The Good Life

Gambling On Gamers

Sports bettors are catching onto eSports—the fast-growing phenomenon of professional video gaming
By Michael Kaplan | From Top 25 Annual Cigar Of The Year, January/February 2019
Gambling On Gamers

Come this Sunday, one thing is all but certain. Casino sports books will be packed with gamblers. Many will be looking to bet on the NBA. Others will be going for the NCAA. Over the course of that week, wagers will also have been made on everything from rugby to hockey to auto racing.

Human beings have proven that they will bet on most anything. As one casino wag puts it, “a cricket match or a cricket race.” But are we ready to lay down good money on Millennials feverishly playing computer-games? Forward-thinking gambling industry professionals, when considering the hot new trend that has come to be called eSports, reply with a resounding yes.

“The prevalence of eSports betting has snuck up on major [sports gambling] operators,” says Matt Kaufman, a consultant with Eilers & Krejcik Gaming, a boutique research firm for the casino industry. “The companies that got in early have gained significant edge. They have robust eSports sports book offerings.” According to Kaufman, you bet on eSports games the way you bet on every other sport—wagering on teams, with odds or money-lines tempering the action.

There are several facts that lend credence to the optimism. At the moment, eSports ranks as the fastest-growing segment in sports betting. In 2016, eSports generated more than $1 billion in wagers worldwide, and it is expected to be considerably higher by 2020. That will be derived from gamblers wagering their money on teams that feature kids with player names like Amnesiac, Crimsix and Faker competing at games such as League of Legends, Counter-Strike and Defense of the Ancients 2 (usually referred to as Dota 2). The Dota 2 Championship, played in Vancouver, Canada, last summer and known as The International, generated $25 million in prize money. Casino corporation MGM International recently partnered to build a 30,000-square-foot arena devoted to the playing of eSports in its Luxor Hotel & Casino. And the segment is frothy enough that DraftKings offers daily fantasy-sports wagering for eSports.

ESports is a growing business that has attracted no shortage of high-profile investors. Celebrity athletes like Michael Jordan, Alex Rodriguez, Shaquille O’Neal and Michael Strahan have an interest in the eSports space. Reality TV star Mark Cuban, along with Ashton Kutcher and Elisabeth Murdoch, have already invested in Unikrn, an entity that focuses on taking eSports wagers. “We have action 24 hours per day, seven days per week,” says Rahul Sood, a former Microsoft executive who serves as co-founder and CEO of the Seattle-based operation. “There are hundreds of games every week and at least 5,000 games to bet on per year.”

While Unikrn is not yet taking wagers from American gamblers, Sood and others expect that to change soon (even in states where sports betting is legal, eSports has not been widely regulated or consistently allowed; hence, America is the second largest market for illegal eSport wagering, right behind China). Seth Schorr, whose Fifth Street Gaming in Las Vegas works with the newly opened Ocean Resort Casino in Atlantic City, is pushing for the place to be an eSports hub. “We’re working with New Jersey regulators,” he says. “Maybe they will be comfortable with us [regularly taking wagers] next year. Like with everything, it’s about having controls, preventing cheating, creating a system for resolving disputes. We’d rather do it slow and do it right.”

He knows from where he speaks. Besides working with Ocean, Schorr is also chairman of the Downtown Grand, in downtown Las Vegas. It’s a five-year-old hotel and casino with a young clientele. It is also the first place in America to accept action on eSports.

Schorr spearheaded the Grand’s taking of eSports wagers on three occasions (the last time being 2017), each one more successful than the last. The second-generation casino executive would do it all the time if getting clearance wasn’t so cumbersome.

“The process is to apply for each bet [and betting event], which makes sense,” Schorr allows. “You can’t bet on just any football game in a casino. But you can bet on the NFL. It has to meet integrity expectations. And we have not yet defined the eSports league that fits the criteria.”

As a result, each betting opportunity needs to be reviewed individually and it takes time. “We are working to create standards that will make Nevada and other states able to decide the games that should be bet on,” he adds. “I expect that to be fine-tuned next year.”

As the law stands now, eSports lovers can already compete in their own eSports tournaments. At the Level Up bar inside MGM Grand in Las Vegas, gambling opportunities are set up like poker tournaments in which multiple people play against one another and the top finishers get chunks of the prize pool.

In light of anticipated legalization, smart money says that if you bet traditional sports and overlook eSports, you may be missing out on the next big thing. In 2019, betting on kids playing computer games sounds an awful lot like gaining ground-floor entry to a hot new area of gambling. Imagine if you began wagering on the NFL back in the 1940s, when the point spread was first introduced. It would have been pretty juicy then—eSports seems to be pretty juicy now.

Smart bettors overseas are already capitalizing on lines that tend to run weaker than those made for the NFL as they get moved by uninformed gamblers. “Right now, it is possible to come in, gain an understanding of eSports and get a leg up,” says Adrian Saelen, an eSports betting analyst with the online bookmaker YouWager. “You can do something as simple as figuring out which teams have the largest fan bases and gain value by betting the other way.” At the moment, he believes U.S. teams in general are undervalued.

It’s easy to believe that betting-lines put up for eSports would be ripe for exploitation. Following decades of handicapping football and basketball, seasoned oddsmakers make few mistakes that result in soft lines. It’s different with eSports. “The potential for a sports book to put out a bad line for eSports is higher than it would be for the NFL and NCAA,” confirms Kaufman. “But then the books are not accepting the large wagers that they take for the NFL. Nobody takes a $10,000 bet on a League of Legends match.”

Sood acknowledges that the economy of scale is different in the eSports betting arena. “A whale in our business can turn over $40,000 or $50,000 per month,” says Sood. “Whereas a whale in traditional sports is a million or more. Over time, though, as liquidity increases, our limits will go up.”

Despite the low limits, it’s surprising that advantage players—people like James Grosjean, Richard Munchkin and Kelly Sun, who analyze casino games and beat them brutally—have not yet applied their savvy to cashing in on eSports’ inefficiencies. Kaufman figures that their incursions will come. “Once the books start taking larger wagers, I’m sure there will be teams of young guys who really know eSports teaming up with sharp bettors who have large bankrolls,” he says. “To the best of my knowledge there is not a Billy Walters of eSports. But there will be. It will get there.”

Saelen is confident that a new generation of gamblers will spur the growth of eSports wagering. They comprise a fresh breed of folks who obsess over eSports stars the way their fathers and grandfathers idolized Jordan and Namath. “Right now,” says Saelen, “most of the people who watch eSports are really young”—or at least too young and too skint to bet in casinos. “If you’re 15 and watching the matches, you’re probably not set up to bet on them. But you’re really into it. When I was between 12 and 20, I spent every waking hour playing and watching eSports. Now when I watch, I bet.”

Sood puts a sharper and more morbid spin on the question of growth: “If the median age of a baseball fan is 56, then you can figure that for every Major League Baseball fan who passes away, four future eSports fans are born. One way or the other, whether we put people into the eSports space or not, it has to grow.”

Kids who follow eSports play the games in much the same way that NBA-obsessed teenagers spend after school on basketball courts. Following the same parallel, a small number of eSports fanatics develop into the Pistol Petes of that world and get plucked from amateur leagues to turn pro. The most popular offerings that they play are Byzantine strategy games that involve taking out other players with digital weapons and conquering pixelated lands. Join a top team and you can earn $200,000 or more for possessing the mindset of a multitasking chess player and the reflexes of a professional assassin.

To older generations, this may sound like a ridiculous way to make a living. But to kids in their teens and adults in their 20s (the sweet-spot is 21 through 23 and male), professional eSport athletes, as they like to classify themselves, are part rock star and part sports star. And for those who get to the top, the game is no joke. “They’re in a highly competitive environment with huge pressure,” says Ian Smith who heads up the eSports Integrity Coalition, an organization that works to ensure eSport matches are kept clean and free of fixing. “The lifestyle is not unlike that of Rafael Nadal or Novak Djokovic”—albeit, in a team setting. “They earn a hell of a lot of money but travel two days a week, practice seven hours a day, live in hotels. These guys are kept really busy. They do not have a lot of spare time and there is no real off-season.”

Like all serious athletes, professional eSports practitioners are cognizant that their time at peak playing level is limited. “It is high pressure and high speed; and when you lose your speed, you lose your competitive gaming edge,” continues Smith, adding that they recognize the need to remain healthy and to preserve brain cells. “I’ve seen the athletes have blowouts after big tournaments. They like to go out clubbing and stuff, but the training and playing regimen stops them from doing a lot of that. I wouldn’t put them alongside baseballers and footballers [in terms of their propensity for partying]. I’m sure some players own Maseratis, but these guys are not rappers. They are not pushing blingy lifestyles to their supporters and social media followers.”

At least not yet, as Smith allows, “Eventually one guy will come along and have the kind of personality that is aspirational. Then others will follow and it might become more of the norm the way it has in other sports.”

Despite being an enterprise that seems cerebral and clean-cut, eSports comes with a built-in gambling component that comes off as completely organic. Many of the popular computer games come with a feature known as “skins.”  These are basically weapons or adornments—some functional and adding advantages for playing games, others simply looking cool—that can be won or purchased for the characters online.

An online body, called Valve, assigns accepted values to the items and serves as a skins market-maker, facilitating the buying and selling of virtual items for real dollars.

Almost instantly, running parallel to the popularization of Bitcoin, skins turned into a kind of crypto currency. Gambling, of course, soon followed. People would use skins to bet on matches against each other or wager on the outcomes of larger matches played by top teams. Valve keeps players honest in terms of what their skins are truly worth.

But it gets way more degenerate than that. The most blatant form of skin gambling is a side-game called Jackpot. “A bunch of different individuals put their items into a pool and there is a wheel that spins,” explains Dustin Mickowski, a quality assurance and design consultant for eSports gaming companies. Bettors wagering on the spin of the wheel receive numbers, as in roulette, and “your likelihood of winning is based on the value of your item. If yours is worth $100 and mine is worth $5, you would have 20 chances of winning as opposed to my one chance,” he says. “There are a ton of websites doing that.” And enough people to keep Jackpot games going all day.

If we were to be cynical here, we might think that eSports will soon become a candy store for sharps who gamble with discipline and intelligence. After all, the market seems full of people who were taught to be random bettors by the very games they play as youths and wager on as adults. Their blunders will move the gambling lines and create opportunities for people who know what they’re doing. Great Britain’s Gambling Commission wouldn’t disagree. An exposé on skins, published by the BBC, was headlined with the quote, “Children as young as 11 introduced to gambling.”

In much the same way that the technology inherent in eSports trains a generation to wager badly, it helps advantage players to gamble smartly. For starters, anyone who wants to handicap eSports will do well to dispense with pens and legal pads. Because the game is played completely online, there are tons of inarguable statistics that can be gleaned from past matches to predict future outcomes. Websites such as PandaScore.com use artificial intelligence to get granular stats about points scored, kills made, territories taken.

“For the biggest games there is tremendous data out there,” says Kaufman. “Performance and outcome and statistics are all available.” And these stats aren’t shaded by personal opinions or biases, making the game as mathematical as blackjack.

Adds Schorr, “The thing with betting on eSports is that a lot of the innovative websites and platforms either have artificial intelligence watching what is on the screen or they have an API into the game. It is a direct interface so that they get every bit of information: Hits, kills, assists and the circumstances under which specific players do particular things.”

Handicappers working for Unikrn use that kind of information and build computer models that figure out statistical odds for teams playing against each other. It’s the same kind of predictive modeling used on Wall Street and by top horseplayers like Bill Benter and Don Johnson. “We put a bunch of factors into a database and come up with a number,” says Sood, making it sound easy. “We look at player history, matches they have played, how they have done against each other, how certain players perform under various conditions. We analyze the data, aggregate it and create odds.”

The bigger the database gets, the more accurate and the more efficient it becomes. “It used to take hours for us to build odds for tournaments,” says Sood. “Now we can do it in seconds. We have so many elements in our models that we can build odds pretty quickly.”

And if eSports keeps growing, as gambling-industry insiders believe it will, then a sports-betting model seems likely to gain in value, and benefit from being in action sooner rather than later. “Some people think eSports is a fad,” says Kaufman. “But I grew up with this. There is a generation for which these games are viewed no differently than traditional sports—right down to the desire to meet their favorite players.” Considering the question as to whether or not we are ready to bet on 20-somethings playing computer games, Kaufman dryly concludes, “This is not going anywhere.”

Michael Kaplan, a Cigar Aficionado contributing editor, writes frequently on gambling.

Gambling

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