• According to recent figures, the global esports audience size will grow to over 250 million in the next 3 years.
  • A recent report by SuperData Research, suggested revenue generated by esports platforms exceeded $1.5bn last year.
  • Titles such as League of Legends and Dota now attract audiences that traditional TV broadcasters can only dream of.

Highlights over the last year inclue:

  • Intel Extreme Masters held its premiere tournament in Poland with on-site attendance of 173,000 fans, making it the biggest live event in esports history.
  • Blizzard opened a dedicated esports stadium called Blizzard Arena at the former studio of 'The Tonight Show with Johnny Carson'.
  • Riot's League of Legends World Championship reached 60 million unique viewers online.
  • Professional teams are now trading players similar to football clubs.
  • Jennifer Lopez took part in a USD $15m funding deal for esports platform NRG. NBA team owners and sports celebrities are also piling in. Esports is becoming mainstream, and extremely investible.
  • The International esports Federation is lobbying to have eSports recognised as an Olympic event by 2024.
  • Manchester City, Paris St Germain and Ajax are among more than 20 European football clubs that have created esports teams to compete in international tournaments in the football simulator game FIFA 18.

The phenomenon opens up new revenue streams for publishers, including tickets and merchandising, significant advertising revenue, broadcaster fees, and also, potentially, increased in-game revenue. A notable model that can generate significant new revenue is platforms that allow players to play against one another to win prizes. These models do, however, raise issues under Gambling laws, as explored below.

Betting intermediaries

The principal gambling legislation in the UK, the Gambling Act 2005 (Gambling Act), fails to clearly distinguish between arrangements that would amount to payment to participate in genuine competitive tournaments, and acting as a "betting intermediary" allowing players to play against each other in match ups. The latter would constitute an offence without a licence from the Gambling Commission.

A betting intermediary is defined in section 13(1) of the Gambling Act, as "a person who provides a service designed to facilitate the making or acceptance of bets between others". It is not a party to a bet but rather introduces the parties to the bet and typically holds their stakes before paying the winners after deducting a commission.

There is, therefore, a risk that a game publisher can inadvertently enter the realm of regulated gambling as a betting intermediary on the basis that:

  • the participation fees collected for tournaments are, in fact, bets from players against each other; and
  • the cash/monetary prizes are, in fact, winnings from those bets placed by the players who proceed to win the tournaments.

The UK Gambling Commission published a discussion paper which establishes how it interprets the definition of "betting intermediary" in the context of esports. The paper stated that: "Our preliminary view is that [an esports games publisher] who is offering facilities for match ups, by introducing participants who bet against each other about who will win, is providing a service designed to facilitate the making or accepting of bets between others. If that is the case then the person offering those facilities may be acting as a betting intermediary and would need a licence".

Providing facilities for gambling

Where players participate in esports tournaments for cash or other prizes of monetary value, those players could in fact be using "facilities for gambling", which is also defined in the Gambling Act.

A common argument from publishers is that players are playing a game of skill and as such the platforms should not be regulated (much like a boxing match would not be). However, video games widely use random number generators (RNGs) to determine certain events and, therefore, influence the result of tournaments. The definition of a game of chance in the Gambling Act includes skilled games with a small element of chance unless so insignificant as to not matter. The Gambling Commission acknowledges that some games require a high level of skill, but the presence of the randomly generated elements brings them within the scope of the Act. As such, these video games are treated as games of chance, even where the skill of players is the most important factor in determining the winner.

On this basis, esports tournaments that offer cash or other prizes of monetary value could fall under the definition of "gaming" in the Gambling Act. There is a particular risk for those esports games publishers that use similar game functionality to poker (for example where RNGs are used in battle card games to determine which cards are dealt to each of the players). The Commission has specifically stated that in its view "such games fall within the definition of gaming that would be illegal without a licence".

The future

So what does this mean for publishers? For publishers, the requirement for a licence under the Gambling Act means:

  • significant up-front and ongoing compliance and licence fee costs
  • oversight from a tough regulator
  • personal scrutiny of senior management, with the need for personal licences
  • the requirement to promote responsible gambling, including measures such as allowing players to "self-exclude"
  • adoption of anti-cheating measures
  • the need to navigate the patchwork of different international regulation that can provide a barrier to global player liquidity (i.e. the ability to pool players from different countries and allow them to play against each other).

As a result of the clear market opportunities for publishers to generate real growth in this new area, most are likely to (perhaps reluctantly) go down the licensed route, rather than re-design platforms to engineer round the law. As such, we are likely to see growing convergence between video game publishers and gambling platforms, where the latter have the machinery and culture to support and grow a regulated business.