue globally at USD 403.1 million (Statista, 2021).Furthermore, Simplified Chinese is the most frequently used language on the gaming platform Steam, which operates in a legal grey area and allows Chinese users to play uncensored games that are not officially available in mainland China (Chiu, 2020).China remains the largest single-country market in the world with USD 403.1 million in esports revenue in 2021 (Arjun, 2022).With the rise of the Chinese video gaming and esports market, skin gambling has emerged as a part of the online gambling industry and has become a topic of study in Chinese gambling research.
Skin gambling is considered illegal under Chinese law.In recent decades, Chinese authorities have expanded the applicability of Article 303 of China's Criminal Law (1949) to include online gambling, and actively prosecuted large online cash gambling websites.Regarding Article 303, a judicial interpretation issued by the Supreme People's Court and Supreme People's Procuratorate in 2005 held that the key feature in determining whether an activity is subject to criminal law is if it is performed for the purpose of reaping profits.That is, private bets between individuals (such as during card or chess games) are legal, but any game organized by an unlicensed and profitoriented third party is illegal (Wang & Antonopoulos, 2016).This interpretation emphasizes that anyone who establishes online gambling websites or acts as an online gambling agency will be regarded as "opening a gambling house" and punished accordingly.In 2010, the government issued "The Interpretation of the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security Concerning Certain Issues Related to the Specific Application of Law in Handling Cyber Gambling Cases Involving Gambling."This legislation states, "for those who directly or indirectly exchange funds into virtual currency, game property, and other virtual items and use them as chips for betting, the number of gambling funds shall be determined according to the number of funds required to purchase the virtual item or the number of funds actually paid" (Tushuguan, 2010).Thus, if virtual items, such as game skins, can be exchanged for real currency, such exchanges will be considered illegal gambling and are punishable by law.
In 2019, Hangzhou police removed the "KOKO Game Platform" because it enabled the recruitment of gamblers and exchange of virtual coins at a rate of 100 yuan for 1 million game coins.It also provided channels for gamblers to exchange virtual coins, badges, and Chinese yuan, profiting from these activities.The sole shareholder and operator of HX Company was sentenced to four years and two months of imprisonment and issued a fine of 400,000 yuan (Souhu News, 2021).However, skin gambling seems to have persisted in recent years, and this study aims to identify why such websites have survived despite the strict laws and regulations in China.
As per research conducted by Eilers & Krejcik Gaming and Narus Advisors, 5 billion skins were wagered globally in 2016.According to a gambling industry analyst and partner at Narus Advisors, skins worth approximately USD 7.4 billion were wagered worldwide in 2016 (Casino.org, 2017;Grove, 2016a).Following Valve's introduction of the tradable skins system to the game CS: GO in 2013, in June 2016, an individual in Connecticut sued Valve, along with three other trading sites, for "knowingly" conducting illegal gambling (McWhertor, 2016).In the same year, Valve was investigated by several state institutions for conducting activities deemed illegal under federal racketeering laws and state consumer protection laws (Wolf, 2016).In response, Valve suppressed skin gambling websites, which led to a dramatic decrease in skin gambling.The number of skins used in gambling was estimated to have dropped to USD 670 million worldwide in 2020 (Grove, 2016a).However, even a relatively aggressive crackdown is unlikely to eliminate the practice; skin gambling will continue to exist as long as players can trade skins (Grove, 2016a).
The three skin gambling companies-VPgame, Max+, and C5game-examined in this study launched their online services in 2015.In March 2021, VPgame faced a police investigation and Max+ unilaterally concluded their skin gambling services, significantly altering the landscape of the skin gambling industry in China.By October 2022, C5game was the only company actively providing skin gambling services, while the other two continued to function as general gaming sites.Thus, this study covers the 2015 to 2021 period.

Literature review
Studies on skin gambling mainly focus on the psychology or perspectives of gamblers.Greer et al. (2019) provide an introduction on skin gambling and esports betting and outline the need for more research on these topics.Abarbanel and Macey (2019) present the case of VGOskin, developed by a skin exchange website, and describe how it connects to online gambling activities.King and Delfabbro (2020) reveal a correlational between in-game spending and gambling.Moreover, skin betting is also examined by Macey andHamari (2018, 2019).Macey and Hamari (2019a) highlight the prevalence of young, often under-age, males in esports-related betting activities, and propose that more attention be paid by academia and regulators.Greer et al. (2022) express that skin gambling is directly linked to gambling problems and harm, whereas cash betting in esports only indicates an interest in various potentially harmful forms of gambling.Wardle (2019) suggests that children who engage in both skin gambling/betting and other forms of gambling should be considered atrisk for experiencing harm because of their heightened engagement in such activities.
There is little research on skins or skin gambling in China, except Xiao (2022); however, the skins considered in Xiao's (2022) study cannot be traded or converted into real currency.Thus, the study of Chinese skin gambling remains scant.Young and Markham (2015) conclude that in gambling research, there is little or no access to gambling data held by the government or industry.However, the current study calculates a minimum estimation of the skin gambling value using the records of gambling events shown on various applications.The author saved relevant screenshots to identify the considerable amount of online gambling that still persists in mainland China.

Significance of the study
According to Banks (2014), China has been proactive in enforcing a ban on online gambling; prohibiting foreign investment into the industry; targeting and blocking sites; and even arresting, fining, and freezing the accounts of individuals who operate gambling websites.However, the study by Banks (2014) did not address the gambling websites in mainland China that have, since 2015, either disguised themselves as non-gambling sites or transitioned to non-gambling operations.
Research on skin gambling has focused on gambling websites in countries where they are legal.Consequently, none of the studies, whether in English or Chinese, have considered skin gambling websites in mainland China.Therefore, it is important to examine skin gambling websites in mainland China.This exploratory study seeks to understand how skin gambling companies have survived in a country with stringent gambling regulations and laws.It provides a minimum estimation of skin gambling value from the records of Max+ gambling events.The study obtained records only from Max+, as it provides a prediction history.Vpgame and C5game do not provide access to such records, rendering it impossible to calculate the amount of gambling value from these two sites.
Overall, this study is important for the following reasons.In gambling research, there is little or no access to gambling data held by the government or industry (Young & Markham, 2015).However, this study uses an estimate of the number of Chinese skin gambling websites using screenshots.Second, this study is the first to focus on gambling websites inside mainland China, and it is also the first to examine Chinese skin gambling websites.Additionally, while most studies on skin gambling focus on the perspectives of gamblers, this study focuses on the perspective of skin gambling websites and government regulation.

Research design
The study adopted a qualitative approach and analyzed two case studies: one on the skin gambling situation in the People's Republic of China and the other on three skin gambling companies in the country.According to Guest et al. (2013, p. 9), "The defining features of a case study is 1) an analysis of one to several cases that are unique with respect to the research topic and 2) an analysis primarily focused on exploring the unique quality."For the purpose of this research, skin gambling is considered a unique case in the study of Chinese traditional gambling and Chinese online gambling.The reasons for using two case studies are: 1) studying skin gambling as a distinct form of online gambling in China, which offers insights into the Chinese online gambling landscape, and 2) examining specific skin gambling websites and companies to gain a better understanding of "skin gambling."This study focuses on skin gambling in China, specifically examining companies that operated skin gambling websites; therefore, the author used two case studies.
To identify the monetary value of gambling, the author saved screenshots of Max+'s gambling history in November 2020, before the data became inaccessible in March 2021.Only Max＋ provided gambling records before the Chinese police investigation.The other two websites, VPgame and C5game, have never granted access to their online gambling events.The skin gambling value was calculated in USD.In addition, the author conducted a telephone interview with a former skin gambling website employee at C5game, who wished to remain anonymous and who volunteered for the interview.Their responses were used as a reference in the study.The author also received permission to use the result in future publications.
To understand how skin gambling websites evade regulations, the author examined the companies' analysis reports, which were obtained from a commercially available corporate intelligence provider that collects data, including the official registration data in the People's Republic of China.The author also gathered information from game forums and skin gambling websites owned by the studied companies to show how the skin gambling websites classify themselves according to Chinese law.

Estimated value of skin gambling
Although the value of skin gambling is difficult to calculate, this study estimates the value of skins gambled on Max+ to understand the possible magnitude of skin gambling in China.Unlike other skin gambling websites, Max+ provides an application that allows players to not only review their game performance but also access the data on all matches played in a day.The application includes a section called "Guessing Competition (赛事竞猜)," where users can place bets on traditional sports and esports competitions (Figure 1).Max+ facilitates the betting with two types of gambling tokens: game skins (mainly Dota 2, from Valve) or M coins (coins that can only be used on Max+ and exchanged for game skins).This study used game skins data to estimate the value of skins wagered on websites.The value of wagers made using M coins could not be estimated, as this information was not displayed on gambling websites.
Figure 2 illustrates skins wagers placed on the Max+ application.Most skin gambling websites examined in previous research only support skin gambling in esports matches, while Max+ allows users to use skins to bet on both traditional sports and esports competitions.Max+ provides records of users who gambled the maximum value of skins in a match, depending on the number of users.If few users placed bets on a match, then all gambling records are included in the betting history (part C in Figure 2); however, the information of those who gambled with the maximum skin value (part D) is not revealed.By contrast, if many users placed bets on the match, Max+ only includes records of participants who gambled the most (part D) and only some recent gambling records (part C).Using these calculations of the value of skins, this study estimates the minimum value of skins wagered per day.The part D data were used whenever possible, and in these cases, part C data were not calculated because only a part of this section (part C) could be determined.For cases where part D data were unavailable, the study calculated all the gambling records of part C.
As shown in Table 1, skins wagered on the Max+ application in a 24-hour period had a minimum value of USD 128,415.Based on this calculation, nearly USD 47 million (RMB 310 million) worth of wagers were placed over the course of a year.This amount is much higher than that in Guangdong's "extraordinarily big" (TeDa, 特大) internet gambling case in July 2019 involving an internet gambling website, which was the subject of a crackdown by the Guangdong police.Here, "extraordinarily big" refers to the language used to describe a crime involving at least RMB 10 million (ChinaNews, 2019).The actual annual value of game skins wagered using Max+ would be much higher if we considered the betting records from the biggest Dota 2 tournament (The International in August) and biggest League of Legends tournament (S League in October) held in November-which were beyond the study period.Nevertheless, the estimated number demonstrates the importance of Chinese skin gambling websites.Against the estimated amount of annual worldwide skin gambling of USD 670 million (Grove, 2016a), this single-day amount on Max+ may have constituted as much as 7% of the world's bets for that day.

VPgame: under the cover of esports
VPgame (https://www.vpgame.com) was successful in avoiding government scrutiny because of the latter's interest in promoting the esports industry and the former's links to important Chinese business figures.The online platform provides various services, including matchmaking, esport match viewing, game information, virtual item exchange, in-game interaction, and data/stats analysis (VPgames, 2017).Users can utilize Alipay or WeChat Pay to exchange real currency (RMB) for "diamonds," which is the virtual currency used on their website.These "diamonds" or game skins can also be used to bet on matches.(Zhihu, 2017).With time, Ruru turned the program into a gaming information website.VPgame was officially launched in 2014.Once skins were made available in general, she added the wagering function to the website (Zhihu, 2017).and claimed that its investment has played an important role in the development of the Chinese esports industry (Lieyunwang, 2016).Income from the Chinese esports industry and video games market has grown dramatically in recent years, rising from RMB 70.61 billion in 2017 to RMB 182.6 billion in 2020 (Statista, 2021).

Ruru is the biggest shareholder of VPgame (
The founder of Prometheus Capital, Wang Sicong, is also a significant figure in the Chinese esports industry.He is the only son of Wang Jianlin, who is the president of the Wanda Group-a major real estate company.Wang Sicong has focused on investing in video games and internet companies.Prometheus Capital's funds were frozen by the courts in October 2019 (DIYICAIJING, 2019); this was approximately three years after it invested in VPgame (Qichacha, n.d.a) because of a debt issue in the Xiongmao showroom case.Nevertheless, Wang Sicong's role in China's esports industry remains undisputed.
Meanwhile, VPgame also has its own esports team, LGD-Gaming Club, which claims to be the most accomplished esports organization in the world (VPgames, 2017).In September 2018, Zhou Jiangyong, the Hangzhou Municipal Committee Secretary of the Chinese Communist Party, visited the LGD-Gaming Club and met with Ruru, who reported that the Chinese esports industry was developing quite well (Souhu News, 2018).Thus, it can be inferred that VPgame continued to provide a venue for skin gambling, under the guise of developing the Chinese esports industry and because of its links to powerful business leaders.In this way, it managed to bypass government regulation.

Max+: under the cover of a popular forum
Like VPgame, Max+ was successful in avoiding government regulation because of its powerful business ties and the popularity of its public forums.Its app, designed by Xu Ning, who holds a doctorate in computer science from Beijing University, was launched by Qingfeng Technology Company in 2015.Max+ was originally an app for Dota 2 players to check their game performance.Owing to the growing number of users, Max+ began offering an increasing number of services, such as allowing players to view the latest news regarding the games, create posts regarding their gaming experiences and reflections, and reply to others' posts.Max+ soon became the biggest Dota 2 forum in China.
On 23 June 2020, Hupu (虎扑), the largest Chinese sports forum, bought 20% of Qingfeng Technology Company's shares, becoming its second largest shareholder.Hupu was founded by Chen Hang in Chicago in 2004 as a basketball forum called HoopChina.The name was changed to Hupu in 2007, and the website become very popular in mainland China.The China Brand Communication Alliance designated it the leading brand in China's sports industry in 2015 (Minyu, 2020).In 2018, Chen Hang was named one of Shanghai's top 10 innovators and entrepreneurs at an event co-sponsored by the Publicity Ministry of the Shanghai Municipal Committee of the Chinese Communist Party, the Shanghai Municipal Administration of Culture, Radio, Film and Television, and the Shanghai Press and Publication Bureau (Shanghai Hongkou District People's Government, 2018).Qingfeng Technology Company kept its Max+ game forum open to the public and operated skin gambling prior to 2017 (BaiduTieba, 2017), with financial investments from Hupu.However, after the Chinese police investigated VPgame, Max+ opted to halt its online gambling events in March 2021.The app has since remained active as a gaming forum.

C5game: under the cover of virtual item trading
C5game (www.C5game.com),owned by Hangzhou Xinchao, does not provide a platform for betting on sports matches but rather provides another type of skin gambling-the jackpot style.It appears to have avoided government sanctions because it offers trading of virtual items rather than cash.
C5game was originally a website for users to buy and sell game skins for cash.Users who wished to purchase a skin could use a QR code to add money and then exchange it for skins.Following this, they could transfer the skins to their Steam account.Those who wanted to sell skins could deposit the skins from their Steam account into C5game's inventory and then exchange them for actual money.The money is transferred to the user's credit card or Alipay account; however, the users must pay a transaction fee to C5game.The biggest shareholder of C5game is Zang Guoping, a former shareholder of VPgame who left his former company and started his own business.Vpgame sued C5game for stealing business secrets in 2016, but the result of the lawsuit remains undisclosed (Qichacha, n.d.b).
Currently, C5game facilitates jackpot-style gambling events.Instead of using game skins or coins to bet on esports matches, players use real money to pay for website coins.The website clarifies that players have a low possibility of winning high-value skins and the skins won by users from events can only be transferred to their Steam account and cannot be sold on the market.However, users can sell the skins for real money by transferring the skins to their Steam account and exchanging them for money.According to an employee of Hangzhou Xinchao, the company's revenue from jackpot games is approximately RMB 10 million every month (Anonymous interview, 2020).Since its inception, the C5game website has functioned without any interference from authorities by operating in the realm of trading virtual items, which is a step away from the exchange of virtual items for cash.

Case study 2: Chinese authorities and skin gambling
The examples above reveal that different kinds of companies involved in skin gambling have shielded themselves from official scrutiny by operating under the guise of trading in virtual items or because of their connections with powerful business partners.Chinese authorities may have overlooked these skin gambling websites for the following reasons: ambiguity regarding the legal definition of "virtual assets" under Chinese law and the Chinese police's focus on cash gambling websites.
According to the General Rules of the Civil Law of the People's Republic of China, Article 127, "where the laws have provisions on the protection of data or online virtual assets, follow those provisions."However, the rules related to "virtual assets" merely include a summary and a declaration.The law only acknowledges the existence of "virtual assets," rendering the concept beyond the scope of regulation (Da, 2020).The police have not been able to gather evidence of gambling against these websites (Da, 2020) because gambling using skins does not leave a traceable cashflow.

Chinese anti-online gambling event
On 16 January 2020, China's Ministry of Public Security held a press conference in Beijing and reported on the 2019 campaign to eradicate domestic online gambling through an operation titled "Breaking Chains Action."The project was launched in July 2019, and in the intervening months, the Ministry investigated over 7,200 cases of online gambling.Based on these investigations 25,000 individuals were arrested and RMB 18 billion worth of illegal property was frozen.Li Jingsheng, Director of the Public Security Bureau of the Ministry of Public Security, said, Chinese online gambling has seen a phenomenon of "four declines and one increase" due to continuous damage and discipline from the government.The "four declines" refers to the declines of the people involved in gambling, the decline in visits to illegal online gambling websites, the decline of money wagered at gambling websites, and the decline of the gambling money transferred to illegal gambling organizations.The "one increase" refers to the increased costs necessary for gambling money transaction.
Li further emphasized that the government would strengthen its efforts to eliminate gambling events masquerading as lotteries and online games (ChinaNews, 2020).
The Chinese government claims to have expended considerable effort toward eliminating online gambling; however, all cases investigated by the government have been related to cash gambling.In January 2020, the Chinese Police Ministry announced 10 typical international cross-border gambling cases, all of which were related to cash gambling; this implies that no skin gambling crime has been reported by the police (Renminwang, 2020).In 2019, the Chinese Police Ministry's cyber police force released a guidebook warning people to stay away from online gambling events.In this guidebook, they divided online gambling events into four types, "online casinos," "online gambling on traditional sports," "red package gambling using social media applications," and "online poker/chess games."This indicates that online gambling events are categorized according to the nature of the gambling event itself rather than the type of stakes wagered.Hence, it appears that Chinese authorities continue to focus on cash gambling, which shields skin gambling from legal prosecution.

Discussion
Even under strict legal restrictions, Chinese skin gambling websites have managed to continue their operations.Between 2015 and 2021, VPgame operated under the guise of the esports industry, Max+ operated as a gaming forum, and C5game operated as a virtual item trading market.Subsequently, these companies shielded themselves from regulation.However, in March 2021, VPgame and Max+ halted their skin gambling service, while C5game continued to provide the service (as of October 2022).Goffman (1974) introduced the concept of cultural reframing in his book Frame Analysis: An Essay on the Organization of Experience.The term "frame" refers to a set of meanings and expectations that shape our understanding of a situation or event.Cultural reframing involves changing the frame through which a situation is viewed to change its meaning and implications.Goffman argues that frames are culturally constructed and are influenced by a range of factors, including social norms, values, and beliefs.He suggests that individuals use frames to make sense of their experiences and navigate social situations.
Cultural reframing can play an important role in shaping cultural attitudes and perceptions toward gambling.Gambling has been seen as a vice or a negative activity associated with addiction and financial ruin, especially in China, which has enacted anti-gambling regulations.However, Chinese skin gambling companies managed to reframe the concept of "skin gambling" into "entertainment" instead of equating it with traditional gambling.Van Schendel and Abraham (2005) describe how the cultural meanings of flows of commodities and people change as they move across the borders of nation-states with different rules, regulations, and policies.They also emphasize the intentional strategic practices of cultural framing through which actors attempt to transform the meaning of such flows.They highlight that certain practices exist in the Netherlands that, while technically illegal, are not perceived as illicit by the general population or even by the law enforcement community.Decriminalizing such practices involves linguistic innovation.For example, in Dutch, the special nomenclature for illegal substances is gradually and consciously being abandoned.Terms equivalent to "narcotics," "hallucinogens," "drugs," or "stimulants" are being replaced by the blanket term "genotmiddelen" (pleasure goods), which refers to any pleasure-including substance, including tea, beer, and tobacco.The Chinese skin gambling companies also used the same strategy to reframe their skin gambling activity into "esports," "game forum," and "virtual item trade market."Wang and Antonopoulos (2016) emphasize the effect of guanxi-the Chinese version of personal networks and social capital-on the management of gambling businesses.This concept accurately represents the current Chinese skin gambling industry.Although this study only analyzed the shareholdings of the three companies involved in skin gambling, a larger number of Chinese businesses may be involved in this field.Meanwhile, Chinese authorities, owing to the ambiguous state of skin gambling, have mostly regulated online cash gambling events, ignoring the existence of skin gambling websites.

Conclusion and limitations
Even under strict legal restrictions, Chinese skin gambling websites have found ways to continue their activities.This study examined some of the best-known skin gambling websites in China and found that they use a cultural reframing strategy to disguise themselves and avoid being classified as online gambling websites.VPgame presented itself as a part of the esports industry, Max+ as a game forum, and C5game as a virtual item trading market.These disguises made these companies difficult to regulate.
This study is the first to explore the situation of Chinese online gambling and analyze why certain sites have survived under strict regulations.The author completed an estimated calculation of the value of one of the Chinese skin gambling companies and analyzed the current situations of all three abovementioned companies.However, the extent of the industry is still uncertain.Further research should also consider other skin gambling websites currently operating in China to more holistically understand the nature and operation of skin gambling websites in mainland China.

Figure 1 .
Figure 1.Screen shot from the Max+ application.Legend: A, Team's name; B, Betting odds; C:, Option for betting by game skins; D, Option for betting using M coins

Figure 2 .
Figure 2. Screenshots of skin gambling on Max+.Legend: A: Team's name, B: Betting odds, C: Betting history, D: Betting with the most skin value, E: Value of the skins (approximate amounts in USD), F: Game skins

Table 2 )
. Other shareholders include Ameba Capital, Shanghai Purple Key Company, and Prometheus Capital, which together hold approximately 30% of the total shares.Shanghai Purple Key Company purchased its shares in 2016 for RMB 28 million