For most of us it is hard to believe wagering on eSports is a fast growing business and a potential business opportunity for the gaming industry. eSports is a passion for some millennials, commonly called gamers who watch other die-hard gamers play and wager on the outcome of their games. These gamers do not play slot machines and represent the demographics casinos are seeking for ways to win their business.
eSports is short for electronic sports, an umbrella term for organized and competitive online video gaming, which has become a massive business, generating over 90B in annual revenues, exceeding the revenues of the music industry. Similar to traditional sports, eSports includes different types of games that most often do not necessarily mimic any real sports. eSports has a worldwide following, has its own tournaments, leagues and champions who get celebrity status.
One of the most popular online video games is Counter-Strike, a first person shooter game where a player can choose to be either a terrorist or a counter-terrorist. The game can be played in a league such as League of Legends with close to 100 million unique players. eSports has an engaging fan base willing to travel to an arena to watch a tournament and root for their favorite professional players. Last year, the League of Legends championships was held at Staples Center in Los Angles with a sell out crowd. The global online viewership for a championship of an eSport league can exceed over 20M, more than some traditional sport leagues such as baseball.
The biggest segment of eSports wagering is skin or item betting. These wagers do not use cash, instead players place wagers with transferable in-game items such as weapons that can be exchanged for cash at a third party website. Tens of thousands of players are participating in skin betting, often at surprisingly high stakes. There is no official statistics as to the size of eSports market, by some estimates it is in hundreds of millions of dollars globally and can grow to a multi-billion dollar business opportunity.
The eco-system surrounding skin gambling has three components: i) a digital distributor such as Valve, developer of Steam, a software distribution platform, ii) a video streaming service such as Twitch which Amazon recently bought for $1B and iii) dozens of skin gambling sites that act as facilitators for users to bet against each other with in-game items called skins. The in-game items are virtual goods that are either awarded by digital content providers based on a player’s achievement, purchased, or received in a trade.
Skin betting is growing rapidly, getting the attention of regulators who are still trying to fully understand the mechanics behind it. When earlier this year, UK regulators made it clear that betting on eSports is the same as betting on any other sports-betting product and needed to be operated by licensed entities, they did not specifically refer to skin-betting at that time. Lately some regulators have made statements to the effect that skin betting is gambling in disguise. There have also been some legal actions, for example lawsuits has been filed against Valve alleging it is profiting from underage gambling and Valve on a separate action has placed cease and desist order on skin-betting sites.
eSports first started in South Korea, where it has become a national pastime, Asian players place more than fifty percent of eSport wagers, followed by U.S. players representing a quarter of the total wagers. Currently most eSport wagers are made online with more and more betting sites getting into the business, however these sites are not jumping into offering skin betting knowing its potential risks. This has left the space wide open for a new breed of online operators who have developed robust wagering systems based on virtual goods.
Until regulators figures out how to deal with skin betting, licensed books are better off staying away from these wagers, however, nothing is stopping offshore licensed bookmaker from offering fixed odds on eSport in the same format as offered for any other sport. Since the market for eSports is the millennials who most likely are unfamiliar with exotic wagers, it would be best to initially stick to simple wagers such as single bets or very basic parlay wagers, covering bets such as the winner of a match, a tournament or a championship.
eSports is a business that is only going to get bigger and the sooner the gaming industry understands online video gaming and eSports, the sooner it can start benefiting from it. Land-based casinos should consider hosting eSports tournaments to attract the millennials to their properties and Nevada books should consider offering eSports wagers to reach to a new customer base.
