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The Rise of Third-Party Esports Wagering

Nevada and New Jersey are the leaders in developing regulations

The Rise of Third-Party Esports Wagering

A constant in the gambling industry is that it is always evolving and seeking new revenue growth streams. One of the newest and groundbreaking opportunities comes in the way of third-party, electronic sports (esports) betting.

Esports is a form of online, skill-based gaming where players compete against each other in tournament-style contests on video games played on traditional gaming consoles or computers. Such skill contests generally avoid gambling prohibitions not through an exemption, but rather because they are not gambling. Skill games are carefully designed to avoid the application of gambling laws by removing the chance element.

In recent years, the esports industry has exploded. In 2021 alone, the global esports market exceeded $1 billion. By the end of 2022, the market is expected to be close to $1.5 billion, with figures exceeding $5 billion by the end of the decade. The esports market consists of a wide range of revenue streams from sponsorship deals, consumer purchases on video games, in-app spending and merchandise, as well as ticket sales from esports tournaments.

The explosion of esports has had a tremendous impact in the regulated gambling industry as well, evidenced by the passage of gaming laws and regulations concerning esports and imbedding such activity within the parameters of current legalized gambling in prevalent gambling jurisdictions such as Nevada and New Jersey.

For instance, during the midst of the Covid-19 pandemic (when no live sports were being played worldwide), the Nevada legislature created the Esports Technical Advisory Committee, which is charged with providing recommendations to the Nevada Gaming Control Board on what is necessary to safeguard the integrity of third-party wagering on esports in Nevada.

Shortly thereafter, the gaming board approved the placement of third-party wagers on esports competitions in Nevada on a per-event basis. Any sportsbooks wanting to offer wagers on esports are required to obtain approval before taking such bets.

In recent weeks, the Advisory Committee voted to move forward with a draft set of proposed regulations which would amend Gaming Regulation 12, relating to race books and sports pools, to allow the placement of wagers on esports events. Such proposed regulations are to be considered by the Gaming Control Board, and subsequently the Nevada Gaming Commission, by the end of the year.

Under the new regulations, sportsbooks would be permitted to accept wagers without the approval currently required, provided the sportsbook were to follow a series of guidelines, which include obtaining information relating to the video game used for the event, the video game publisher, the event operator used to host the events, technology used to determine the outcome of the event and event rules.

Further, a sportsbook must obtain information demonstrating that the event will be adequately supervised, with effective safeguards in place to protect the integrity of the event and be in compliance with any applicable laws. Of note, the proposed regulations require the sportsbook to notify the Gaming Control Board on a quarterly basis about the operators for events on which they accept wagers.

New Jersey has also amended its sports betting laws to recognize esports tournaments previously approved by the New Jersey Division of Gaming Enforcement (NJDGE) as a “sporting event,” which means that sportsbooks can accept third-party wagers on esports tournaments.

Furthermore, New Jersey is currently considering additional changes to its gambling laws governing esports to bolster the esports betting industry. While no draft regulations have been proposed at the time of this writing, there is a proposed bill that would make the placement of wagers on esports events easier. If enacted, the bill would allow the NJDGE to issue additional internet gaming permits to existing casino licensees for esports.

In sum, the esports industry has the potential to attract a new market of audiences for sportsbook operators. In recent years, esports has evolved from friendly competitions played among friends and collegiate-level competitions to large tournaments with million-dollar prize pools attracting players worldwide. However, with the growing trend comes the potential of increase for misconduct; therefore, to ensure the integrity of esports, there is the expectation that more jurisdictions will follow in the footsteps of Nevada and New Jersey and proceed with regulating the esports market.

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