The United Arab Emirates (UAE) has long been known as a destination of significant interest for various entrepreneurial activities, including the gaming industry, which is experiencing significant growth not only within the UAE itself but also throughout the entire Middle East. An expansion clearly correlated with the proliferation of digital technology, the introduction of new technologies such as augmented reality (AR), virtual reality (VR), and mixed reality (MR), the increasingly widespread use of mobile devices, and most importantly, the increase in the young population. It is estimated that by 2025, the number of players in the three main markets, namely Saudi Arabia, the United Arab Emirates, and Egypt, will reach an astonishing figure of 86 million.
For clarity, we are discussing skill gaming and not games of chance or gambling because, in countries within this region, gambling is still considered an illegal activity and is therefore absolutely prohibited. That said, as we have already mentioned in our previous article, the UAE has now set up the General Commercial Gaming Authority (GCGRA) and is actively working towards licensing and regulating gambling operators to provide their services in the UAE.
This distinction is not as straightforward as it may initially appear, due to its distinctive elements that can take on various connotations and lead to different categorizations depending on the relevant jurisdiction, including that of the UAE.
The distinction primarily occurs by exclusion, identifying in the legislation the characteristics that differentiate gambling activities from others.
I will limit myself to the main sources, as there are many regulations issued by the various governmental entities within their respective competencies, including the Telecommunications Regulatory Authority (TRA), UAE Central Bank, Securities and Commodities Authority (SCA), Department of Economic Development (DED), Federal Customs Authority, Ministry of Interior, National Media Council, Dubai Municipality, Ministry of Economy, Dubai Financial Services Authority (DFSA), and the Dubai Multi Commodities Centre (DMCC).
UAE legislation deals with gambling at the federal level in a rather articulate manner, within both civil and criminal laws. The starting point is Article 460 of Federal Decree-Law number 31/2021, which provides the first general definition of "gambling games" as "those in which each party, if losing a game, agrees to pay to the winning party, a sum of money or another thing agreed upon".
Following this is Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates, which dedicates an entire section of various articles, specifically from 1012 to 1021, to Betting and Gambling, providing interesting information on the category but also a useful distinction between Betting and Gambling.
Betting, in Article 1012, is defined as a contract whereby "a person is bound to pay a sum of money, or give something else, as agreed upon, to the one who succeeds in attaining the aim targeted in the contract." This activity is therefore distinguished from gambling and is allowed in restricted and specific areas such as "racing, shooting, sports or muscle building" and under certain conditions: "the bet should be known, the one bound to pay it specified in person and the object of the contract must be described in a manner excluding any excuse of ignorance".
However, it is Article 1019 that indicates the further distinction that can lead to a different qualification: "It is acceptable for the outcome of the competition to be payable by one of the contestants or by a third party to the winner but if the two contracting parties agree that the winner shall be entitled to a prize from the other party, then the same is illegal as the contract shall qualify as a 'gambling contract'".
In practice, it is permissible for the outcome of a bet to result in payment from one of the participants or from a third party to the winner, who wins thanks to their ability, while the possibility of one party agreeing that a prize be paid directly by the other party is excluded because such an agreement would turn the contract into a form of gambling, and therefore illegal. Finally, not surprisingly, there is a closing rule stating that any contract relating to gambling, or prohibited betting, is null and void.
Another useful reference rule, of a penal nature, is Article 460 of the UAE Penal Code, which defines gambling as "a game whereby each of the parties thereto agrees, in case he is the loser, to pay the winner a certain sum of money or any other thing agreed upon". It makes gambling an offense punishable by imprisonment and/or a fine. It also prohibits the opening or managing of a venue for gambling or organizing a game of chance in a public place or a venue for gambling.
Lastly, it is worth mentioning Article 17 of the New Cyber Crimes Law, which sanctions all gambling-related activities carried out via the web or other communication platforms that may affect public morals.
Having taken note of these fundamental indications and thus of what the regulatory elements are discriminated between the activity of Gaming and Gambling, exclusively, there remains an unresolved aspect, as there is no further or different regulatory source available that defines Gaming as a category in itself.
This deficiency could negatively influence the final analysis of a specific activity under investigation, which cannot necessarily be limited solely to the economic aspect but must also consider various additional elements comprising the different cases of interest.
I am referring to sources or tools, also of an interpretative nature, and which come to the aid of clearly defining the parameters to be taken into consideration in order to be able to bring a business model back with certainty into one of the two categories, especially when the interpretation of the impact of the presence of certain technical elements, could change its qualification. Such in our case appear to be those elements whose presence enables a certain activity to be brought under the different headings of 'Games of skill' and 'Games of chance'.
Without delving into an analysis of the different cases, which cannot be adequately covered here, it is precisely the absolute absence of elements attributable to the second category that needs to be sought in the jurisdiction in question, namely the absence of elements based on random factors and/or luck, which are typical and essential elements.
This note is necessary because, while the mere presence of skill elements has, in some jurisdictions, supported an exclusion from the realm of gambling, such interpretative tendency is not accepted here in any form.
In the UAE, the regulations effectively do not distinguish between a 'game of skill' and a 'game of chance', and concretely, the presence of typical elements attributable to the second category would automatically and immediately result in the activity under analysis being automatically classified in the prohibited category, gambling.
This is a factor to be carefully considered, especially in certain areas, such as in the case of Esports, where the lines of differentiation are often very subtle and the risk of misjudgment high.
The presence of even a marginal "element of luck" in the business model could indeed lead to a different evaluation and categorization, especially if, to such an element, other potentially critical elements are also associated, such as the provision of "prizes" or other economic elements that, due to their different nature, could also be considered incompatible with existing regulations.
Regulations also do not limit themselves to these analysis elements. For example, it could be erroneously assumed that if there are no prizes at stake, which already require specific authorization in the relevant emirates, the problem is solved at its root. This is far from true given the constant attention of the competent authorities to every aspect of the game that may relate to other regulatory requirements.
If the game under consideration were indeed deemed incompatible with public morality or qualified as an encouragement of any form of vice, one could still find oneself in violation of the regulations and therefore subject to possible measures such as website blocks and sanctions.
Another issue is that if a gaming operator holds funds on behalf of the users, it could lead to a financial license requirement.
In light of these considerations, before proceeding with a project of this nature, we believe that a thorough analysis of the same from a regulatory perspective is a priority not to be underestimated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.