Whether Blizzard likes it or not, it's going to become a bank

Posted by gkhan (413 posts) -

I'm fascinated by the legal implications of Blizzard real money auction house, and after thinking it through today, I can't imagine any way that they could do this and not run afoul of banking and stock market regulations. In the story about the real money auction house, Blizzard makes it very clear that they have no interest in becoming a bank, and is rigging the system so that you can't "store" money on their servers, and cash out at any time. This is the quote from the Jostiq article:  
 

If there's a legal issue at all, it's likely in the "cash out" option. Blizzard is transferring some of the responsibility to the third-party provider and, in order to do that, players will need to choose, right away at time of sale, whether they want to keep the money in Battle.net, or take it out to cash with that extra percentage fee going to the third-party provider. Any money left in the system needs to stay there. Players won't be able to cash it out at any point in the future, except by buying Blizzard products and services. "We're not a bank," says Pardo. "We don't want to deal with all of those additional regulations. So that's going to be the responsibility of our third-party payment provider."


Here's the thing though: even if they don't allow you to cash out the money that you've stored, this story makes it reasonably clear that you can decide to cash out something every time you make a sale. And if you do that, you can totally cash out your money any time you want!  
 
Lets say you've made a bunch of sales and chosen not to cash them out, but instead keep them in the system. So now you have $100 in the Blizzard system, and you want to cash out. Here's what you do: you buy the "Chicken Sword of the Penguin" (or whatever), an awesome weapon that currently sells on the market for about $100 or so. You then immediately turn around and sell it, and choose the cash-out option. Presto, you've cashed out your $100, minus fees and such.  
 
Blizzard could stop this by issuing some sort of "Bind on purchase" policy whereby you can't resell stuff you bought. To my mind, this would be problematic from a game play perspective: if we assume that you can buy stuff from the auction house that are basically "commodities" (potions, crafting agents, etc.) that can stack, how the hell are they going to make sure I don't resell that? If I buy 25 potions from the auction house and then stack it with 25 I already have, can I not sell those 25 potions at the auction house? Can I only sell 25 of them? How are they going to keep track? There's also the issue that by doing this the auction house will function less like a real market because you can't do stuff like arbitrage (i.e. buying something cheap and then selling it for more money, or "Hey, this Chicken Sword of the Penguin is really cheap right now! I bet that in a week it'll cost much more, I'd better buy it now"). Not being able to do that will make the market more inefficient and a whole lot of things will be priced incorrectly. Imagine the situation where you spend real money to buy something expensive, and the next day it costs a fraction of what it cost the day before. Wouldn't you be pretty pissed? Wouldn't you demand that Blizzard do everything it can to make sure that their market is able to price things correctly? There's any number of situations like this where I imagine people could have solid ground for a lawsuit. 
 
And even if they solve all these problems, the fundamental "banking" problem still exists. Even if you couldn't cash out your Blizzard account, the very fundamental idea here is that they are going to store monetary value, which you can then retrieve. The fact that you can't cash it out in real US dollars seems almost irrelevant to me, since you can cash it out in items, items which has value. Storing money is hugely problematic, regardless of how you take it out. Even if this hits some loophole in current banking regulation, there's NO WAY that the SEC or the U.S. Congress is going to completely turn a blind eye to it.  
 
This is not to mention the whole issue of basically creating a commodities exchange. I suspect that legally that's less problematic, since this is basically just eBay for Diablo stuff, and people are allowed to sell stuff to other people without to much of a hassle. Still though, the "storing money" problem is still there, and unlike something like eBay, this place is going to have a monopoly on selling these goods, no one else is going to be able to trade them. That seems very problematic to me.
 
No way are they going to legally get away with this. Even if they are able to exploit every loop-hole in the book, this is going to get them in a whole heap of trouble, if not from current laws and regulations, then from new ones. Millions of dollars, maybe tens of millions of dollars is going to pass through this thing every day and the government is not going to just ignore it. Nor should they.
#1 Posted by gkhan (413 posts) -

I'm fascinated by the legal implications of Blizzard real money auction house, and after thinking it through today, I can't imagine any way that they could do this and not run afoul of banking and stock market regulations. In the story about the real money auction house, Blizzard makes it very clear that they have no interest in becoming a bank, and is rigging the system so that you can't "store" money on their servers, and cash out at any time. This is the quote from the Jostiq article:  
 

If there's a legal issue at all, it's likely in the "cash out" option. Blizzard is transferring some of the responsibility to the third-party provider and, in order to do that, players will need to choose, right away at time of sale, whether they want to keep the money in Battle.net, or take it out to cash with that extra percentage fee going to the third-party provider. Any money left in the system needs to stay there. Players won't be able to cash it out at any point in the future, except by buying Blizzard products and services. "We're not a bank," says Pardo. "We don't want to deal with all of those additional regulations. So that's going to be the responsibility of our third-party payment provider."


Here's the thing though: even if they don't allow you to cash out the money that you've stored, this story makes it reasonably clear that you can decide to cash out something every time you make a sale. And if you do that, you can totally cash out your money any time you want!  
 
Lets say you've made a bunch of sales and chosen not to cash them out, but instead keep them in the system. So now you have $100 in the Blizzard system, and you want to cash out. Here's what you do: you buy the "Chicken Sword of the Penguin" (or whatever), an awesome weapon that currently sells on the market for about $100 or so. You then immediately turn around and sell it, and choose the cash-out option. Presto, you've cashed out your $100, minus fees and such.  
 
Blizzard could stop this by issuing some sort of "Bind on purchase" policy whereby you can't resell stuff you bought. To my mind, this would be problematic from a game play perspective: if we assume that you can buy stuff from the auction house that are basically "commodities" (potions, crafting agents, etc.) that can stack, how the hell are they going to make sure I don't resell that? If I buy 25 potions from the auction house and then stack it with 25 I already have, can I not sell those 25 potions at the auction house? Can I only sell 25 of them? How are they going to keep track? There's also the issue that by doing this the auction house will function less like a real market because you can't do stuff like arbitrage (i.e. buying something cheap and then selling it for more money, or "Hey, this Chicken Sword of the Penguin is really cheap right now! I bet that in a week it'll cost much more, I'd better buy it now"). Not being able to do that will make the market more inefficient and a whole lot of things will be priced incorrectly. Imagine the situation where you spend real money to buy something expensive, and the next day it costs a fraction of what it cost the day before. Wouldn't you be pretty pissed? Wouldn't you demand that Blizzard do everything it can to make sure that their market is able to price things correctly? There's any number of situations like this where I imagine people could have solid ground for a lawsuit. 
 
And even if they solve all these problems, the fundamental "banking" problem still exists. Even if you couldn't cash out your Blizzard account, the very fundamental idea here is that they are going to store monetary value, which you can then retrieve. The fact that you can't cash it out in real US dollars seems almost irrelevant to me, since you can cash it out in items, items which has value. Storing money is hugely problematic, regardless of how you take it out. Even if this hits some loophole in current banking regulation, there's NO WAY that the SEC or the U.S. Congress is going to completely turn a blind eye to it.  
 
This is not to mention the whole issue of basically creating a commodities exchange. I suspect that legally that's less problematic, since this is basically just eBay for Diablo stuff, and people are allowed to sell stuff to other people without to much of a hassle. Still though, the "storing money" problem is still there, and unlike something like eBay, this place is going to have a monopoly on selling these goods, no one else is going to be able to trade them. That seems very problematic to me.
 
No way are they going to legally get away with this. Even if they are able to exploit every loop-hole in the book, this is going to get them in a whole heap of trouble, if not from current laws and regulations, then from new ones. Millions of dollars, maybe tens of millions of dollars is going to pass through this thing every day and the government is not going to just ignore it. Nor should they.
#2 Posted by Irvandus (2777 posts) -

This entire thing just stinks and I wish they would just drop it. As much as I love them Blizzard has really been pissing me off lately. Except their customer service which I love.

#3 Posted by StarvingGamer (7919 posts) -

Cuz Blizzard would just jump into this blindly without their army of super lawyers making sure that everything is on the up-and-up.

Everyone who isn't a Chinese item farmer needs to calm down, you're not being affected.

#4 Posted by TaliciaDragonsong (8698 posts) -
@Irvandus said:
This entire thing just stinks and I wish they would just drop it.
This.
 
Its going beyond the game, and I'm not liking it one bit.
I honestly can't even fanthom the fact that something is so big that there's a real cash auction house for it...and if I could fanthom such a thing I would want it to never excist.
There's no line in where we're going, or when its gonna stop, I seriously dunno what gaming is trying to be nowadays, since its straying more and more from its path with big devs pulling stunts like these.
 
Hey if it works for the rest of ya, fine, enjoy it, but I really dislike the idea.
#5 Posted by gkhan (413 posts) -
@StarvingGamer said:

Cuz Blizzard would just jump into this blindly without their army of super lawyers making sure that everything is on the up-and-up.

I can guarantee you that their lawyers told them they are taking a huge risk doing this, and Blizzard figures that the risk is worth it. I think they're on the wrong side of that bet. 
#6 Posted by TheDudeOfGaming (6078 posts) -

I can't say I'm thrilled with Blizzards recent decisions, but many games feature in game trading systems for real world money. 
The internet connection thing i understand, but the real money auction house seemed like a dick move to be honest.

#7 Posted by gkhan (413 posts) -
@TheDudeOfGaming said:
I can't say I'm thrilled with Blizzards recent decisions, but many games feature in game trading systems for real world money.  The internet connection thing i understand, but the real money auction house seemed like a dick move to be honest.
None that even come close to the size of a Blizzard game. They're going to be a huge target.
#8 Posted by TheDudeOfGaming (6078 posts) -
@gkhan said:
@TheDudeOfGaming said:
I can't say I'm thrilled with Blizzards recent decisions, but many games feature in game trading systems for real world money.  The internet connection thing i understand, but the real money auction house seemed like a dick move to be honest.
None that even come close to the size of a Blizzard game. They're going to be a huge target.
Yeah but really, the only negative aspect of the auction house i can think of is other players being overpowered. To counter this you can simply play solo or grind until you gain the epic gear. How many people use this feature depends heavily on the price tags, and I'd imagine that not too many people would be willing to throw away money like that.
#9 Posted by RagnarokRed (90 posts) -
@gkhan: I wish I had your insight into the way Blizzard works.
#10 Posted by StarvingGamer (7919 posts) -

@TaliciaDragonsong: Keep in mind that Diablo II's in-game economy was ruined specifically because of item farmers being able to sell items for real money. Likewise, WoW farming/powerleveling has become 5% of the economy of China or something similarly ridiculous. From he moment DIII was announced, there was always going to be a real money market for gold and items. The only difference this time around is that Blizzard is taking the power out of the hands of farmers and putting it into the hands of playing, while making themselves some extra change in the process.

With real players flooding the market with items and keeping prices low, it's going to be incredibly difficult for the different farming companies to stay competitive AND make a sufficient profit. Worst case scenario is the farmers still manage to find a way to turn a profit and fuck the economy but are likely forced to operate through the Blizzard legitimately while a few enterprising players manage to make a few bucks for themselves. Best case scenario is that the farmers are scared away from the competitive market and, without hundreds if not thousands of people grinding for items, the economy will be able to reach some sort of stability.

Players that don't care to use it won't even know its there. Players that have bought items for DII or WoW in the past will be able to enjoy lower prices and the comfort that they won't get banned. Farmers will be reduced or eliminated but no one's going to shed a tear for them.

#11 Posted by iam3green (14390 posts) -

so blizzard is now getting real auctions for wow? it's what i've always wanted when i played. it does sound like they are going to become a bank because people are going to want to buy something sell something, and end up with wanting money. there were times in that game that i wanted to buy gold for items. i think it would be a good idea for them to do that.

#12 Posted by ahoodedfigure (4238 posts) -

If you find any link that says they allow a cash-out, let me know. Right now I've seen rather limited price ranges, meaning you'd only be able to make small purchases and get small awards. I think the auctions have a ceiling.  In principle, though, there's potentially a problem.
 
PayPal, though, acts as a fund repository, and it's not classified as a bank, at least in the U.S.  You get paid for something and you can use it on something else, then cash out eventually.
 
The problem PayPal users and others are learning is that if you get income, you have to pay taxes and report it, even if it doesn't feel as real as income from other sources. THIS is the issue that may trip people up, I think.

#13 Posted by BionicRadd (617 posts) -

It doesnt matter if you like this or not.  It was going to exist, regardless.  It existed for Diablo II and it would have existed for Diablo III.  The nice thing is you can 100% enjoy every aspect of D3 and never touch this.  I personally plan to use it any chance I get to supplement my WoW subscription (i.e. no way I am ever cashing out and dealing with taxes). 
 
We also do not know how much money is really going to be exchanging hands here.  No items in Diablo III will be truly unique or rare in the scope of the entire playerbase.  When you suddenly have 15 Sowrd of Ultimate Truths on the AH, they are not going to sell for 100 bucks.   
 
At the end of the day, this is going to be what EVE is already doing, only on a much larger scale.  It should be interesting to see how it all pans out, but all this sky is falling talk is amazingly premature.

#14 Posted by ajamafalous (11818 posts) -

@StarvingGamer said:

@TaliciaDragonsong: Keep in mind that Diablo II's in-game economy was ruined specifically because of item farmers being able to sell items for real money. Likewise, WoW farming/powerleveling has become 5% of the economy of China or something similarly ridiculous. From he moment DIII was announced, there was always going to be a real money market for gold and items. The only difference this time around is that Blizzard is taking the power out of the hands of farmers and putting it into the hands of playing, while making themselves some extra change in the process.

With real players flooding the market with items and keeping prices low, it's going to be incredibly difficult for the different farming companies to stay competitive AND make a sufficient profit. Worst case scenario is the farmers still manage to find a way to turn a profit and fuck the economy but are likely forced to operate through the Blizzard legitimately while a few enterprising players manage to make a few bucks for themselves. Best case scenario is that the farmers are scared away from the competitive market and, without hundreds if not thousands of people grinding for items, the economy will be able to reach some sort of stability.

Players that don't care to use it won't even know its there. Players that have bought items for DII or WoW in the past will be able to enjoy lower prices and the comfort that they won't get banned. Farmers will be reduced or eliminated but no one's going to shed a tear for them.

@BionicRadd said:

It doesnt matter if you like this or not. It was going to exist, regardless. It existed for Diablo II and it would have existed for Diablo III. The nice thing is you can 100% enjoy every aspect of D3 and never touch this. I personally plan to use it any chance I get to supplement my WoW subscription (i.e. no way I am ever cashing out and dealing with taxes). We also do not know how much money is really going to be exchanging hands here. No items in Diablo III will be truly unique or rare in the scope of the entire playerbase. When you suddenly have 15 Sowrd of Ultimate Truths on the AH, they are not going to sell for 100 bucks. At the end of the day, this is going to be what EVE is already doing, only on a much larger scale. It should be interesting to see how it all pans out, but all this sky is falling talk is amazingly premature.

Basically these two posts. The entire D2 economy was dictate by item selling. At one point I had several friends that were making money every day farming items and selling them to sites like d2items.

I mean, fuck, just go google "d2items". The entire first page of results is different sites selling Diablo II items. This is what the economy for that game is, and I feel like the people complaining about the D3 AH are completely oblivious to that.

#15 Posted by Aronman789 (2676 posts) -

I find buying items for these games to be quite ridiculous. The whole point of these games is the joy of finding new and better loot, if you  just start with a weapon that will take hours until you find something to replace it, it kills the whole fun of the game.

#16 Posted by BionicRadd (617 posts) -
@Aronman789 said:
I find buying items for these games to be quite ridiculous. The whole point of these games is the joy of finding new and better loot, if you  just start with a weapon that will take hours until you find something to replace it, it kills the whole fun of the game.
I agree with you, 100%.  I messed around with character hacking in D2 and found it left an awful taste in my mouth.  The only thing I ever ended up doing was using a character editor to respec my offline toons.  I cant wait to see how D3 goes, as far as if Blizz can actually keep dupes out of the online game.  More importantly, if they are able to keep dupes out, how will it affect it's popularity?
#17 Posted by WickedCobra03 (2102 posts) -

@Aronman789 said:

I find buying items for these games to be quite ridiculous. The whole point of these games is the joy of finding new and better loot, if you just start with a weapon that will take hours until you find something to replace it, it kills the whole fun of the game.

I totally agree. I mean I am not overly mad yet because I have no idea how Blizzard is going to implement this, but I just hope they don't turn this game into Farmville or something where you just buy everything and almost make the game about "getting your friends their first hit for free and then bringing them into the fold". Like I have played Diablo games since like 1997, but I am not one for the overly social world... I have always felt these are single player game swhere it is cool to go in and play with others as a side note. The SP was always my main drag though and I really don't want to have to coaxed (I am not even saying so much forced... just have my arm twisted) and pressured into getting into their social element.

But we will see in the coming months once beta drops and such it should be a good indicator.

#18 Posted by Beforet (2911 posts) -

I thought this thread was about whether the cash auction house was legal, not whether it was a good idea.

This edit will also create new pages on Giant Bomb for:

Beware, you are proposing to add brand new pages to the wiki along with your edits. Make sure this is what you intended. This will likely increase the time it takes for your changes to go live.

Comment and Save

Until you earn 1000 points all your submissions need to be vetted by other Giant Bomb users. This process takes no more than a few hours and we'll send you an email once approved.