Gambling on gaming
The eSports segment is white hot, but what should the casino industry do about it?
What has a domestic audience of over 40 million and generates wagering activity worldwide that is expected to quadruple by 2020? It’s eSports, also known as competitive video gaming, and Nevada is ready to do something about it.
Last month, the Nevada Gaming Policy Committee gave the state’s regulators a green light to develop rules and regulations for betting on eSports, and work is expected to begin this month. eSports was a hot topic at this year’s Global Gaming Expo, where Nevada Gaming Board Chairman A.G. Burnett said he and his fellow regulators were ready to move forward on the issue.
“I’m an attorney by trade and part of gaming regulation for just over 18 years,” said Burnett, speaking at a session called eSports and Casinos. “The thing that has kept me around at the agency is that there’s always a new thing, a new wave, something exciting around the corner with gaming and I believe affirmatively that eSports is that for 2017 and beyond.”
eSports is on the radar of Las Vegas resort operators for a few very good reasons. High-profile CS:GO (Counter Strike Global Offensive) tournaments, where teams of gamers compete for a large prize pool, are a proven draw. The annual League of Legends tournament filled the Staples Center this past October and tens of millions more tuned in. The 2015 finals, for instance, drew 36 million viewers online. MGM Resorts is hosting a major tournament in February at the Grand Garden Arena with a top prize of $450,000, not bad if you’re one of the members of the winning four-player team.
The regulation of sports book bets on these terrestrial events is what the state of Nevada will be looking at, but the real action will remain online, where total wagering handle worldwide will be about $3 billion in 2016, according to Chris Grove of Eilers & Krejcik Gaming. Annual handle by 2020 is expected to exceed $12 billion. “Over 90 percent of online sportsbooks offer it,” said Grove, who added that in-play betting is a key trend. “Game integrity issues still being worked out; regulatory issues are being wrestled with by many jurisdictions.”
There are no shortage of Wild Wild West examples of online eSports betting around the globe, but the opportunity side of that statement is that eSports is an activity that many people are willing to bet on. And their numbers and characteristics are of interest to an industry that is seeking for ways to modernize its product offering. In the U.S., the eSports audience size (either active players or passive consumers of eSports content) is 41.7 million, said Grove. Some 70 percent are 21 or over, and 37 percent are willing to pay $99 or more for an eSports event ticket. Is there a propensity to gamble? “Everything that I see in my research suggests that there is,” said Grove. “They are two times more likely to gamble online than the typical online population, and 60 percent report having used a daily fantasy or sports betting site.” About $715 million was wagered by eSports fans in the U.S. in 2016.
“I believe 2016 marks the year that eSports makes the transition from a vibrant subculture to a truly mainstream phenomenon,” said Grove. “To underline that point, the day (G2E) kicked off, the Philadelphia 76ers announced that they had purchased an eSports organization. Not to be outdone, the next day, the Sacramento Kings announced that they too had taken a controlling interest in a professional eSports organization. At the same time, the convergence of eSports and gambling is accelerating. In the last 12 months, we saw the first eSports lounge open in a Las Vegas casino. Regulators in Nevada have begun the conversation about accepting the first legal bet in the U.S. on an eSports match. And the growing conversation around skill gambling has brought eSports specifically, and video games more generally, to the front-of-mind for regulators, casino operators and suppliers.”
Such investments are only catching up with reality, in the eyes of video game developer Blaine Graboyes, CEO of GameCo. “Gamers are the largest underserved demographic today and a lot of that has to do with gamer stereotypes,” he said. “We’re not kids anymore in our parents’ basement; we’ve grown up. We over-index for education and income and we’re really looking for a place that treats us like VIPs. No place is better at the VIP experience than the casino.”
WHAT TO DO ABOUT IT?
Speaking at a separate eSports session at G2E, Adam Krejcik, principal at Eilers & Krejcik gaming, said the commercial gambling industry in the U.S. is engaged in no small amount of soul searching regarding the best path to the next generation of customers, and eSports is part of a larger conversation.
“Some see the answer as a move away from the generally individual experience of the slot machine to more social games; others see injecting an element of skill into games to draw Millennials from restaurants and nightclubs to the games on the casino floor,” Krejcik said. “In that context, the integration of eSports into the product mix of commercial gambling seems like a surefire strategy. eSports is highly social, it’s dominated by Millennials with higher-than-average disposable income and also incorporates elements of skill with random elements as part of a vast gambling ecosystem. But overlap between eSports and commercial gambling has been limited to date. International markets and traditional online sports books are still in the early stages of developing eSports betting products. In the U.S., outside of a few major eSports events hosted by Vegas casinos and a notable embrace by the Downtown Grand, integration has essentially been non-existent.”
To Graboyes, whose company has developed a skill-based video slot game that debuted at Harrah’s Atlantic City last month, eSports is part of a larger conversation adding skill to a casino gaming mix that is too skewed toward randomness.
“First you have to look at what is eSports and too often there’s a focus on the top 2 percent of competitive stage and arena events,” he said. “I think it’s fair to say most of us in this space would call eSports ‘competitive gaming.’ So when you look in that wider sense, it provides a lot of opportunity for everything from sports book betting to a product like ours where we’ve created a video game gambling machine. It looks like an arcade cabinet, you play a popular video game, you get a payout based on your skill. We’re starting to add other features such as tournament and competition controllers, so that gamers can come to the casino floor and compete against each other for cash and other prizes. So I would say the perfect product isn’t that different from the electronic gaming machines that exist today; it’s really about the content. Gamers want to play video games. They want to be involved with other gamers. So it comes down to providing that content experience for gamers.”
To date, the one venue where eSports has been incorporated into the larger gaming entertainment offer is the Downtown Grand Hotel & Casino. “To me it was not a great leap to see the integration of video games in a casino resort environment,” said Seth Schorr, CEO, Fifth Street Gaming, the property’s owner. “I agree that there’s an enormous revenue upside, but to me just enhancing the casino resort experience and introducing the younger generation to casinos, I have found that eSports has been a fantastic way to achieve that goal.
“What we have found is the current slot product simply does not appeal to the specific guests who are coming for our eSports product. Just taking Call of Duty and sticking it on a reel slot machine will be laughed at. It’s not just the IP, it’s the basis of chance-based wagering. The eSports audience finds that concept completely unappealing. Gambling games that have some component of skill, even blackjack for example, they’re at least a little bit attracted to.”
The eSports gaming lounge at the Downtown Grand has attracted widespread attention, but it is a work-in-progress. “There’s going to be a lot of trial-and-error because there’s a lot to learn,” said Schorr. Speaking at the companion eSports session, Sam McMullen, CEO, FiveGen/NV eSports, which worked with the Grand to develop its eSports lounge, said the goal was to create an environment that had aspects of the competitive game and merged some of the aspects of social competitive play. “We figured it’s a contest and they created an eContest environment. Twitter impressions in the first week went from 396,000 to around 2.9 million. That fixed-cash prize, competitive and social aspect—whether they’re playing for money or bragging rights doesn’t matter—it’s working.”
“Seeing the contest that players come in and play for $20... it’s like playing in a poker tournament,” said Johnathan “FATAL1TY” Wendel, eSports World Champion and owner of FATAL1TY brand, FATAL1TY Gaming Gear. “I pay $20 and if I win I get free Internet service (I was really happy). That model is good for amateur stuff and weekend warriors, but I think it needs to happen faster for casinos to jump in. It can’t be a drawn-out experience. That user that comes into Vegas came in to have a rush and that experience needs to fulfill that emotion. I feel that’s what the Downtown Grand experience was kind of missing. I don’t want to hustle for two hours; I came to Vegas to have fun, get that quick little high.”
THE ROAD TO REGULATION
Nevada’s decision to move on the question of eSports wagering could lead to changes with the eSports world itself. One theme that came up repeatedly at G2E, for instance, is that the casino industry’s comfort level would increase if eSports started to resemble other professional sports, starting with the creation of a formal league.
“There’s definitely a need for a regulatory body,” said McMullen. “I know that we’ve spoken to some of the (Nevada) gaming commissioners and control board members. We believe that eSports is no different from the NFL, the NHL or the NBA. We need to have game publishers come together with hardware people and others that touch the industry and create a self-policing body. That’s something we’ve already been tasked with.”
Director Burnett sounded the conventional regulatory concerns, also drawing parallels to other types of sports. “We’re concerned about authenticity, as it relates to sportsbook betting,” he said. “We want to insure that it’s a legitimate authentic activity. That the game has integrity, hasn’t been tampered with and can’t be tampered with. Participants are playing on a level playing field, much like any other professional sport or event such as boxing. We also want the ability to go after, in a disciplinary format, somebody who was a wrongdoer or a bad apple. I see self-regulation already starting to occur amongst eSports participants.”
Rahul Sood, CEO and co-founder, UNIKRN, who described his firm as the most comprehensive eSports book operator in the world, said Nevada won’t be operating in a vacuum. “We go through strenuous regulatory activity in Australia and the UK,” he said. “We have to be able to spot anomalies and let the authorities know they are happening. Stop betting, do an investigation.”
At the same time, he counsels patience for an endeavor that is both strategically vital and essential to the industry’s long-term health.
“Young people in Las Vegas are walking straight through the casino to go to the night club,” said Sood. “How do you get them to spend more time on the property? You have to have people who are forward-thinking and think that way. You can’t think numbers-wise. You can’t say if I give you six slot machines and this square footage and I put in an eSports lounge, I want to know how much revenue-per-square-foot I’m going to generate. If I start to have that conversation, I go to the next property. It has to be about the vision of bringing people in, making them loyal fans and making your brand the one that makes them feel comfortable and coming back.”