From the Knowledge Base article "Policy Regarding Wagering in Second Life":
This has stimulated blog buzz about the viability of the economy minus the lucrative casino industry that arguably drives other elements including land sales, "synergistic" business models, and even the Linden exchange itself.
It is a violation of this policy to wager in games in the Second Life (R) environment operated on Linden Lab servers if such games:
(1) (a) rely on chance or random number generation to determine a winner, OR (b) rely on the outcome of real-life organized sporting events,
(2) provide a payout in
(a) Linden Dollars, OR
(b) any real-world currency or thing of value.
This includes (but is not limited to), for example, Casino Games such as:
o Pai Gow
o Sic Bo
o Slot machines
It also includes Sports Books or Sports Betting, including the placing of bets on actual sporting events against a book-maker or through a betting exchange.
Linden Lab will actively enforce this policy. If we discover gambling activities that violate the policy, we will remove all related objects from the inworld environment, may suspend or terminate the accounts of residents involved without refund or payment, and may report any relevant details, including user information, to authorities and financial institutions.
It surprises me that gambling was ever allowed in world, but I suspect like many things I've seen emerge with this platform, it could have been a blind direction or simply a "let's push the envelope". Either way, if you are in the mood to read a subject matter expert's perspective on this topic, read Anita Ramasastry's post.
Share Some Grace: