With the growing popularity of video gaming globally, the video gaming industry is fast becoming an industry of business opportunities, not only for game developers and players, but for businesses looking for sponsorship opportunities and even gambling operators. One key feature driving this interest is eSports.

What is eSports?

eSports or electronic sports, refers to competitive video gaming where players compete individually, or more often by joining teams, against each other in a specific video game.

What started as an online social activity amongst friends has transformed into a multi-million dollar industry worldwide and now offers opportunities for some players to consider "professional gaming" as a career opportunity centred on the competitive participation in computer games within a professional environment.

However, eSports is nothing new. eSports and competitive gaming has been in existence for several decades. In 1980, game publisher company, Atari, hosted the "Space Invaders Tournament" which attracted 10,000 attendees in the United States.1 In the 1990s, eSports gained mainstream popularity through first-person shooter games such as Doom and Quake with tournaments hosted in Europe and USA.

Faster internet speeds led to the increased popularity of more complex strategic games such as StarCraft, World of Warcraft and League of Legends, with these games being featured in televised eSports tournaments in South Korea in the 2000s.2 These gaming tournaments often offer significant cash prizes for the winning team, sometimes involving millions of dollars.

Is eSports only popular in Asia and in the US?

The eSports industry is now a highly organised and established industry. There are global leagues and tournaments. Online streaming services such as Twitch and YouTube Red allow spectators from all over the world to engage with the tournaments and players. In 2014,

there were approximately 205 million people engaging with eSports through Twitch as players or spectators.3 The global eSports industry is estimated to be valued at USD $463 million as of 2016 and it is predicted that this could increase to over $1 billion by 2019.4

In August 2008, the International eSports Federation (the IeSF) was founded by nine national eSport member associations from South Korea, Denmark, Germany, Austria, Belgium, The Netherlands, Switzerland, Vietnam and Taiwan. The IeSF was formed to develop an organised global framework focused on promoting eSports as a true sport and establishing integrity standardisation such as requirements for certification, referees, competition standards and player management.

By comparison to overseas eSports markets, Australia's eSports market is still a relatively small market. A number of reasons have been proposed for Australia's hesitation to embrace fully the eSports industry, including Australia's small population size, most large competitive events with significant cash prizes being held overseas, the majority of the high paying sponsors being overseas companies and Australia's relatively slow internet speeds which place Australian players at a disadvantage in tournaments conducted over the internet.5

Further, some researchers consider that Australia's lack of interest in eSports may be due to the Australian preference for "traditional" sports, such as the four codes of football and cricket. This is in contrast with eSports which is still viewed by many as lacking the same level of physical exertion and skill to be considered a "real sport".6 This is despite the fact that professional eSports players often spend the same amount of time training mentally and physically to hone their craft.

However, while it may take some time for Australia to catch up with the rest of the world in respect of the recognition of eSports, there are signs that the growth of Australia's eSports sector is gaining momentum.

What opportunities are available for businesses in the eSports industry?

Establishing a regulatory/integrity body

The Australian eSports Association (AESA) was established in April 2013. The AESA is a Member Nation of the IeSF and is the Australian national body involved in the development of policy, planning, infrastructure and initiatives for eSports in Australia.7

The AESA is focused on good governance and transparency within the Australian eSports industry and is developing a code of practice for all members to ensure integrity within Australian eSports. This will likely include provisions which govern the protection of players' rights and the provision of support services and education for players with protocols for anti-doping, antidiscrimination and fair play.

Currently, the AESA, together with the IeSF, is working towards earning membership with SportsAccord and recognition by the International Olympic Committee.

Australian businesses going global

In Australia, there are numerous opportunities for companies within the eSports industry to take their businesses global. This is demonstrated by the recent listing on the Australian Stock Exchange of eSports Mogul Asia Pacific Limited (ESM). Addisons acted for ESM in this exciting project. Part of ESM's objective is to expand into the global trading market.8

The global eSports industry is one of the fastest growing, interactive and innovative industries, which, as demonstrated by ESM, provides great scope for new and existing Australian businesses to explore business opportunities and partnerships overseas.

Venue hosting and broadcasting deals

In October 2015, Australia's first eSports tournament was held at Melbourne's Crown Casino. Tickets to spectate Australia and New Zealand's best players of the game Counter-Strike: Global Offensive (CS:GO) compete for an AUD $55,555 prize pool quickly sold out. The Crown Counter-Strike Invitational was also the first Australian eSports tournament to be broadcast on Australian television through a broadcasting deal with Fox Sports.9

Crown has held a number of eSports tournaments since. The success of eSports tournaments can be seen through the Crown examples. For Crown, ticket sales of single day tickets to spectate the event cost just over $56, weekend passes cost over $100 and VIP packages cost over $500.10

More recently, Crown has developed the ZEN Gaming Lounge, described as Australia's first dedicated eSports hub, providing a central location for gamers and nongamers to meet and utilise top of the line equipment and services including tournament specific computers, video game consoles and a VIP tournament viewing lounge. Also, the ZEN Gaming Lounge is located "over three floors next to Melbourne's iconic Crown Casino".11

This demonstrates that there are considerable opportunities for traditional gambling venues, such as casinos, hotels, pubs and clubs, to support a rapidly growing industry and tap into a new generation and type of gamers.

Opportunities for gambling operators

With the development of a competitive eSports industry, opportunities for gambling operators have also arisen. At its core, the global eSports industry offers sporting events and competitions on which bets can be placed. The global revenue from gambling on eSports is estimated to be $55.8 million.12

Pinnacle Sports, the first online bookmaker to offer markets on eSports since 2010 has reported that eSports is its seventh largest market. In April 2015, dedicated eSports betting operator, Unikrn, partnered with, Tabcorp (through its sports betting arm, Luxbet) to set up a digital platform to allow online eSports betting.13

Now, a number of major Australian corporate bookmakers such as William Hill and Ladbrokes offer markets on Australian and international eSports competitions. Indeed, the Northern Territory Racing Commission, the gambling regulator in the Northern Territory where the majority of Australia's major corporate bookmakers are licensed, has listed expressly a limited set of certain eSports games and events to be declared sporting events upon which bets may be offered by the licensed bookmakers in accordance with their NT licences.

Crossover between gaming and gambling: key considerations and concerns

However, with the development of new forms of events on which gambling can occur, concerns have begun to arise. We set out some of the key considerations and concerns which have impacted on Australia's eSports industry.

Normalisation of gambling on video games

There has been considerable concern recently amongst a number of Australian anti-gambling politicians that allowing betting to take place on eSports events and tournaments, normally played, spectated and participated in by young people, encourages the normalisation of gambling on video games and is particularly damaging to children and young people.

In July 2016, Australian Senator Nick Xenophon indicated his intention to introduce into Australian federal parliament legislation which would result in the playing of highly popular first person shooter games to be considered as gambling, and therefore prohibited under Australia's Interactive Gambling Act 2001 (Cth) without an Australian licence. Senator Xenophon has indicated that his views are driven by the concern that "this is the Wild West of online gambling that is actually targeting kids...the "insidious" games played by hundreds of thousands of Australian teenagers "purport to be one thing" but are "morphing into full-on gambling..."14

Senator Xenophon's harsh stance on eSports is shared by the South Australian government which, in August 2016, indicated that it had advised the South Australian gambling regulator, the Independent Gambling Authority (the SA IGA), to reject betting on computer gaming sporting events. The SA IGA accepted this advice. Betting on eSports competitions is now banned in South Australia. This is in contrast to the position in the Northern Territory where certain eSports games and events have been listed as declared sporting events upon which bets may be placed.

South Australian Consumer and Business Affairs Minister John Rau indicated that the South Australian government's reasons for this ban is that "children are particularly vulnerable to the attraction of gambling on sporting contests conducted on the platform of video games...we do not want them to be introduced to gambling under the guise of a game."15

Accordingly, gambling operators looking to offer betting on eSports events must ensure that they do not offer betting on those events to South Australian residents.

Further, gambling operators who offer betting on eSports tournaments must ensure that the same standard of responsible gambling and harm minimisation policies and mechanisms which apply to traditional sports betting also apply to betting on eSports. This may include, for example, ensuring that stringent know your customer and age verification procedures are in place to prevent minors from opening a betting account with the operator.

Protecting the integrity of the sport

In certain states in Australia, gambling operators are required by statute to enter into product fee and integrity agreements with each of the national sporting bodies before the gambling operator may conduct sports betting on the events controlled by that sporting body. This occurs as a matter of practice for leading Australian sports in respect of events held throughout Australia. For example, the offering of betting markets on A-league soccer games in Australia is subject to the gambling operator entering into a product fee and integrity agreement with the governing body, Football Federation Australia.

These product fee and integrity agreements set out obligations for gambling operators to ensure that (among other things) suspicious betting transactions and behaviour is reported to the sporting body protect the integrity of the sport in Australia.

While the AESA has been established and is working towards developing policies and a framework for regulating eSports in Australia, this remains in its infancy. There are therefore concerns that, without a standardised and regulated framework for eSports in place in Australia, the protection of the integrity of the Australian eSports betting markets will be difficult.

Rise of unregulated gambling markets

There has been significant concern globally that the rise of the popularity of eSports and video gaming in general inadvertently leads to unregulated and uncontrolled gambling.

Most of the recent adverse attention in relation to eSports from a gambling perspective has been in respect of "skins betting". "Skins" are digital designs which can be applied to in-game items, for example, a green camouflage print which may be applied to a gun used in CS:GO. In April 2016, it was revealed that CS:GO, a game offered by game publishing company Valve through its online game distribution platform Steam, had given rise to a popular secondary market to trade "skins" as a form of virtual currency.16

This inadvertent secondary market, which was not created or regulated by Valve, allocated a real world market value to each "skin", and allowed these skins to be used as real currency to bet on the outcome of eSports games or games unrelated to video games entirely, such as online jackpots and roulette.17

Following this, a number of lawsuits were brought against Valve alleging that Value had "knowingly allowed an illegal online gambling market"18 and had been "complicit in creating, sustaining and facilitating that market."19

In October 2016, the Washington State Gambling Commission (the WSGC) became the first American regulator to order Valve to take action on unlicensed betting websites. It was reported that the WSGC had sent Valve a cease and desist letter in an attempt to remove these illegal secondary market websites.20 This would have occurred despite the fact that, as early as July 2016, Valve had indicated that it would be using all available remedies to end skins betting and order known skins betting websites to cease operations.21

In August 2016, the UK Gambling Commission released a paper confirming its view that skins that are tradeable and convertible into real money are virtual currency which would cause the websites to fall within the regulation of UK gambling law.22

While the issues have been discussed and received considerable attention in the Australian press and from Australian politicians, no formal legislation or regulation in respect of "skins" as a virtual currency or "skins betting" has yet been introduced in Australia. However, there is no doubt that there is a risk that certain elements of skins betting would require close analysis under Australian law to determine whether they constitute prohibited gambling.

Conclusion

Until Australia's regulatory regime addresses specifically the eSports industry and its innovative and unique features, there will inevitably be concerns raised in respect of eSports in relation to integrity concerns, consumer protection and harm minimisation and the protection of young people and further, whether greater regulation is required.

Despite this, the Australian eSports industry remains one of the fastest growing online industries in Australia with considerable business opportunities for online technology companies, physical gaming venues and online gambling operators alike.