Diagnosing eSports

The numbers are impressive but will it work for gaming industry?

As conference organizers, we are forever steering our programs toward new opportunities showing great promise for the gambling industry. With that, a portion of next year’s iGaming North America program will focus on the eSports phenomenon.

If you haven’t yet caught the wave, eSports are video games (Dota 2, League of Legends, etc.) played by extraordinarily skilled participants for cash prizes. The kicker—and what

really drives the business—is that you and I can wager on the outcome of the games. But when it comes to tackling this beast of a topic, where does one even begin?

For me, the first step was overcoming my disbelief in the notion that people—a whole bunch of people—spend leisure time voluntarily watching other people play video games (something I was willing to do as young’un only when waiting for my turn to play). I got beyond this strange concept and had just begun peeling the layers off the onion when I got a heads-up from Eilers Research consultant Chris Grove, who, along with colleague Adam Krejcik, had just completed extensive research sizing up the burgeoning new industry.

The research, featured in a new report published by Eilers, is enlightening, to say the least. Eilers estimates that 2.3 million customers will wager a combined $315 million on the outcome of eSports events in 2015. The outfit also predicts that the number will balloon to 19.4 million eSports customers wagering a combined $23.5 billion in 2020. The latter figure would generate around $1.81 billion in revenues.

In a macro sense, the takeaway of the Eilers report—and a common thread among industry researchers these days—is that the much-talked-about millennial generation has an insatiable appetite for things new and exciting, and traditional gambling operators will need to adapt if they want to captivate young gamblers.

To a certain extent, the window is already closing. A handful of traditional sports betting operators have staked territory in the space, with Bet365, William Hill and Paddy Power leading the way. Meanwhile, operators focusing solely on eSports betting are gobbling up the market with astounding prowess.

To get an idea of how popular eSports betting has become, consider that LegalSports Report ranks AlphaDraft, a site that offers daily fantasy sports (DFS) games on eSports matches, is the third largest DFS site, behind DraftKings and FanDuel and ahead of Yahoo Sports.

Naturally, the pathway to the eSports customer base for North American gaming operators would appear to be through partnerships with existing

eSports market leaders. But what about the “old-fashioned” gamblers? You can’t expect very many old-school players to bet on eSports, right?

Jai Ng, a partner with Neomancer LLC, says you most certainly can.

“Unlike real sports, all data is in the computer,” says Ng, “and that is attractive to professional bettors.”

Serious bettors rely heavily on data, and the amazing amount of data that is now compiled and synthesized in the world of real sports is miniscule compared to what’s possible with eSports, where everything takes place in the digital environment. Every statistic and trend imaginable—every movement made—is recorded and crunched for consumption by bettors.

So, not only does the concept appeal to sports bettors, it is especially attractive to the high-stakes market.

For this group, Ng reminds us, “It’s all about the odds.”

Further, the action never stops, because eSports participants are all over the world, and there is always a game being played.

A gamer himself, Ng recently spent six weeks immersing himself in the eSports culture, both as a player and a spectator for an article he wrote. During that period, he improved his play immensely by watching and learning from successful gamers, which gets back to my fascination with people’s willingness to watch others play video games. I couldn’t possibly explain why more than 17,000 people packed Seattle’s Key Arena to watch the Dota 2 championship, but it is abundantly evident that a sizeable portion of eSports spectators are tuning in to sharpen their skills.

Then there is the regulatory component. In the American markets, seizing the opportunity will rely on government action. Eilers Research divides the eSports market into two categories: “eSportsbook” betting, which is straight-up wagering on the outcome of matches, and “Daily Fantasy eSports” (DFeS) betting, i.e., participating in daily fantasy games. For now, eSportsbook betting puts up the big numbers, with Eilers projecting $295 million in money wagered in 2015, compared to $20 million wagered during the year on DFeS games. In other words, the fate of PASPA will have a bearing on how high eSports betting will fly in the United States.

Market giant Unikrn could overcome the PASPA hurdle with a model that escapes betting regulation by giving players means of earning (rather than purchasing) virtual currency that can be redeemed for prizes. Whether the new Unikrn Arena platform, recently backed by Ashton Kutcher and Gary Oseary’s Sound Ventures, will be the answer remains to be seen.

It is also conceivable that even the DFeS model, despite the federal carve-out for fantasy sports, will experience some regulatory friction, given heightened concerns in the United States about gambling products targeting underage customers.

Nevertheless, based on the size and potential of the eSports market, the intersection of eSports and the U.S. land-based casino industry, at least in theory, is inevitable.

“There will be some regulatory questions on the betting side,” Grove said, “but the power of the demographic and the massive

success of eSports live events make this all a pretty easy sell internally for casinos.”

To sum it up, this is hardly an industry casinos can afford to ignore.

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Mark Balestra is the director of publishing for Clarion Gaming. A veteran of 11 years in the online gambling business, Balestra is the editor and co-creator of Interactive Gaming News (www.iGamingNews.com) as well as the editor and co-author of Internet Gambling Report, a legal guide to interactive gambling.

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