Game Companies Need to Capitalize on Competitive Gaming with In-Game GamblingCompetitive video game play, or e-sports as they are commonly known, have been around for years but have not yet gained mass market adoption and acceptance. Gambling, an industry centuries old, has been moving online at a rapid pace in recent years but online gambling is still tiny relative to the casino & gambling industry as a whole. Both of these things are about to change, and the collision of these two trends will bring e-sports betting into the mainstream.
E-sports is a new entertainment industry that is rapidly growing in both participants and observers. The most recent Major League Gaming Pro Circuit event in Raleigh, NC drew record crowds this year both online and offline, with thousands of attendees and 130,000 concurrent streaming subscribers online. The game industry has taken notice, with Blizzard cutting graphics and content to ensure that the speed and quality of gameplay would support the growth of e-sports. With the mass market adoption of video games, e-sports now appeal to a much wider audience than ever before, especially in Western countries.
"Game companies should not let third party companies lock down this new industry when they can provide a better, safer gambling experience to their players from within their game."
While online gambling is already a $32 billion dollar industry as of 2010, it is dwarfed in comparison by the $426 billion that the casino industry is worth. It can be assumed that traditional casinos will always be prominent fixtures of the gambling industry, but this shows how much room online gambling has left to grow and how much potential online gambling revenue is still left unclaimed. As the runaway success of online poker sites has shown, people of all cultures love to gamble and want to do so online. This trend has continued with mobile phones, with the best example of such being Betfair, which saw a 94% increase in bets made through mobile devices last year.
The collision of the two trends has led to video games players and spectators both clamoring to bet on e-sports. From CounterStrike 1.6 to Starcraft 2, players have been betting on video games for years and the practice is becoming increasingly common as competitive gaming becomes more prevalent. Most bets are done underground, consisting of offline cash transfers or online wires via PayPal. One would think that the majority of these bets would be between people that are already friends offline, but a surprising amount of them are being done online between people that have not met in real life. These players typically have a strong online relationship and frequently communicate via voice chat. Players around the world are changing their habits to focus more on skill when playing these highly competitive games. Amateur peer-to-peer bets will occur with greater frequency as players look for ways to “up the ante” of their matches and make games with their friends more exciting.
The region that has been at the forefront of both these trends is Asia. Asia as a region is quite familiar with gambling, a fact underscored by Macau passing Vegas in gambling revenues in 2007 and never looking back. Asia is also a region that is already very familiar with e-sports, and in certain countries such as South Korea, the intensity with which people play and follow e-sports rivals that of traditional sports. The fervor with which South Koreans play Starcraft has led it to be labeled by some as the unofficial national sport. What is undeniable is that Starcraft has become a spectator sport in South Korea, and the turnout for live showings of e-sports matches can reach incredible size.
Spectators have also been gambling on e-sports matches for years, especially in countries where e-sports are widely popular. As the popularity of e-sports grows, it is safe to assume that spectator bets on e-sports matches will increase as well. This growth in both professional popularity and spectator betting has intensified recently with the release of Starcraft 2, which updated the most internationally renowned and publicized e-sport game. A number of sites have popped up to let spectators bet on Starcraft 2 matches, but the majority of them are for virtual currency with zero ability to exchange it for real money. These “fun money” betting sites exist as proof that spectators are as interested in gambling on e-sports as they are on offline sports such as football and soccer.
With e-sports betting sites, the true prize is clearly real-money bets, as the increased commitment gets users far more excited about a bet than they would be about a virtual currency bet. Real-money bets are also extremely profitable for gambling companies: bwin.party made $100 per unique active online sports betting player in Q1 2011. These companies are starting to take notice of the e-sports opportunity, and one sports gambling website, PinnacleSports, has already opened an e-sports section. A site has even been opened where you can gamble on e-sports matches with Bitcoins. While the legality of a Bitcoins-powered site is definitely in question, it’s only a matter of time before legitimate gambling providers jump into the fray, especially with the potential revenues involved.
This led me to wonder: why is it that players flock to legitimate gambling providers which charge them money when they have always had the capability to gamble on their own? I found the answer by talking to both players and spectators that gamble in various degrees. I found that players are most interested in safely making bets with people they know. From betting dinner on a Call of Duty match between friends to buying into a March Madness pool with college buddies scattered across the globe, the primary challenges are liquidity and matchmaking. Players want a way to find comparable opponents to play against and then transfer the money among the competing parties in a frictionless way.
To facilitate these matches, some third party sites have already answered the call, including TheFragArena and RivalSpot. Both sites let players bet on games of skill such as Madden 2012, Starcraft 2, and even arcade mini-games like Pacman. There are even tournaments with large, sponsored cash prizes. While both of these sites are relatively small, TheFragArena had over 5,500 concurrent users online at the time of this writing and RivalSpot has shown some serious spikes of traffic over this summer. These are proof points that a new subset of the gaming industry is taking hold, and the game industry of old should take note.
Game companies should not let third party companies lock down this new industry when they can provide a better, safer gambling experience to their players from within their game. While more skilled players are looking to ante up their game with real-money play, the issue of trust prevents interested users from making bets with strangers without an arbiter service because there is no commitment to pay out if you lose. Furthermore, even if you use third party arbiter sites to facilitate your wager match, there is no way to vet the player’s skill level beforehand. This means that a player could potentially wager their money on a match that they have no chance of winning, which is no fun for the loser and would give that player serious pause before betting on another match. There is an opportunity for game companies to capitalize on these flaws with third party arbiter sites and support real-money betting on skill-based matches in game. This would both solve the matchmaking problem, matching like-minded, evenly matched players against each other, and solve the trust issue because the bets are held by the game company while the match takes place. This widens the pool by letting players bet with strangers while keeping skill level discrepancies to a minimum to keep real-money play accessible to players of all skill levels.
Spectators, on the other hand, are much more likely to be placing bets with total strangers on an upcoming Starcraft match or football game. The primary concerns for this group are fraud prevention and matchmaking, because it is both difficult to find someone to bet against and even more difficult to get them to pay if they lose. Existing alternatives do not use real money or are not legitimate for spectator betting. Users would benefit from a legitimate provider of real-money betting services, and sources of streaming e-sports content, such as Twitch.tv or IGN, are the most frequently cited places where people watch e-sports online. Combining the game broadcasts with real-time bets is another way that the game industry could provide a legitimate home for behavior that is already occurring, while securing a valuable piece of the online entertainment pie.
From Zynga’s profits plummeting 95% this year to the inclusion of real-money transactions in Diablo III’s new auction house, gamers are tiring of virtual currency and shifting their interest to real money. Players want to put their money where their mouth is when it comes to competitive gaming, and earn real cash from their skill and effort. The future of gaming will include real-money play as this trend collides with consumer demand. Spectators of e-sports want to be treated with the same legitimacy and level of service as regular sports when they look to bet on matches. These are two potent new sources of revenue that can be tapped into by game companies and streaming content providers, all while providing an integrated, safe experience for players and spectators.
