West Virginia now has a sports betting law that will come into effect as soon as the US Supreme Court issues a ruling allowing states to regulate the industry. But the fight to get the law passed was bitter, pitting the sports leagues led by the MLB and NBA against the sports betting operators.
Now it’s time to bury the hatchet and join forces to ensure that legal regulated sports betting is as widely available as possible.
Unnecessary conflict will reduce spread of legal sports betting
One of the biggest problems is the issue of so-called “integrity fees” – payments to the sports leagues from sports betting revenues. The leagues want them, and the betting operators don’t want to pay them.
The West Virginia bill, S415, became law on March 10 without Governor Jim Justice’s signature. It includes no integrity fee provisions despite frenzied lobbying on the issue.
Connecticut, Mississippi, New Jersey, New York and Pennsylvania are all either ready to go with legal sports betting, or well on the way. That still leaves most of America out of the game, and even if other states introduce legislation, they will face the opposition of the sports leagues.
The inevitable outcome will be that fewer states will pass sports betting laws, meaning the US market will be smaller than its true potential.
Anyone with an ounce of understanding of game theory should be able to see that this is a sub-optimal outcome, but a win/win strategy is possible if both sides change their tactics.
There is so much nonsense spouted by political opponents of legal sports betting that we risk ignoring the few arguments that are valid. If operators accept the integrity fee argument they can increase support for gaming legislation and therefore increase access to safe, regulated sports betting.
Integrity fees have a logical basis
The sports leagues invest in making their sports popular and betting operators get the benefit from that investment in increased wagers. An integrity fee compensates the leagues by giving them a share of revenues that they are partly responsible for creating.
The leagues simply want to be compensated for the intellectual property rights they have in the game data that they have created.
The problem is a mindset where the sports fixtures on which people bet are being considered as a “common good” like the air we breathe, or the water in the oceans.
- In previous times, this made sense because poor technology made the concept of an integrity fee impractical; it simply couldn’t be calculated or if it could, it couldn’t be collected.
- Now that this is no longer true, all that remains is the outdated belief that the games themselves are a common good.
The sports leagues and teams have paid good money to create the asset on which sports betting operators base their businesses, and they believe they have a legitimate claim to share in any revenues other businesses make by exploiting that asset.
It’s time for betting operators to recognize the validity of this argument, and in doing so join forces with the sports leagues to spread legislation across as many states as possible. That would be a real win/win strategy, for leagues, operators, and the American people.
West Virginia Governor Jim Justice made the point when he announced the new law:
“After the U.S. Supreme Court issues its decision on sports wagering, to address any provisions of the legislation that might be in conflict, I will ask the Legislature to look at the advantages of partnering with the major sports leagues. This approach will allow us to develop a relationship with all the major sports leagues so that it is beneficial to everyone.”
Google (Alphabet Inc), Amazon and Facebook are three of the top ten largest public companies in the world, and they are now in frenetic competition to win the esports audience.
Twitter may be small in comparison, but it is big in the social media space, and it too wants a piece of the esports pie.
Twitch was the initial force that grew live streaming on the back of esports leading Amazon to buy the company in 2014.
Google’s YouTube introduced live streaming in 2011, but only for select sporting events. It caught on to live streaming esports much more recently.
Twitter is no minnow in the social media space, but its market cap of less than $20 billion makes it tiny in comparison to the three top tech companies.
In March this year, it also struck a deal with ESL, setting its sights on the esports millennial demographic. Twitter will be live streaming over 15 events from major esports tournament series such as the Intel Extreme Masters and ESL One.
Facebook’s deal with ESL
At the end of last week, Facebook agreed with ESL to stream over 5,500 hours of esports events, including 1,500 hours of original programming.
The deal goes into action in June when content from the CS:GO Rank S competitions will launch, accompanied by an exclusive weekly CS:GO show. Streams will go out on the ESEA Facebook page and its group page.
Vice President of Social Media and Editorial at ESL, Johannes Schiefer said that the deal would mark “a huge step toward expanding the reach of esports among mainstream audiences.”
ESL already has a major Facebook presence; Schiefer added:
“Last year, ESL content generated over 2 billion impressions and reached over 200 million users on Facebook globally. Now, with the addition of live streaming for all major ESL events, as well as exclusive content around CS:GO and ESEA, we are excited to expand our reach to more audiences and build strong local communities of highly engaged esports fans.”
Twitch still dominates esports broadcasting, but….
Twitch remains the number one esports broadcast channel, but its dominance may not last.
Seen as a competitive strategy, this suggests that YouTube is not seeking to beat Twitch on organic growth. Instead it is buying audience share with exclusive deals.
YouTube now has exclusive rights over two of the top three CS:GO leagues. Maybe next will be Starladder’s StarSeries, the third largest league.
If a deal goes through, then YouTube will have a de facto monopoly on the vast majority of CS:GO streaming hours.
Facebook may compete for League of Legends streams
Only a week before the deal with ESL was announced, Facebook sealed a deal with Major League Baseball (MLB) to stream 20 live, regular season games.
MLB is taking more than one route to benefit from esports. At the end of 2016, its subsidiary BAMTech signed a deal with League of Legends owner Riot Games. The deal guarantees Riot a minimum of $50 million a year and extends to 2023.
The Walt Disney Company owns a third of BamTech, for which it paid $1 billion in August 2016. Its aim is to produce live streams for ESPN, but it will also be looking to exploit social media live-stream opportunities.
The deal to stream MLB on Facebook may provide Facebook with an advantage in negotiating with BamTech for LOL streaming rights.
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Facebook is working the full length of the value chain
Facebook has also begun a process further down the value chain by striking relationships directly with esports teams.
At the time, Guy Cross, Facebook North America head of games partnerships, gave a clear indication of Facebook’s commitment to esports.
“As gaming video continues to grow across Facebook, whether it’s a live stream from a professional esports team or a player looking to share Overwatch with their friends, we are committed to being a go-to destination for gamers to play, watch and share the games they love with people around the world. As part of the Sixers, Team Dignitas is one of the most progressive esports teams in the world, and we can’t wait to see all the creative ways they’ll interact with and find new fans on Facebook.”
Five esports teams now have a direct contract with Facebook.
Can Twitch fight off the competition?
If exclusive broadcast rights to major esports competitions in CS:GO and LOL go to competitors, and esports teams strike individual deals with YouTube and Facebook, Twitch will have to seriously raise its game if it is not to lose its primary position.
The stakes are high. A Newzoo report issued in February expects the esports audience to reach 589 million by 2020. That is more than double the 2015 figure of 235 million.
Each social media channel has its own characteristics, and these may be the defining factors which will determine the winner in future esports live streaming.
One active Twitch streamer from the world of poker has just decided to switch from Twitch to YouTube.
Using Twitch analytics tools, Doug Polk explained his rationale in a video for his subscribers, and the content makes compulsive viewing for anyone interested in the relative merits of the different channels.
The bottom line for Polk, is that Twitch effectively operates a winner-takes-all system, whereas the larger YouTube user base and more developed search engine gives smaller players a better chance of building their audience.
Esports live streaming looks like it will benefit from a highly competitive landscape over the next few years. While there may be some audience fragmentation, high rates of growth appear to be inevitable.
From an esports betting perspective, this growth is a very good thing. The total volume of any form of sports betting is closely related to the total audience size.
Those operators who have put the investment into an attractive esports betting platform are likely to be major beneficiaries of the competition between the social media giants.
From May 12 to May 14, the Tropicana Atlantic City is hosting a weekend-long Melee/Smash4 tournament with a $10,000 combined pot bonus.
The event is significant in that it confirms the trend for casinos’ involvement in esports. For casinos, esports has a special attraction—the player demographic.
Millennials with money to spend are a tough market to crack. They demand value for money, authenticity, and a fully rounded entertainment experience. At the same time, they resist traditional sales tactics.
But once acquired as customers, they can be very loyal and have higher levels of engagement with their entertainment than traditional casino customers.
The esports betting industry is growing at an accelerating pace, but revenues are still comparatively low. Nevertheless, casino executives can see where the future lies. And esports will be a big revenue producer in coming years.
Outsourcing esports events mitigates risks
To put on the event, the Tropicana has partnered with Spawn Point, a company that specializes in:
“creating advanced competitive environments. The Spawn Point Esports tournament platform is built on the AliQuantum gaming platform – a recognized leader in gaming software with the regulated integrity of a licensed gaming platform.”
The Tropicana is reducing its business risks by using a third party. But it is also able to use Spawn Point’s expertise to increase its own knowledge of esports.
Co-founder of Spawn Point, Kevin Mercuri, explained:
“Esports has the ability to attract and entertain an entirely new demographic of casino players and should play an integral role in every casino’s marketing plan.”
MGM is bringing esports to the Las Vegas Strip
Many businesses can see the potential of esports. But they’re wary of taking on a new business vertical without sufficiently understanding the factors that will lead to success.
MGM Resorts International is one of the first casino companies to have the confidence to invest directly in esports.
In April it announced that the Luxor Hotel and Casino on the Las Vegas Strip will be transforming a 30,000-square foot nightclub into a new esports arena.
Even so, it too has gone for risk mitigation in the new business vertical. It is partnering with Chinese company Allied Esports, who have built a US business based on hosting esports events.
Senior Vice President of Allied Esports Jud Hannigan explained that the Luxor venue would be a fully featured esports tournament venue.
“The arena will provide a ready-to-go championship destination for tournaments, leagues and high stakes match-ups in a setting designed to deliver an unparalleled fan experience,” Hannigan said.
The Tropicana is offering entry level prices for the event
One of the interesting elements in the Tropicana event is the low tournament entry fee which it is charging.
Each of the four tournaments, two for Melee, and two for Smash4, costs only $10 to enter. According to a post on Reddit, as of May 10, there were over 500 players registered.
Spectators can buy full event or one day passes for $40 and $15 respectively. But even so, the total revenues generated by this weekend’s events will not be huge.
The price point indicates that the casino is carefully targeting the event. It reinforces the idea that the Tropicana is treating this as a learning experience.
Steve Callender, general manager at the Tropicana, said, “We expect a high turnout for players as well as spectators who will enjoy not only esports, but all that the Tropicana has to offer.”
And that may be the most important part of the learning experience—what additional spend will the esports audience deliver, and what elements of the Tropicana offer will most appeal to them.
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Match-fixing allegations out of South Korea are putting the spotlight on Overwatch and esports match integrity.
The Gyeonggi Bukbu Provincial Police Agency Cyber Bureau has charged two people with an offense related to match fixing an Overwatch tournament.
Korean police allege that both the player manager and coach of Overwatch team Luminous Solar tried to bribe team UnLimited to deliberately lose a qualifying match in the APEX Overwatch League.
The player-manager Jin Seok-hoon and coach Baek Min-jeh have already been banned by Korean TV channel and tournament organizer OGN.
Blizzard can’t afford to ignore match fixing
This is the first high-profile case of Overwatch cheating. It poses a reputational risk to Overwatch developer Blizzard Activision.
Blizzard is planning its own major Overwatch tournament series, the Overwatch League. That is expected to debut in September this year.
The league depends on investors buying team franchises linked to major cities around the world. The franchises will likely cost up to $15 million each. Any reputational risks arising from a cheating scandal are likely to have an adverse effect on investor sentiment.
A month ago, Nate Nanzer, Blizzard’s global director of Overwatch esports, said:
“In terms of the actual nuts and bolts of the league in 2017, and content production, all that, there’s no delays there at all. You probably understand the amount of legal work that goes into doing this, and that time between BlizzCon and today has been spent finalizing legal documents.”
To what extent this preparatory work focuses on match integrity is not known.
But this match-fixing case will undoubtedly focus the organizers’ minds on minimizing risks for the Overwatch League.
Esports betting promises rich rewards for cheaters
Esports tournament prize money is on the increase. That creates big incentives for crooks thinking about match fixing are the gains available from esports betting.
The Overwatch League is likely to attract significant handle as total esports betting wagers are rising at an increasing rate.
A graphic produced by Pinnacle shows how rapidly the business vertical is growing.
— Pinnacle (@PinnacleSports) April 23, 2017
Extrapolating from this, Pinnacle expects to take its 10 millionth esports bet in January 2018.
The rewards for successful match fixing are growing in line with the total betting handle.
Traditional sports have taken the risks of match fixing seriously. To maintain the same level of credibility, esports must do the same.
Solutions are available from BetGenius and Betradar
The two leading companies offering technological counters to cheating and match fixing are BetGenius and BetRadar.
“Furthermore, as FACEIT’s chosen technology partner, we have a responsibility to safeguard the integrity of their events by providing systems that monitor and safeguard against the threats of match-fixing and betting-related corruption.
As FACEIT and the wider esports community understands, protecting the integrity of games is fundamental to the continued success and explosive growth of esports around the world.”
BetGenius introduced its Sport Integrity Monitor (SportIM) in 2015. Since then it has pushed for common integrity standards across the esports world.
Betradar also engages in the prevention of esports match fixing. In its white paper on esports, Betradar explains:
“Bet monitoring is a key weapon in the armoury of eSports. As an example, Sportradar’s Fraud Detection System already monitors all ESL competitions by monitoring the odds movements and patterns across 450 betting operators worldwide. It spots anomalies in both the pre-match and live markets.
Those anomalies are then analysed by members of a 35-strong team of Expert Analysts, who lead the process into understanding whether the anomalies can be legitimately explained or whether they are indeed suspicious and worthy of further investigation – either by the sport rights holder or the relevant law enforcement agency. Bet monitoring gives a clear indicator of participants or teams that are involved in match manipulations and consequently give peace of mind and reassurance to all stakeholders.”
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Match fixing solutions are more than technical fixes
Betradar was one of the founding members of the Esports Integrity Coalition (ESIC), which launched in July 2016.
ESIC aimed to bring industry stakeholders together to create exactly the common integrity standards that BetGenius supports. In ESIC’s initial launch announcement, the organization said:
“ESIC has created a Programme for acceptance and implementation by professional esports stakeholders – primarily tournament organisers and platforms, games publishers and licenced and regulated bookmakers offering esports betting markets – that consists of a Participant Code of Conduct, an Anti-Corruption Code, an Anti-Doping Policy and an independent Disciplinary Procedure based on principles of natural justice.”
Most recently ESIC produced a position paper on the disciplinary standards it proposes for industry adoption. A consultation on these is ongoing.
Many of the measures are procedural rather than technical. However, they are an essential underpinning if esports are to operate with the highest levels of integrity.
Game developers can’t ignore esports betting
Whether esports game developers support esports betting, or oppose it, they can’t choose to ignore it.
It is the potential gains from esports betting that provide the motivation for cheaters and match fixers, As such, esports match integrity — and the reputation of games like Overwatch — is dependent on the integrity of esports betting.
Blizzard’s new Overwatch league will certainly implement the necessary integrity measures. But for those tournament organizers that think they can skimp on the expense, it is only a question of time before they encounter another scandal.
Esports is coming to Luxor in Las Vegas.
The Luxor Hotel and Casino, owned by MGM Resorts International, brought the Sphynx and Great Pyramid of Giza to the Las Vegas strip. Now the iconic property will shift into the future with its first esports arena.
The Luxor esports deal, at a glance
MGM has struck a deal with Chinese company Allied Esports to transform a 30,000-square foot nightclub at the Luxor “into a multi-level arena complete with a competition stage, LED video wall, telescopic seating, daily gaming stations, a robust food and beverage offering, and state-of-the-art streaming and television-quality production studios.”
Niklas Rytterstrom, general manager of the Luxor, said:
“Our company is the leader in the entertainment industry and recognizes the exciting growth in esports. With this partnership, we will introduce a new experience to the market, once again elevating the city’s vast entertainment offerings.”
It is plain that the partners have big ambitions for the new esports venue. Senior Vice President of Allied Esports Jud Hannigan added:
“The arena will provide a ready-to-go championship destination for tournaments, leagues and high stakes match-ups in a setting designed to deliver an unparalleled fan experience.”
Esports is already in Vegas
The Luxor is not the first Las Vegas casino to recognize the potential of esports. The Downtown Grand began studying the esports industry in 2015.
Since then it has created the first casino esports venue in Las Vegas.
“We had viewing parties, and now we have contests where aspirational sports players go to the casino floor and pay a cash entry fee to play in a tournament, play for a cash prize, and that happens every Friday and Saturday night,” CEO Seth Schorr told ESBR. “Once we saw that happening and working really well, we realised we were on to something.”
When Esports Betting Report interviewed Schorr in May 2016, MGM had already put on two major esports events. Almost anticipating the Luxor announcement, Schorr said:
“There’s no question that every major casino in Las Vegas is talking about esports. It’s certainly a topic in the boardroom. MGM has done a fantastic job producing two large events.”
Esports betting is definitely on the Luxor horizon
He has worked closely with the Nevada Gaming Control Board to educate them in the risks and potential of esports betting.
In this deal with Alliance, Murren has brought esports into a high-profile casinos on the Las Vegas strip. Esports betting will be an integral part of the arena’s growth strategy.
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Other casinos are likely to launch their own esports offering
The Downtown Grand pioneered the way, now the industry heavyweights in the form of MGM are taking Las Vegas esports mainstream.
It cannot be long before other casinos on the strip follow in their footsteps. They may aim for the same destination, but are likely to take a variety of routes.
A dedicated esports venue is only one way to ride the esports growth trend, and Vegas may be limited in how many venues the market can support.
Casinos are not the only businesses interested in esports. Millennial Esports opened its esports event and production complex in the Neonopolis building on Fremont Street in downtown Las Vegas last year.
Millennial has already established a toehold in the global esports scene by partnering with Microsoft and Electronic Arts (EA) to hold the Madden Championship Series, Madden NFL 17 Tournament on Xbox One and PlayStation 4.
Millennial is open to the potential of esports betting. But it recognizes that it will have to wait for the regulatory opportunity.
The MGM venue will seek to compete for such signature events, but there a limited number of top competitions. Too many venues will spread revenues thinly.
Casinos may opt to treat esports betting like traditional sports betting
Esports fans love live competitions. But the majority of play is online, so casinos have the option to treat esports more like traditional sports betting.
Casinos with sportsbooks don’t play host to the NFL or NHL events on which they take bets. There’s no reason why the same strategy can’t work with esports betting.
These factors are likely to contain the growth of Nevada esports venues to whatever the market will support. That number is likely to be a higher than it is now, but there is a limit.
Hannigan is in no doubt as to the level of dominance that he expects to achieve:
“Just as Yankee Stadium, Madison Square Garden and Wembley Stadium are considered their sports’ most aspirational venues by players and fans alike, Esports Arena Las Vegas will be the iconic destination in esports and complement the city’s incredible appeal, attracting video gaming competitors and fans from around the world.”
The Esports Integrity Coalition has issued a position paper on esports cheating. The paper rejects a “one-size-fits-all” approach, arguing that each case must be judged on its merits.
ESIC’s paper is available here.
ESL’s policy has been to impose a two-year competition ban on all players caught cheating.
ESL, which is a member of ESIC, announced that it was standardizing the two-year ban for cheating. But it made no mention of its approach to match fixing:
“This policy of a two year ban was also recently adopted by ESEA, which had previously used only 1 year ban. All of these changes are meant to create consistency for all future bans across all platforms throughout CSGO. So that VAC bans can also be included in this consistent overall framework, we therefore recently updated our competitive rulebook to bring our treatment of them in line with these policies.”
Not surprisingly, a Twitter storm ensued. Players strongly opposed people who had been caught cheating as recently as two years ago being allowed to play in ESL competitions.
From the FaZe Clan, player Karrigan made his displeasure clear:
Apparently its okay to cheat for years at LAN tournaments(only 2 years ban) but 1 matchfixing match is life time ban. Welcome back cheaters
— FaZe karrigan (@karriganCSGO) March 23, 2017
His team mate kioShiMa put his tongue firmly in his cheek in replying:
sup dude, your turn to get into it, get few hundred of thousands $$ and get caught and comeback 2 years later 🤔
— FaZe kioShiMa (@kiocsgoo) March 23, 2017
ESIC more soberly said that ESL’s position “gives rise to a number of serious issues.”
The industry needs a common position on integrity
ESIC says that focusing on any one policy is missing the more important point that “the esports industry is inconsistent and uncoordinated across the board on the issue of cheating.”
In setting out its position as the starting point for a wider dialogue, ESIC wants to begin the process of standardizing the industry’s response to breaches of integrity.
ESIC identifies six broad areas where a common approach is required:
- Reasonable sanctions
In its approach to cheating, ESIC wants a just response that reflects the seriousness of each case:
“We would hope that it is accepted that a 15 year old cheating with a free download aimbot is not guilty of as serious an offence as a seasoned pro winning prize money matches using cheat software and they do not deserve the same punishment.”
ESIC argues that each case must therefore be judged on its own merits. The response should be proportional.
ESIC agrees with the approach used in traditional sports. There, match-fixing is considered to be a more heinous offense than cheating.
Although unstated in the paper, match-fixing is often allied to some form of money-making opportunity, typically involving esports betting.
Match-fixing has the potential to affect many more people than a simple case of cheating. And it would involve much larger sums of money.
On this issue, ESIC defends ESL’s approach:
“Match-fixing, on the other hand, usually results in longer bans – 5 years and upwards even for first offences and, in a number of cases, jail time and criminal records. Consequently, the criticism levelled at ESL in particular in this regard was not fair when viewed against what happens in traditional sports.”
On the issue of consistency, ESIC displays unexpected vehemence. It says that the VAC ban may be consistent but it is not fair. ESIC describes the resulting situation in extremely negative terms:
“It is confusing, inefficient, inherently unfair and will lead to bad outcomes and controversy (as has already happened).”
Even though Valve is an individual company, ESIC argues that a coordinated response is necessary regardless of the differences of opinion within the industry:
“Valve is the obvious vehicle for facilitating this, but the industry stakeholders need to get past their personal biases, entrenched positions and preconceptions.”
There is a strong element of “it’s time to bang heads together to get a solution” in ESIC’s tone and approach. Whether it will work or not is debatable. But it is surely time for the industry to follow ESIC’s advice.
Failure to agree leaves esports companies open to reputational risk, which at this stage of the industry’s development is not just a financial risk, it is an existential risk.
ESIC says that current procedures have serious problems and can appear “arbitrary and inconsistent.”
Although recognizing that the power to resolve problems lies with game developers, ESIC puts itself forward as an independent potential provider of process:
“Realistically, only Valve can force this agenda in CS:GO (and DOTA2), but ESIC is best placed to provide it through the ESIC Programme where we already have clear rules, a clear and fair procedure and an independent disciplinary panel to make fair, unbiased decisions and provide an appeal mechanism.”
The ESIC recognizes the anger expressed by the Twitterati as being an important consideration that wiser heads must not ignore.
ESIC explains that life bans in traditional sports are reserved for the most serious or repeat offenses being seen as “the absolute limit of acceptable and then only for the very worst offences.”
However, ESIC adds:
“Having said that, if the CS:GO community believes that a person who cheats should never play CS:GO again, then that needs to be taken into account.”
Such an approach may sound good to the player community. But in practice, there will inevitably be cases where a life-time ban is clearly an egregious punishment.
The same community which currently demands the harshest punishments will soon be arguing that the rules are despotic.
ESIC advocates for players to have the right to present their defense. They should also be able to appeal a disciplinary decision at least once.
“Anything less undermines the integrity and appeal of esports and makes us, as an industry and community, look unprofessional and immature and undermines any effort to be considered anything other than a fringe activity despite the amazing support, passion, revenue and loyalty we engender.
Moving in the right direction slowly
ESIC is now preparing a questionnaire, with input from Valve. It will provide that to a wide group of stakeholders.
The consultative process is arduous, slow and subject to the caprice of Valve, at least in regards to CS:GO.
Nonetheless this is an essential process if the world of esports is to achieve the same levels of integrity and discipline that have brought traditional sports such respect.
ESIC is a relatively new organization. It is sticking its nose into business which many tournament organizers and game developers consider to be their own proprietary domain.
In other words, it is doing exactly what its founders intended it to do.
The new platform “provides real-time data driven predictions” and will improve the way that data and statistics will increase engagement with ECS fans.
Alongside the new platform, ECS will use the Genius Sports’ eSports Bet Monitoring System to monitor betting markets in real-time.
This will decrease the risks of match-fixing and alert the organizers to any unusual patterns in the betting market. The enhanced level of match integrity will encourage more betting operators to add ECS to the list of events they cover.
Esports betting bookmakers will benefit from the enhanced integrity
The benefits of the new system will extend beyond the fans to the bookmakers offering esports betting on ECS tournaments. Genius explained:
“The platform transforms in-game data into split-second predictive outcomes and performance assessments of teams and players. Simultaneously, fan engagement and betting activity are measured across a vast array of bookmakers, providing the data visibility required to identify suspicious patterns in wagering liquidity, a critical measure for the prevention of match-fixing.”
Last year’s Grand Finals of the ECS took place at London’s SSE Arena, Wembley. The largest esports prize pool ever offered in the UK was up for grabs there.
The $3.5 million prize pool not only attracted a large audience. It also spurred betting operators such as Pinnacle to offer wagers on the event.
The enhanced integrity measures should ensure that the 2017 Grand Final draws a much larger betting handle.
Genius Sports CEO Mark Locke said:
“We are incredibly excited to partner with FACEIT and ECS with our ground-breaking eSports technology to help increase fan engagement, as well as help ensure players and fans are treated to a fair and transparent game, and ECS league representatives are equipped with information and tools necessary to maintain a clean, honest and exhilarating contest.”
League organizers are aware of the need for more esports integrity measures
The issue of esports integrity really came to the fore in 2016. Several organizing or governing bodies launched, with the issue high on their agenda.
The Esports Integrity Coalition (ESIC) places integrity at the center of its objectives. But the World eSports Association and World eSports Council also recognize the importance of ensuring match fairness.
ESL was one of the first major esports tournament organizers to adopt a technical solution to match integrity.
In October 2015, it signed a deal with Sportradar. That agreement provides data and gives access to Sportradar’s eSports Fraud Detection System.
Last July, Genius Sports’ Head of Esports Moritz Maurer explained that the average prize pool for many esports competitions is tiny in comparison to the total amount of money wagered on the event.
“We see this as very problematic for competitions that have a very small or even no monetary prize pool and the participating teams are often newly formed rosters. The betting volume in comparison with the incentive to win the entire tournament is at a concerning ratio.”
The FACEIT, ECS deal with Genius is a significant step in implementing a solution that addresses these concerns.
Chief Business Officer and Co-founder of FACEIT Michele Attisani commented:
“Integrity has always been the core value for FACEIT and ECS. We are very aware of the challenges all leagues face as the industry grows and we felt this was a logical next step to safeguard our fans and stakeholders. Genius Sports is the trusted and go-to platform for all major sports leagues, their unrivalled experience in this sector alongside the newly developed technology specifically designed for CS:GO makes them an integral partner for ECS as the league continues to grow.”
The deal has potential to extend to other esports leagues
As more tournaments recognize the need for technical solutions to match integrity, it seems inevitable that the market will grow.
Genius Sports has data and integrity solutions in use in traditional sports including English Premier League and Italian LaLiga soccer. It has built a strong base in esports.
Given the stunning growth trajectory of esports, Genius Sports is well poised to enjoy the trend.
Blizzard took a big step forward in its strategy to become a major esports event organizer with the opening of its first dedicated stadium in Taipei, the capital city of Taiwan.
The basics of the esports stadium
The Blizzard Estadium venue caters for up to 500 esports fans, and will host events from Blizzard’s game portfolio, including Hearthstone, StarCraft 2 and Overwatch.
— MEGA oPuTo (@oPuToGG) March 30, 2017
At the moment of the official launch, CEO and Co-founder of Blizzard Entertainment Mike Morhaime said that the global esports market had been dominated by the Asia-Pacific for many years. The regional market is a “bellwether for the strength of global demand,” he said.
A competition between two top Taiwanese esports teams — AHQ Esports Club and Flash Wolves — took place at the opening.
The first official tournament at the Blizzard Estadium begins on April 8. That initiates a weekly format that will continue for three months.
The Overwatch Pacific Championship will be played by eight of the top esports teams in the Asia-Pacific region and comes with a prize pool of around $270,000.
The top three teams will advance to the playoffs culminating in the 2017 Overwatch World Cup, where 32 teams will compete for their countries.
Last year, the South Korean team won the right to call themselves Overwatch world champions.
Overwatch is the prime vehicle for Blizzard’s live event strategy
Blizzard’s Overwatch game has become the centerpiece of the company’s live event strategy, even though it launched in summer 2016, .
The Overwatch League is due to launch in September 2017, with city-based team franchises to be established around the world.
According to Blizzard, the tournament series will feature:
“League action streams live every week, including a standalone prime time matchup between top teams. Game highlights and other features fill in the gaps between game days.”
Blizzard expects most of the team franchises to generate revenues locally, which means regular live events in local stadiums.
The Overwatch League is a risky strategy with a potentially huge payoff
As a concept, the strategy is undoubtedly bold. It has the potential to establish a global esports business with all the advantages of traditional sports combined with the proprietary rights of the game developer.
Team franchises have lofty pricetags. A franchise for a major city like Los Angeles could cost up to $15 million. Even though team owners will share in league revenues, that still leaves a lot of risk.
Overwatch is off to a flying start. But there are no guarantees that a new game won’t come along and devastate its player pool and fan base.
The Blizzard Estadium is not dedicated to Overwatch, or the new league. But as the first of its kind, it will provide a strong support for the Overwatch franchise in its broadest sense.
Ourgame International Holdings is planning to expand into the US social casino gaming market as well as increasing its exposure to US esports according to reports in the Chinese media.
Ourgame is part of the Allied eSports consortium. Last August, that group announced the building of a new esports stadium in Oakland, California.
The “Esports Arena: Oakland” is being built in partnership with the Santa Ana Esports Arena. The stadium will host a weekly event schedule. What will be in it?
- A modular gaming and event space
- State-of-the-art broadcasting equipment
- Aproduction studio
- A green room
- A bar
Allied eSports has global plans
Allied eSports came into being as a cooperative venture between Ourgame and:
- Wangyu Wangka: The largest internet café chain in China.
- KongZhong: NASDAQ-listed company that operates the largest Chinese military gaming platform under the “WAR SAGA” brand. It includes games such as World of Tanks, World of Warplanes and World of Warships.
- Ourpalm: Licensed telecoms service provider that has evolved into a leading web and mobile game developer, publisher and operator.
- iRena: Describes itself as a sports industry platform company that puts on sporting events for some of China’s most popular sports teams, including China’s national soccer team.
Senior Vice President of Allied eSports, Jud Hannigan said:
“Partnering with Esports Arena is the next step for Allied eSports in building our worldwide arena footprint and launching consistent tournaments on a global scale.”
On its LinkedIn page, Allied eSports explains its global ambitions:
“The company’s mission is to build a global competitive esports property designed to connect players and fans via a network of arenas around the world which will serve as both battlegrounds and content generation hubs. The first Allied eSports property, Wangyu eSports Arena, opened its doors in late 2015 in the heart of downtown Beijing.”
Ourgame has already gone global with the World Poker Tour
Allied eSports is likely to be the vehicle Ourgame uses for its US esports expansion. But it has a considerable capacity to expand using its own resources.
In June 2015, Ourgame bought the World Poker Tour from bwin.party. The WPT organizes live poker tournaments in locations around the world and broadcasts the events to over 150 countries.
The WPT has a five-year TV deal in place with Fox Sports to broadcast the poker tournament series until 2021.
The brand is supported by “ClubWPT.com, a unique online membership site that offers inside access to the WPT, as well as a sweepstakes-based poker club available in 35 states across the United States.”
With this level of experience in organizing and broadcasting online poker, it is easy to see Ourgame translating its expertise to esports.
Ourgame is also a game producer
Ourgame’s primary business is founded on its stable of games that were in some cases the first online versions of traditional games such as Mahjong, chess and Texas hold’em.
In total there are more than 200 individual and massive multiplayer online games in its portfolio.
The company has announced that it wants to use its games to build a presence in the US social gaming industry. However, it must also be eyeing the possibility of having more of its titles become popular as esports.
Chinese companies such as Tencent already have a big piece of the esports industry — Tencent owns Blizzard Activision — now it looks like they want to own even more.
Game developers and publishers need to take time to read the UK Gambling Commission’s recent position paper on “Virtual currencies, eSports and social casino gaming.”
The position paper is available here.
Video game developers may not think their games are gambling. But under certain circumstances they could run afoul of the UKGC’s regulations and UK gambling law.
One critical difference between US and UK law is that jurisdictions can define an activity as gambling even if no “consideration” is paid. In the US, the three elements of gambling are consideration, chance and a prize.
In the UK, the law defines gaming in section 6 of the Gambling Act as “playing a game of chance for a prize.” This is an important difference that the UKGC highlights in its position paper.
In-game activities may qualify as gambling
Paragraph 3.17 of the position paper states that:
“3.17 The payment of a stake (key) for the opportunity to win a prize (in-game items) determined (or presented as determined) at random bears a close resemblance, for instance, to the playing of a gaming machine. Where there are readily accessible opportunities to cash in or exchange those awarded in-game items for money or money’s worth those elements of the game are likely to be considered licensable gambling activities.”
Even in games where in-game items cannot be traded with other players, the opportunity to exchange items for something of “money’s worth” can suggest to the UKGC that there is an element of gambling.
Something can become of money’s worth if players can buy that item from the game publisher’s online store.
With reference to skin gambling (in-game items are generically referred to as skins), the UKGC explains:
“Where a player loses their entire ‘skin’ inventory having staked them unsuccessfully on gambling activities, one option for them is to purchase new ‘skins’ from the games publishers, either for use within the game or for further gambling stakes.”
Even though the financial loss isn’t direct, the consequent purchase of new skins in effect creates a loss.
The issue is exacerbated if players can trade, gamble or exchange skins for money, even on third-party sites.
Is it fair to hold game developers to account for third party transactions?
ESBR reached out to specialist gambling and esports attorney Jeff Ifrah for an opinion on paragraph 3.17:
“U.S. law looks both to the form of payment for the opportunity to win a prize and the form of payment of any prizes. In many games on the market that accept payments to play the chance contests contained within the game, the prize itself has no ‘real world value.’
That is, the prize as provided by the game only has a virtual value within the game. In contrast, this statement appears to say that because the prizes ‘bear a close resemblance’ to gambling, they should be regulated.
It may be that the UK sees these prizes as similar to free play, but the issue is really whether there is real world value for these items. If the games are working to prevent illicit trading or selling of the items on third-party sites, they should not be held responsible for the real world value ostensibly set by such sites they do not control.”
Ifrah makes the important distinction between skins that have a value inside the game and those which only acquire value externally as the result of third parties.
Game developers can control their terms and conditions. But they have little control over third-party websites which may be in other national jurisdictions.
Such sites offer players with tradable skins the opportunity to sell them, or use them for gambling activities such as entry to lotteries or roulette-type games that may offer real money prizes.
Ifrah contends that regulators should not hold the developer responsible for the actions of organizations outside their control.
The UKGC won’t allow developers to waive their responsibility
In paragraph 3.16 of the position paper, the UKGC disagrees with Ifrah:
“However, we are strongly of the view that the video games industry should not be, or perceived to be, passive to the exploitation of their player community by predatory third parties. The significant risk of harm posed by these unregulated gambling websites, whilst unintended, is nonetheless a by-product of the manner in which games have been developed and in-game economies incorporated for commercial benefit.”
In short, if third parties are converting a social gaming activity to gambling, then the developers do bear responsibility.
Ifrah responded directly to the paragraph by suggesting that the type of actions already being taken by game developers such as Valve are sufficient to exonerate them of responsibility:
“This statement makes it seem that game developers will need to go to heroic lengths to prevent unscrupulous parties from exploiting their product.
The developers are already responding to concerns expressed by regulators by closing their APIs, moving to enforce their terms of service, and other efforts. It is impracticable to expect them to stop all third parties that might find a way to profit off their product without permission.
That is like expecting the government to stop all people from engaging in illicit behavior with official currency. Game developers should not be held liable for ‘unintended by-products’ of their perfectly legal product.”
Overwatch would pass the test, but…
Blizzard’s Overwatch game provides a good example of a game that is likely to comply with the UKGC’s strictures. However, it could easily slip into the gambling definition if the developers expand its features.
Overwatch has several features that make it of interest to the UK gambling regulator:
- The game targets children as well as adults.
- Loot boxes contain random prizes.
- Players can purchase loot boxes online.
In Overwatch, players can obtain “loot boxes” in several ways:
- Playing in arcade games.
- As a prize for leveling up.
- Purchased directly from the online store.
Each loot box contains a random selection of four items that can players can use in-game.
From the UKGC’s perspective, Overwatch already contains several elements that contribute to a possible definition of gambling.
Loot boxes contain prizes that the publisher determines by chance. They have a monetary value because players can buy them online. Players can even buy them using World of Warcraft gold. (Users can acquire gold for real money at third-party sites online.)
Overwatch is a game with many players under the age of 18. If any gambling is identified, the UKGC will certainly take legal action.
More with the Overwatch hypothetical
The Overwatch model succeeds in avoiding the definition of gambling. Players cannot trade the in-game items acquired in their loot boxes with other players. There is no way of using them to gamble or exchange them for money on third-party sites.
Blizzard could try to enhance Overwatch by making these items tradable. However, it would risk the UKGC making a determination that the game did qualify as gambling.
Under UK law, Blizzard would then require a gambling license. Overwatch sale and use would then fall within the UK Gambling Act and UKGC regulations.
The line that the UKGC has drawn between gambling and not-gambling is very close to where many video games are currently.
Crossing the line would not only bring reputational risks, but could also be a very expensive mistake. The size and importance of the UK market is very important to video game revenues.