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Esports Emerging As Sports Betting's Newest Concept

July 15, 2016
Fans of traditional sports may cringe, and gamblers who have grown up with point spreads and money lines may be bewildered, but there's an emerging concept on the sports and betting scenes that is purely 21st century, and it has grown organically from its youthful fan base.

The newcomer is esports, and actually, the underlying premise (using a computer to compete with another human being) has been with us for a long time, decades in fact, going back to the early 1970s. 

What we're talking about here is video games. But, as everyone knows, they've come a long way since Pong and Space Invaders.

Now, the games that have captivated millennials have names like League of Legends and Counter-Strike: Global Operation, both battle-type contests known to their passionate fans by their shorter handles, LoL and CSGO. And if you think this is all nerdy kid stuff, consider that these games now are played by professional gamers in packed arenas, such as Madison Square Garden, for prize pools worth millions. The contests are also being televised on national cable networks such as TBS on Friday nights.

And, oh yeah, there's a substantial amount of betting going on, often in a way that would confound gamblers whose idea of wagering on their own favorite games is pretty straightforward, such as putting $25 on the Packers over the Lions and giving four points.

Before going any further, let's make something clear.

As already mentioned, professional esports competitors can and do compete for cash prizes in the United States; but, at the moment, non-competitors (meaning fans) are not supposed to be able to directly wager on the outcomes of the games. One of the few convenient ways to get a piece of the money action in esports is through the daily fantasy sports website DraftKings, which allows customers to pick eight-position fantasy teams in League of Legends. AlphaDraft is another DFS option.

Although conventional betting on esports is not sanctioned in the U.S., that doesn't mean it doesn't happen. After all, taking bets on traditional sports on the Internet is illegal, but everyone realizes it happens all day, every day.

Globally, betting on esports is already in the billions, according to some research and analysis. A recent report authored by Chris Grove, a Las Vegas-based analyst and publisher who specializes in online gaming topics, indicated $8 billion in cash and items (more on those "items" later) will be wagered on esports in 2016.

The simplest way one may bet on, say, a GSGO competition, is a cash wager, meaning a straight-up bet that one team of video game players beats another team. It's that simple. 

Not to say the TBS-televised contests have any connection with wagering, but by example, they have happened to feature team-against-team competitions (five players on each team) in shoot-'em-ups, in which you see the action from a specific player's point of view.

The second -- and most common -- method for wagering on esports is through the use of "skins," a concept that may seem odd to gamblers unfamiliar with the digital gaming culture.

Players can earn skins during the course of a video battle, and those skins are often some enhancement regarding the player's virtual persona or accouterments. Typically, the skin is a fancier weapon or a change in a weapon's appearance.

The twist is that while the skin intrinsically has no value beyond the prestige it represents for a video game player, in the extended world of video game wagering, skins have real-world financial value. They can be used to do other types of gaming, such as blackjack and lotteries, and eventually, can be exchanged for money. This happens through websites that deal in such transactions.

As complicated as it sounds, video gamers seem to be pretty facile in navigating the transactional labyrinth.

Grove's report on esports, titled "Esports & Gaming: Where's the Action?," states the skins wagering accounts for $7.4 billion of the estimated total $8 billion that will be bet on esports in 2016.

So where does esports stand now, and where is it (and an associated gaming market) headed?

As already mentioned, esports is gaining traction as a live spectacle that can draw fans to arenas and televised presentations both on Internet broadcasts (e.g., Twitch) and on conventional television, such as TBS. Some live events have gotten a ton of publicity because of the crowds they drew. Last year, an esports tournament at Seattle's KeyArena attracted more than 17,000 fans. Earlier this year, a smaller crowd, about 6,000, attended an esports competition at casino resort Mandalay Bay's Events Center in Las Vegas, a noteworthy occasion because of the attention it helped attract from the bricks-and-mortar gaming industry.

While esports is still very much a youth cultural phenomena, influencers and decision-makers in the institutional sports and gaming worlds are taking notice.

Fans of traditional sports may scoff at the notion that players whose main talent is handling a video game controller should be considered playing "a sport," but ESPN.com has unabashedly initiated coverage of esports.

As for traditional gaming interests, Nevada Gov. Brian Sandoval and other gambling policy-makers eagerly listened to a presentation in May on esports and how it might be integrated into casino sports book operations.

Back then, Nevada Gaming Commission chairman Tony Alamo said on television, "I've never made it a secret, I'm a gamer. … We have a group of doctors here in Las Vegas when our wives and kids go to bed, and we fight aliens and predators."

One casino, the Downtown Grand, is trying to capitalize on esports, even though betting is not yet allowed on video games in the sports book. The Downtown Grand holds weekly video game tournaments, and casino executive Seth Schorr said during the epsorts hearing about 25 percent of those who attend the tournaments stick around to play table games or go to the casino bar.

For the gaming industry, which is struggling to attract millennials, getting the esports demographic into the casino is a big deal.

"The more we look at esports, the more direct parallels we see to traditional sports, especially when it comes to the fans and how they engage with esports," Grove said in an email interview. "So it makes sense to me that esports will eventually function as an amenity in the casino environment in a manner broadly parallel to how traditional sports function as an amenity: a mix of hosted events [competitions and social events], some dedicated areas [an esportsbook], and integration into the backdrop of the casino [esports matches on the TV, esports retail, and so on]."

In Grove's research report on esports, it is estimated that by 2020, the total of cash and items wagered on esports could hit nearly $30 billion. On Oct. 25-26, Grove's consulting company, Narus Advisors, will hold a conference in Las Vegas to help casino operators better understand the esports landscape.

While there is growing enthusiasm for esports and a rabid fan base, it is not without potential problems. At the top of the list is keeping underage players and fans away from the wagering aspect. After all, a target audience for video games is teenagers.

The exchange of skins as the primary way to bet is already causing concerns in the esports universe.

As is the case with any wagering activity, cheating and unethical practices in video gaming pose threats.

Also problematic is esports is without a centralized controlling body, such as the NFL or NASCAR or the PGA, begging the question: "So who's in charge here?"

However, the popularity of esports is carried along by a demographic that will become increasingly influential, especially in terms of how it spends its time and money, and in the end, today's youth will make tomorrow's decisions.

Issue 223: July 2016