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In a first for the Garden State, the New Jersey Division of Gaming Enforcement (NJDGE) granted its sportsbooks the ability to accept wagers on an esports event. Video games, including esports, are big business, and gambling operators are eager to find ways to try to get in on the action.
Aside from Nevada, where it was already legal, New Jersey was the first state to pass sports betting legislation after the Supreme Court’s 2018 decision made that possible. New Jersey’s sports betting bill expressly excludes electronic sports and competitive video games.
There’s enough wiggle room in the phrasing of the sports betting bill, though, that the NJDGE can allow betting on individual events as long as participants are 18 or older. It elected to exercise that option for this past Sunday’s League of Legends World Championship final, won by FunPlus Phoenix.
League of Legends — also dubbed LoL — falls into the “multiplayer online battle arena” genre. Also known as MOBA, it has been a popular esports genre, along with first-person shooters, arcade-style fighting games, collectible card games and real-time strategy. This year’s final featured a best-of-five series between teams based in Spain and China.
The NJDGE offered this permission on a one-time trial basis. It also imposed extra conditions, including a $1,000 maximum on wagers and no in-play betting.
In recent years, the gambling industry has taken an increased interest in video games. That’s mostly because the generation coming of legal age to gamble seems less inclined to do so than previous ones.
Yet, the popularity of video games with that demographic is undeniable. Video game revenues grew 18% in 2018, hitting $43 billion. The viewership of esports has also been growing by double-digit percentages for years.
Prize pools for all esports competitions combined have grown from $3 million in 2010 to $160 million in 2018. A single title, Fortnite, paid out nearly $15 million in the first six months of 2019.
It all has a bit of the same feeling to it as the poker boom 10 years earlier. Naturally, the gambling industry is wondering whether the esports boom might be the cure for its woes with the younger crowd. Things aren’t that simple, though.
Regulators, like the NJDGE, have been hesitant to allow esports betting, for a few reasons.
One is related to the same factor that interests the gambling industry, which is the younger demographic. Many esports viewers and players are under the legal gambling age. Indirectly marketing gambling to teens by associating it with esports is a plausible concern.
As a new phenomenon, esports also suffers from a lack of good data. Conventional sports have been the subject of statistical analysis for decades. While esports is a field of active research, regulators and operators don’t have easy access to that information.
Integrating esports and gambling isn’t only a regulatory problem, however. Even in jurisdictions where regulators have elected to be more permissive, operators themselves are hesitating. There’s a lot of talk about the potential of doing so, but not much action.
In part, that’s the same chicken-and-egg effect at play. It feels like demand should exist, yet we don’t see it because no one has brought a compelling product to market. Yet, developing such a product would cost a lot of money. Companies are hesitant to pull the trigger on that investment until they’ve seen demand. Everyone would like someone else to crack the riddle first so that they can imitate it.
There may be a deeper contradiction between gambling and esports. Gambling entails playing games of chance. Poker is something of an exception, but its viability as a form of gambling hinges on its short-term variance. If a beginner couldn’t get lucky enough to beat a professional over the course of a single session, the game wouldn’t work.
On the other hand, what distinguishes esports from other video games is its high-skill depth, allowing games to be played competitively at the international level. Luck can certainly play a factor in deciding matches between similarly skilled adversaries. A novice at one of these games, however, would stand as much chance beating an esports pro as a company softball team would against the New York Yankees.
PokerStars attempted to take poker and combine it with concepts taken from the world of card-based esports. The result was Power Up. Although well-received by poker media outlets and still available for play, Power Up never saw a whole lot of traffic.
The most likely reason for that is that it’s too high-skill. It’s confusing for recreational players and requires practice to achieve a decent win rate against anyone who knows what they’re doing.
Players looking to become winners can practice at lower stakes, only to have no one to play against for higher stakes. Nor can they grind out their edge by multi-tabling because the decisions in Power Up are far more complex than those in other poker formats.
Companies have attempted to develop skill-based digital games in which the player competes against the house. The problem here is that casinos won’t tolerate the possibility of players having a significant positive win rate in those games.
A product, along those lines, needs to be similar to blackjack or video poker. In those games, the best players will come close to breaking even, or if they find they can beat the game, it can be detected and cut off before they take too much from the house. A product like that does not appeal to the esports fans’ sense of developing mastery of a game.
By their nature, esports fans like the idea of being able to beat a game, and that can include betting.
Sportsbooks tend to treat sharp money as a problem. They often limit or cut off winning bettors even when it’s arguably in their best long-term interest to keep them around.
Based on the situation in Nevada, where esports betting has been legal for years, we shouldn’t expect this experiment in New Jersey to produce a whole lot of action. That doesn’t make it a hopeless endeavor, though.
Rather, if wagering on esports is going to become a significant revenue stream for gambling operators, it will require some creativity. Making it a player-versus-player product rather than a player-versus-house would be a good start. That could mean a betting market, pari-mutuel wagering, or something along the lines of a fantasy sports product.
It’s a positive sign that the NJDGE is open to allowing esports-related gambling products in the state. The fact that it was a one-off occurrence combined with the event’s significance may have garnered more attention than was expected. While merely the first step in esports gambling legalization, Sunday’s League of Legends final represented progress, nonetheless.