The fantasy sports industry has spent 2016 in significant flux following increased regulatory scrutiny, intense legislative lobbying, potential criminal probes, and ultimately waning growth.
The shifting landscape has not spared fantasy esports. The two largest operators, Vulcun and AlphaDraft, have shuttered despite each attracting multi-million dollar investment rounds last year.
One website, EsportsPools, is still offering daily fantasy esports, and has no plans of stopping.
The site’s founder, Scott Burton, spoke to ESBR about the challenges facing the industry, how fantasy can serve as a compliment to broader esports betting, and the benefits of esports being a truly global game.
ESBR: Yours is one of the last fantasy esports sites still standing. Why is that?
Scott Burton: We’ve always had a different sort of approach to what we were doing. We had our site live prior to Vulcun and AlphaDraft, and esports betting is actually the path we’ve been on. We were previously an offshore licensed betting company, but for traditional sports.
In 2014 we decided to shift our focus to esports exclusively, and actually decided to start with a fantasy site at that time. That way, we knew we could put something out that didn’t require licensing in a lot of places, until we tested the market and saw whether there was an appetite for things like betting and fantasy around esports.
ESBR: Why was fantasy the market entry point for you as opposed to other forms of betting?
Burton: There’s quite a burden to getting your license. We wanted something that wasn’t going to require us to go through the cost and effort of getting a license, but still could give us a sense of whether [betting] would support esports and viewers.
We knew we could test monetization in some areas, and once we were satisfied, we’d go back to the route of… adding the more traditional style betting stuff.
ESBR: Should we expect, then, a more traditional betting product from ESportsPools in the future?
Burton: At the beginning of next year we plan to introduce the rest of our products, so that will be betting and some additional game play around esports. We’ve been fairly public since the beginning that that’s where we’ll be heading.
Betting will be our main focus. Fantasy will still be there. We’ll have community aspects as well—forums, embedded streams, an esports news aggregator for content.
ESBR: What format of esports betting are we talking about, here? Cash? Bitcoin? Virtual coins? Skins?
Burton: We’ll actually have the ability to do all of the above. There will be cash betting. We will have alternative currencies like Bitcoin.
We’ve always had a focus around the virtual goods and skins. I know there’s some flux in the industry around that, but we would have the ability to do that if we chose to, and if we had support.
ESBR: Even if you have the functionality to offer skin betting, though, you still need the consent of game developers, no? Valve, for example, recently sent cease and desist letters to websites that used its API for commercial purposes, like skin betting.
Do the risks of delving into skin betting outweigh the rewards?
Burton: Potentially, which is why we have the ability to either use them or not. Nowhere in Valve’s cease and desists is there anything anti-gambling, necessarily. They’re going into the terms of service of the API.
It doesn’t have to be Valve or Counter-Strike: Global Offensive skins. I know they had that letter recently from Washington state and they responded recently to Washington state. That was an interesting response. But we’re only going to operate in places that allow and have approved our activity, and we’re looking for the support of publishers.
I think there’s potential opportunity with other game publishers, and other items, as well as the fact that we will be fully licensed. We have full KYC in place, so we do, age, identity and location verification.
I think one of the bigger issues is around a lot of those sites not being regulated, not trying to block underage users from getting in, not having any transparency behind the scenes and who you can go to if you have complaints. All of those things will be in place for us, which I think would open up some opportunities to reengage with virtual currencies in the future.
ESBR: What type of license would allow you to run skin betting, and in what jurisdictions?
Burton: If you look from the regulatory side to what recently came out of the UK Gambling Commission, I think the regulators are quite open to it if it’s managed properly. We wouldn’t offer any type of betting in the US.
ESBR: Are you in talks with game developers to get their consent on a skin betting or virtual betting product?
Burton: That’s one thing I can’t talk about at the moment.
ESBR: What countries does ESportsPools expect to be running betting in next year?
Burton: We’ve talked to a number of different jurisdictions and regulators. Really it’s not about that it’s skins or virtual goods, it’s that it’s a currency. It could be Bitcoin, or anything that’s non-cash.
As long as you’re following anti-money laundering, counter-terrorism financing rules and have all the KYC in place, you’re going to get a positive response from most jurisdictions. Some of them are writing new legislation now.
A lot of sites have a misconception that because they deal in virtual goods, they don’t need to be licensed, because it’s not real money. But as soon as you can show a real-money value, which you can clearly show for skins, it doesn’t matter what currency you’re using.
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ESBR: Do you expect to see jurisdictions like the UK, the Netherlands, France or elsewhere coming up with a regulations that use the words “skin betting” in them, or at least address a host of new betting-related currencies?
Burton: I think you’ll see some other countries and gaming commissions come out with laws that cover it. I don’t know whether you’ll see it specifically say “skins,” but I think you’ll see laws that say something like, “cash or cash-like equivalents” for a number of things, that would include skins.
ESBR: In light of other major fantasy esports sites shutting down recently, and in light of your move toward esports betting, does fantasy esports have a future, both for your company and in general?
Burton: It does, but it’s complimentary. We always thought that if this was going to be a space we could be in and there was a market, it would be betting. That’s where the money is going to be made. We still think fantasy and other game play is a nice complimentary product to a betting site. We have no intention of abandoning fantasy, but ultimately betting is going to drive us going forward.
EBSR: Of the game titles you offer contests across, which is the most popular?
Burton: Counter-Strike is our most popular title, currently. When we put out our first testing in 2014 we started with CS:GO. Vulcun and AlphaDraft first started with League of Legends, and then DraftKings came on with League. We also give away a lot of skins, so you can enter for free and win skins. We also do cash as well, where that’s legal.
We found we have much more activity when we’re giving away skins versus giving away cash. Even if you could win more cash value than skins value, people could like the skins better. We like the economy around CS:GO and Dota 2, and we liked that there was already some evidence of betting activity around that space more so than others.
EBSR: Skins are not only more convenient for players to bet with, but your average 18-year-old gamer could be more likely to have disposable skin income than disposable cash income. In the wake of the crackdown on skin betting, do you feel you’ll be able to attract this core contingent of young, mostly CS:GO and Dota 2 players, to a cash-based product?
Burton: It’s one of the concerns you would have going through this. We have a pretty significant user base now, and I would say 80 percent of the users we have are over 18. So I think most will have the ability to get payments into our system and will start to get more into cash betting.
I think it’s very early days for these people. There’s going to be an education process. It’s not going to be the sportsbook guys coming over. It’s more about a high volume of micro-transactions, and in-play stuff, and trying to convert slowly. We don’t expect to have the same numbers as a sportsbook at all.
ESBR: Speaking of micro-transactions, many of your fantasy prize pools at this time are small as well, around $15 or $25 total. In the era of million-dollar prize pools, why is a small number like that an effective target point for you guys to hit? Are players more receptive to perhaps a less risky, smaller buy-in?
Burton: We are going to be increasing those. What we have now is more proof-of-concept and testing conversions and getting some payments in jurisdictions where we’re allowed and getting some data points. We’re really saving most of our efforts for marketing and prize pools for when we get the full product out there.
We find the lower entry fees seem to do better and [players] tend to come back more often, playing multiple times in a day or a week. Another part of it is financing for us. We don’t want to blow too much of it before we’ve got the ability to fully monetize and convert.
ESBR: You mentioned you don’t offer betting in the US. Do you believe esports betting will have a place in the upcoming, broader sports betting regulatory effort in the US in 2017?
Burton: The thing we liked about esports is that it’s a truly global product. It’s all over the world. It fit well with us being a company that’s focused outside of North America.
So, from a European focus, with esports betting, we thought it was better to be early in an emerging market than to offer traditional sports betting and be small in an old, established one.
From a US focus, we’ve kind of ignored it almost the whole life of this company. You can’t bet in the US online outside of Nevada. Sports betting legality still seems far away, and if it does come I think it’s going to be messy.