eSports Betting is Tech’s Wild West–And its Potential is Huge

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Esports are here to stay. Global revenue for the market–which essentially means paid video gaming–was $800 million in 2016, and it’s expected to reach $1.23bn by 2019. Its global viewership is expected to grow by 50% to 300m by the same time.

So big has the landscape become, that major traditional sports organizations are rushing to add an esports asset to their portfolio. Soccer clubs like Paris Saint Germain and Manchester City have been extremely active in the field. Last month it was announced that the NBA 2K eLeague would begin in 2018.

Entire business models are now thriving around the market. Take Berlin’s DOJO Madness, which raised $4.5m in funding last year to accommodate its platform, which allows gamers to enhance their performance via machine learning and data.

In 2015 esports veteran and DOJO Madness CEO Jens Hilgers founded BITKRAFT, the first esports-dedicated fund. It was a big step in esports’ emergence from something considered nerdy to mainstream culture.

But if esports is a thriving metropolis, betting on it is something of a frontier town. There’s gold in the hills, but getting it out opens a pandora’s box of controversy, regulation and uncertainty.

According to Nauroscope, an analyst, the lowest estimate for the total amount bet on esports in 2016 is marked at $5.5bn. That figure, it claims, will rise to $12.9bn by 2020. Esports betting volume already outpaces that of golf, tennis and rugby. Change isn’t coming: it’s already here.

Legislators are unsure what to think. Some countries have tried to crack down on the industry, which, unlike its traditional sports cousin, usually has one company with domain over the rules and nature of games, some of the most popular of which include Counter Strike: Global Offensive (CS:GO) and League of Legends.

Valve, which produces CS:GO, fantasy title Dota 2 and many others, was one of esports’ early-movers, promoting lucrative tournaments and players winning huge purses for wins.

However the Bellevue, WA-based firm was recently at the center of a big esports scandal, when it banned 21 CS:GO players for match-fixing in 2015. Last year it confirmed the players would be barred indefinitely–a move decried as draconian by some, but essential by those eager to shake off claims the industry is easily manipulated.

Game-throwing incidents have already become known as ‘322s’, named after a $322 amount illegally won by Russian gamer Aleksey Berezin in 2013.

That has done little to dissuade esports betting companies, however, which stand to win big from the market’s rapid growth. Hilgers believes it should be viewed just the same as traditional sports (which, it must be added, have no shortage of their own fraudulent activities).

At the end of the day, esports betting is sports betting and esports betting platforms should receive sports betting licenses where available,” he tells Red Herring. “Everyone is looking towards the US, specifically when it comes to using digital currencies to bet on virtual goods, like skins.”

Skins–virtual goods, like player attire, which often have no enhancing features for gameplay–have become an industry within the esports betting industry. Gambling on them is largely unregulated, and is causing a headache for firms wanting the industry to go mainstream quickly.

“If the reports are correct this type of betting has accounted for 60% or more of the volume and to date has been left unchecked,” says Scott Burton, CEO of eSportsPools. “That is changing and I believe that if the future of esports betting is going to include virtual goods it needs to be regulated. There is no reason why the same control measures that have been in place for fiat currency betting can’t apply to virtual goods.”

“I think the controversy surrounding skin gambling has already changed the landscape,” adds Chris Grove, a gambling industry analyst. “But I don’t believe we’ve heard the last of that story yet. How regulators approach skin gambling, and how publishers and operators respond, will likely be the single biggest force shaping the trajectory of the broader market for esports-related gambling in the immediate future.”

If the industry avoids controversy, its demographics, as well as participation numbers, are a source of extreme optimism. Esports gamers are younger and more diverse than their traditional sports-playing-and-following counterparts.

They are also more inclined to use mobile devices, which mean faster and more prolific gambling. Esports have already surpassed the viewership of traditional sporting competitions such as the NBA and MLB, and has a younger, more diverse audience.

But esports, like many gaming sectors, suffers from an acute gender gap problem. While roughly the same percentage of men and women say they play games, men are twice as likely as women to call themselves “gamers”.

A November 2016 BBC film focused on the threats and derision women in the sphere face, and a yawning wage gap. Female participation in esports is reckoned to be around 5%.

That is concerning. But if it can be hurdled–and if esports promoters can move beyond their games’ traditional, teenage and ‘geeky’ stereotypes, the rewards are huge for those who move with the times. There is also a lucrative tertiary market based around merchandise and tickets to big esports events.

If you look at the current betting platforms on the market, they cater to traditional betting, which is often used by an older, less digitally inclined, demographic,” says Hilgers. “The UI, accessibility, and onboarding can be very confusing, especially for esports fans that are used to more polished UX.

“When it comes to platforms that are best placed to win success, we would bet on a platform that caters to esports fans and provides an experience more aligned with what esports enthusiasts are used to in regards to gaming,” he adds. “We also expect to see a platform that focuses on mobile, rather than desktop betting, which would appeal to esports fans.”

Territory-wise, it is likely to be smaller, nimbler states and regions, with a history of gambling promotion–such as Malta and the Isle of Man, a British crown dependency between England, Scotland and Ireland–that could introduce relevant regulation quickly and efficiently, and win a share of the market.

Larger countries (the US only got its first esports betting site, Seattle-based Unikrn, in 2015) will move slower, deterred by worries about youngsters becoming involved in gambling, and the large power that game developers can process via Big Data.

But it looks inevitable that esports will provide a large chunk of the global betting market–and soon. Hilgers believes that, though skins betting is big business now, the industry’s more mainstream gambling will soon overtake it, as big betting brands consolidate their positions in the market, “especially in the wake of Valve’s crackdown,” he says, which has helped allay fears of corruption.

With such promising statistics, and a world that appears to be, at last, fully realizing its potential, esports will be grabbing a lot more attention, and money, in years to come. Professional gaming is no longer a niche pursuit, and their mastery has become just as lucrative, in some corners, as swinging a club, a bat or kicking a ball. Welcome to Sports 2.0.