Ready Player One

Over the months that followed, the absence of live sports paved the way for esports to rise through the sports betting ranks. And even as leagues made their much-anticipated return, operators claimed the vertical has remained largely resilient.

Now, with leagues resuming play and sports betting continuing its proliferation in legal markets, esports remains a hot topic for operators and regulators. A space that was once an outlier is now approaching a core component for sports betting stakeholders.

A strategic pillar

Major players in the sports betting industry have quickly recognized the potential of esports as they intersect with the sports betting world. Betting companies, data providers and sports media companies are building strategies that account for growing esports audiences.

Jeff Cohen serves as vice president of strategy for Esports Entertainment Group, a NASDAQ-listed esports and online gambling company. In August it announced an agreement with Twin River, effectively becoming the first esports-led operator to secure market access to New Jersey.

“We’ve structured our business around three key pillars,” Cohen says of Esports Entertainment’s approach. “One: esports entertainment; two: esports wagering; and three: igaming and traditional sports betting.

“We feel this really gives us exposure to two major trends: esports and the rise of competitive gaming as well as the legalization of online gambling here in the US. So esports is really core to what we do.”

Unsurprisingly, Esports Entertainment isn’t alone. Aubrey Levy, vice president of content and marketing at theScore, also sees esports as a powerful strategic component for sportsbook operators.

“Since launching theScore Bet, we’ve been watching regulation around esports betting closely,” Levy explains. “The space is currently very fragmented and speculative, with only a few states to date having regulated esports wagering, and often with fairly limited approved betting markets.

“Over time, as esports continues to gain awareness and mainstream adoption, the opportunity is undoubtedly huge and one we are well equipped to capitalize on.”

Sports Information Services (SIS) supplies short-form betting content to online and retail sportsbook operators, and in Great Britain is more commonly associated with betting shop solutions. But Rohini Sardana, head of product proposition for SIS, lists esports as one of the betting industry’s fastest-growing verticals, which led to the creation of its new product, SIS Competitive Gaming.

“We recognized the potential of [esports], which is why we developed SIS Competitive Gaming—the only esports betting product designed specifically for sportsbooks,” Sardana says. “Over the last few months, growth in betting on esports has accelerated and we anticipate this will continue, especially in sports-based esports content, which resonates with existing bettors.”

In essence, esports have started to find their way into the mainstream betting scene. Operators are taking notice and taking advantage by building esports-friendly betting product portfolios.

‘E’ meets ‘Sports’ meets ‘Betting’

Esports betting brings together unique audiences that were once completely disparate. Esports fans, seasoned bettors and rookie punters all have skin in the game. As a result, industry providers have to analyze the intersectional points of these segments and offer a holistic solution that engages everyone while simultaneously providing a targeted offering for each type of bettor.

In other words, esports are the ultimate crossover of sports, betting and video games. The combination of those verticals is virtually unprecedented, posing a novel challenge for operators and data providers. And as three industries expand in tandem, stakeholders have to carefully evaluate their relationship to one another to make esports betting part of a larger whole. It’s a case of being all things to all stakeholders.

SIS’ Sardana says: “Esports presents bettors with the chance to engage with a quality betting experience if positioned and scheduled correctly.

“Our research revealed that in order to appeal to existing sports bettors, an esports betting offer should be familiar, easy to understand and engaging, which is why we launched SIS Competitive Gaming.”

The SIS Competitive Gaming product showcases head-to-head esports matches, neatly paired with the fast-paced action of live sport and a rotating schedule of events.

“Since launching SIS Competitive Gaming with Bet365, one of the leading global operators, ease of access and familiarity has led to greater engagement levels,” Sardana adds.

Cohen of Esports Entertainment lists one key difference between esports and traditional sports: “Esports matches tend to be shorter than a traditional sporting event. Most esports bettors will stream the matches while they are betting (more so than traditional sports). We also offer a robust menu of in-play betting options.”

However, Cohen also notes that sports fans and esports fans aren’t always cut from the same cloth when it comes to their choice of betting technology.

“The typical hardcore esports fan is not the same person as a hardcore sports fan. This is why we are so bullish about the potential of our Vie.gg platform. Gamers crave authenticity from the products that they engage with.

“That’s why we feel strongly that they won’t want an esports wagering product that is just a small sliver of attention on an app. They want a product that is built from the ground up, tailored for esports fans.”

Because esports fans are already embedded in the online ecosystem and the matches are shorter than, say, an NFL game, viewers flock to the live streams to watch matches and track their wagers.

Levy from theScore indicates that sports and esports have more crossover than one might initially expect. Like traditional sports, he says esports have “passionate fan bases, superstar players, and major tournaments—which often have viewership that rivals, and even beats, more ‘traditional’ events. However, a lot of the games are foreign to the casual sports fan, making esports feel less accessible.”

For those casual sports fans, Levy and theScore respond to the potential lack of accessibility by breaking down the barriers between esports and their more traditional cousins. “Ultimately, esports is another extremely exciting spectator sport and one that’s only going to continue to grow in popularity,” he says.

Though the esports, betting and sports industries are all tightly intertwined, there’s one differentiating factor that gives esports a leg up, especially during a time of rampant league shutdowns.

Mark Balch is the vice president of esports betting services at Bayes Esports, a company specializing in esports data. He says the one obvious difference between esports and traditional sports is the internet.

“Any kind of lockdown will not cause a complete shutdown of esports competitions,” Balch states. “We can operate only using the internet in basically any situation and create content, as this is the home of video games.”

On the other hand, Balch notes that esports still has some stake in the world of in-person events. “Esports at the very top end relies on physical events and international competition where the world’s best teams from each region play against each other […] A lot of the best competitions have not taken place this year, which has had a negative [impact] on the esports industry as a whole.”

Still, many of the experts iGB North America spoke to see 2020 as a year of growth for esports, especially in relation to betting. Though Covid-19 has brought difficult times all round, there’s a glimmer of hope for esports.

Covid-19 Impact

Esports have been around for years, slowly trickling into the betting scene as popularity increased, but events of the 2020 have catalyzed interesting developments in the esports betting industry. While many branches of the wider sports betting have seen activity dip during the sporting shutdown, esports has seen boosts in engagement in terms of viewership and betting activity.

Matt Kalish, DraftKings co-founder and president North America, highlights the rapid growth of esports on the company’s platform: “We found esports has become an increasingly popular sport to follow on the DraftKings platform, especially as a result of the various league suspensions resulting from the coronavirus pandemic.

“Sports fans across the nation were hungry for live content and looked toward new events, leagues, and teams to follow. We have seen a large surge in trials of esports games starting in March. In response to that tremendous interest, we also significantly expanded our esports offerings to include Counter Strike: Global Offensive, Rocket League and Call of Duty, and have seen exponential growth in this category as a result.”

The growth Kalish cites is impressive to say the least; DraftKings saw 20 times the usual amount of active players participating in esports daily fantasy contests in March.

The struggles caused by Covid-19 ostensibly created something of a perfect storm for high-octane, internet-based esports events to strong-arm their way into the betting mainstream. But based on the operator experience thus far, no strong-arming has been necessary for the medium to make its mark. Audiences have begun to understand the appeal thanks to a temporary halt to all live sports and the expansion of esports betting across the country.

Sardana of SIS notes: “The esports betting vertical grew significantly in the absence of live sport, providing operators with alternative content to keep their customers engaged. This exposure allowed bettors to familiarize themselves with the esports experience. [British] operators reported that the majority of esports volume was on FIFA and NBA2K, which several operators were live streaming and allowing in-play betting on.”

In fact, the rush by bettors to engage with esports in the thick of shutdowns presented unforeseen challenges. “Many of the relatively newer solutions experienced issues ranging from sub optimal latency [to] poor delivery with limited service quality to support the high demand expected by bettors,” Sardana concludes.

“You had esports on network TV during the shutdown and for a while it was the only game in town,” says Esports Entertainment’s Cohen. “We saw that on our Argyll platform, where esports went from [our typical] 2% of handle to 50%+ in April and May. This showed us that not only is there a core esports fan that will bet on esports, but also traditional sports fans will cross over and bet on esports as well when the opportunity arises.”

But success in a troubling time begs the question: can esports maintain momentum in the betting world as traditional sports return? The answer, though accompanied by a few caveats, seems to be a resounding “yes.”

Mark Balch of Bayes Esports emphasizes that the vertical was in the midst of a growth spurt even before Covid-19 hit: “Esports was already growing significantly without the lockdowns. However, there was a drastic peak in March and April due to almost no other content being available. Since some competitions have returned, there has been a small levelling out in [esports] activity, but it is still drastically more than last year by comparison. We expect the growth this year to be maintained and continue to grow as it was before.”

Other industry commentators echo Balch’s comments. The demand for esports betting peaked in the early days of US shutdowns. While it dropped as leagues resumed or restructured their seasons, activity remains higher than it was pre-Covid.

Sardana also says the uptick in esports interest has encouragingly stayed high compared to late 2019 and early 2020. Quarantine provided a nice boost to the medium, and esports have begun to blend neatly into existing sportsbook offers.

“The esports betting vertical has been able to capture a wider audience during this period, as bettors looked for alternative products,” she says. “Esports will remain an important part of the sportsbook offering for the foreseeable future, especially where it is positioned as a complementary product to live sports. In mature regulated jurisdictions such as the UK, virtual sports have proven to be an effective by-product for sportsbooks, and we expect esports to have a similar place on a sportsbook given its live nature and high engagement levels.”

Esports sits in an oddball state of limbo between the online and physical worlds. The pandemic allowed the industry to lean heavily toward the internet side of esports events, giving a welcome boost in viewership and betting activity. However, while Covid-19 has given unexpected tailwinds to a rapidly-expanding industry, esports still face headwinds from the regulatory side.

Regulatory Hurdles

One could argue that the piecemeal approach to regulation in the US has been a boon for sportsbook operators. Individual markets continue to move forward on their own timelines as they have since the SCOTUS decision on PASPA, giving sports betting providers convenient launch windows as legislation passes at different times in each market.

But for esports, regulations on a state-by-state basis can pose unique challenges. Some states fully authorize esports betting. Colorado, for example, lists esports in its catalog of authorized events and wagers. Call of Duty, NBA2K, Dota 2, League of Legends and Counter-Strike: Global Offensive (CS:GO) are among the most popular titles to grace the Centennial State’s list of approved esports events.

Other regions, though, take a more ambiguous regulatory approach to esports. In Illinois, esports is notably absent from sports betting legislation, leaving it in a purgatorial state: neither expressly allowed nor explicitly prohibited. These legislative differences are peppered throughout the US landscape, creating a wide variety of challenges for esports and betting operators.

“We don’t view the state-by-state process here in the US as a hindrance but rather as an opportunity for a company like ourselves that puts transparency and compliance front and center,” Cohen says. “We are the only esports wagering company with tier-one licenses and a Nasdaq-listing. We feel that gives us an advantage as the state-by-state process can work as a barrier to entry.”

The ever-increasing mainstream appeal of esports has a key role to play in the betting industry as well, according to Levy of theScore: “The fragmentation of esports betting across the United States is definitely something for operators to navigate. In the short term, we’d expect to see this gradual rollout continue, just as it has with sports betting.

“However, as esports continues to grow and bleed further into the mainstream, the demand will likely lead to more states permitting wagering and with more betting markets available.”

On the horizon

Amidst a global pandemic, the return of traditional sports, and a shifting regulatory landscape, esports is here to stay, according to industry stakeholders. Recent performance promises continued growth for esports in the betting arena, and the sky’s the limit.

DraftKings co-founder Matt Kalish cites a recent survey as reason to be excited about the long-term prospects of esports betting.

“We wanted to better understand trends of the American sports fan, so we conducted a national consumer survey which found that one in every four fans began following a new sport as a result of league cancellations, with esports as the most popular newly followed sport,” he says.

“Out of the one in four fans who began following a new sport during the sports hiatus, 67% plan to continue following said sport even as more prominent leagues resume, according to the DraftKings study. Since the return of major sports, esports has continued to perform, which gives us confidence in this product’s future.”

Rohini Sardana says SIS has seen strong performance with esports as well: “Since launching SIS Competitive Gaming earlier this year with Bet365, engagement levels have been solid, and we will soon be launching the product with even more operators across international jurisdictions.

“Following strong customer demand, we’ve more than doubled our content output to ensure that there are even more opportunities on esports events, with SIS Competitive Gaming extending to circa 30,000 live streamed betting events a year.”

The initial numbers for SIS sound good, but Sardana also notes that sportsbooks need to seriously consider how they package their esports offering as the vertical grows in popularity. “Factors such as product placement should be considered strongly in order to maximize the potential of esports. We’ve built features into our SIS Competitive Gaming solution that are designed to grab attention and engage bettors whilst also helping them understand the product.”

Jeff Cohen highlights Esports Entertainment’s success in Great Britain as a good indicator of the future of esports performance on betting sites in the US. “We saw during the pandemic on our Sportsnation site in the UK that traditional sports bettors will bet on esports (mostly on simulation games). We know that there are a massive amount of eyeballs that view ‘the big three’ esports and so we believe there will be interest from those fans in wagering on these events.”

“The big three” esports, as Cohen mentions, are widely agreed to be Riot’s League of Legends, Valve’s Dota 2, and Counter-Strike: Global Offensive, also from Valve.

And the need to identify esports’ big three speaks to his next point. Most US sports fans can easily name the “big four” professional sports: basketball, football, baseball and hockey. Esports have yet to permeate the popular culture enough to be so readily recognizable. Education, therefore, will play a key role in shaping the future of the medium and its relation to betting.

“The industry simply needs to do a better job educating these esports fans around wagering and providing them a safe, compliant platform to do so in,” says Cohen. “We believe we have that solution. We believe that as the industry matures, it will be a $45bn-handle addressable market leading to around $3.5bn in revenue for operators such as [Esports Entertainment].”

Getting there takes work, but esports are worth it, according to Aubrey Levy of theScore.

“Esports is very much here to stay. It is quite rightly being taken very seriously, and there are far fewer esports skeptics than there were even five years ago. It’s a huge global industry with enormous popularity that eclipses the fandom of many traditional sports and events. At the same time, it’s still a young industry with lots of space to grow,” he says.

“Ultimately, placing a bet on esports will be considered just as normal as placing a bet on football or baseball.”