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Esports gaming is growing

October 11, 2018

    As provided in my July 23 blog post, the repeal of the Professional and Amateur Sports Protection Act (PASPA) by the United States Supreme Court eliminated the prohibition on the states from legalizing betting on professional and collegiate sporting events. This repeal is opening opportunities in a market estimated at over $150 billion annually on wagering on sports worldwide and in U.S. esports leagues.

    Without PASPA, game publishers, teams, businesses and fans are now eager to create environments for legal esports gambling. This is most prominent in areas such as Atlantic City, New Jersey where the “newly opened” Hard Rock and Ocean casinos are searching forways to attract the younger “gaming enthusiast” to an area of night clubs, social events, concerts and sporting events.  Legal esports gambling will provide a financial windfall for the industry and move esports into mainstream American culture. By 2020, esports betting industry will grow to over $20 billion, and will generate close to $2 billion in profits annually.
    One obstacle facing the esportsindustry is government regulation.  States must explicitly include esports in sports betting legalization legislation and create esports gambling regulatory bodies. To help ensure the integrity of esports, a focus on mitigating underage esports gambling, cybersecurity breaches and cheating in esportsis paramount. After such laws and regulations are in place, casinos, cable broadcasting, Internet broadcasting as well as tangential service providers and binary analytic providers.
    The classification of esports in gambling legalization legislation can determine the legality, type of government oversight, and taxation of esports gambling. States must determine whether esports gambling is classified as a “sport” and treated the same way as major traditional sports leagues (e.g., the National Football League) or as an “other event,” with unique esport-specific regulations and gambling restrictions.Regardless of the initial classification, the popularity of and potential tax revenues from legal esports gambling likely will drive forward-thinking states to explicitly include esports in their sports betting legislation.States may be hesitant to legalize esports gambling without restriction because of potential esports’ integrity problems, which include underage gambling, match-fixing, and use of performance enhancing drugs (PEDs). For example, New Jersey recently excluded esports from its sports gambling legalization legislation (see link) until esports leagues can prove that all participants are adults.   It is suggested thatapproximately 80 percent of global esports enthusiasts are aged 10-35, and about 27 percent are aged 10-20. This is a much younger demographic than most traditional sports.  States are expected to implement esports-specific government regulations and require technological safeguards to mitigate underage esports gambling including online age verification systems to accurately verify age while avoiding fraud -- a difficult task. However, advances in online age-verification technology, spurred by the strong market demand for legal esports gambling, should make states, such as New Jersey, more comfortable with less restrictive legalization.
    Match-fixing, hacking, and performance enhancing drugs threaten esports’ integrity and disincentivizes states from legalizing esports gambling. Game developers and esports leagues must educate players about the legal and non-legal risks of match-fixing, including disqualification from tournaments and forfeiture of prize money. Leagues must implement adequate cybersecurity measures to ensure that matches cannot be hacked. The advent of “sponsorship” of teams or individual players may make enforcement of rules possible by forcing sponsors to take liability and implement safeguard via a vetting process (much like control system in other major sports leagues).  Desired protection will require a central governing body by individual esports leagues. The Esports Integrity Commission (ESIC) currently operates to regulate esports and prevent match-fixing, hacking, and the use of PEDs (see link). The ESIC and betting providers, will need to work together to detect irregular betting patterns that may signal match-fixing or other issues. A comprehensive regulatory body across all major esports games and states may not be practical because of the extreme diversity in current esports offerings. Thus, expect state-specific regulation in conjunction with additional self-governance by individual game developers.
    High demand for game-specific legal esports gambling will spur new ways to gamble on esports as states legalize betting, and state governments create robust regulatory environments. With this will come new interest in esports from casual sports gamblers, further ushering esports into the mainstream and generating hundreds of millions of dollars in tax revenue for state governments and profit for early-to-market esports gambling businesses and industry leaders.

Photo by Victor de Andrade Lopes licensed under CC BY-SA 4.0

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