Market intelligence firm Newzoo recently projected the esports industry in North America would reach $409 million in revenue in 2019. That number accounts for revenue streams such as media rights deals, sponsorships, advertising, game publisher fees, and ticket and merchandise sales, but not a single dollar comes from wagers placed on esports.
Since the U.S. Supreme Court ruled last May to overturn the federal ban on sports betting, seven states have joined Nevada in passing full-scale legalized sports betting legislation. While states and casino operators are rushing to create regulated betting solutions to fit traditional sports, the infrastructure for esports betting has been slower to develop.
Jeff Liboon, who is President of esports content production company ESP Gaming, says a regulated North American market for esports betting won’t formalize until states first finish addressing a legal betting ecosystem for traditional sports.
“We as a company are very hopeful around esports betting in general as a way to generate additional revenue for the esports ecosystem as well as value back to the community,” Liboon said. “Most of the states [right now] are really just focused on getting platforms up for traditional sports. I think a major push will happen in the next year or two after they have that up and they’re looking for their next growth vehicle. Esports is the next logical choice.”
Just how much the North American esports industry stands to gain from regulated betting remains to be seen. In an October 2016 report, research firm Narus Advisors estimated that $5.5 billion in cash and virtual items were wagered on major esports titles in 2016, noting that the majority of bets were placed on underground betting sites. The same report projected $12.9 billion in esports bets will be placed globally by 2020.
In the video game community, bets involving virtual items are known as “skin gambling.” This is where gamers place bets risking the exchange of virtual goods native to a game, but those virtual goods serve only for cosmetic purposes and have no actual impact on the outcome of gameplay. The prevalence of illicit skin gambling marketplaces that catered to an esports audience heavily comprised of minors prompted Valve, the developer of popular video game Counter-Strike: Global Offensive, to send cease-and-desist letters to over 40 underground skin gambling operators in 2016, according to Polygon.
“If you look at esports’ past in betting, there’s a checkered past,” Liboon said. “For us to really embrace a fully regulated betting market, the integrity of these operators and players has to be held at such a high level.”
Valve’s crackdown on illicit gambling might be the closest parallel the esports industry has to a betting scandal, à la the infamous Black Sox scandal. Eight members of the Chicago White Sox were permanently banned from Major League Baseball for intentionally losing the 1919 World Series in exchange for money from organized crime boss Arnold Rothstein.
To prevent match fixing in a regulated esports betting market, ESP Gaming has partnered with the Esports Integrity Coalition to develop protocols for regulated gambling. The ESIC serves as a watchdog for esports events, monitoring betting operators to track wire movements and alert organizations of potential match fixing. For example, if an extraordinarily large amount of bets are placed on a specific match, the ESIC would investigate the activity and alert the companies involved. Liboon is hopeful that the ESIC will open the line of communication with video game developers and tournament organizers to build a proper legal system around regulated esports betting.
“If the developers aren’t going to support regulated betting, it becomes very hard to build a functional ecosystem system around betting,” he said. “[The ESIC] is really about opening up communication between the operators and developers.”
While legalized sports betting in the U.S. has created a data war in the traditional sports landscape, video game developers have yet to sign data deals like their counterparts in traditional North American sports leagues. Access to league and player data that comes from deals such as MLB’s alliance with MGM Resorts or the NBA’s betting data partnerships with Sportradar and Genius Sports, provides sportsbooks with the means to present betting lines on player statistics and intricate individual metrics that might have zero relevance to the final score of a game.
The possibilities for the types of bets a user could place on individual esports player performances are endless, but video game developers must first be willing to share data with casinos or reach agreements with data distributors such as a Sportradar or Genius Sports. While those types of deals could pay huge dividends for stakeholders across the esports space, including ESP Gaming, Liboon is skeptical of any action taking place until the ESIC and video game developers prove they could effectively wipe out the risk of match fixing and illicit gambling.
“Match fixing, underground betting, underage betting—that’s not the path to success,” Liboon said. “It is something that could really kill the industry before it gets started.”