Professional video gaming, more popularly known as eSports, wields the raw potential to generate $12.9 billion by 2020, but the success or failure of the industry will rely less on a potential 2024 Olympic event, and more on how businesses weather a two-system world with Chinese gamers, fans, and gamblers.
eSports -- the elite of video gaming competition -- is exploding, and China is the dynamite.
In 2015 and 2016, IGN, Coca Cola, Turner, ESPN, Yahoo, Vice, Pac-12, Domino's, Alibaba, Amazon, Barclays Center, and Microsoft all clambered to broadcast platforms and brand investments. That exposure fuels the rampant gambling that has always been a central part of eSports.
For years, Chinese mainstream culture outright frowned upon eSports as an example of internet addiction, with news outlets warning of teenagers mugging adults to fund video game habits.
As the competition became more mainstream, the Chinese community emerged as a force for the global industry to reckon with. Now, many teams have national support, sponsors, and coaches. The most popular games are CounterStrike, Dota 2, Minecraft, and League of Legends, which on its own has over 100 million active monthly players.
Both gambling and the use of cryptocurrencies are banned in China. And while illegal betting is an international problem – kids love it – that problem is starkest in China, where there are no legal or safe eSports betting avenues.
Why Does eSports Betting Need An Overhaul?
The common illicit bet, by far, is "skin gambling." Betters trade in-game items that can be bought or sold with no regulatory body. At first, game publisher Steam introduced the "skin" feature as cosmetic decals for gamers to customize and trade. The intent was to strengthen and enable gamer communities and, in a way, it worked.
The collective skin gambling racket generated $800 million in revenue in 2015, compared to $250 million through traditional eSports betting.
However, secondary markets emerged to buy and sell the skins, with prices reaching thousands of dollars for a single item. Bets can be placed on almost any aspect of eSports competitions: who wins, who gets the first kill, or the first team to ten kills, twenty kills, etc.
This is a type of gambler that fundamentally rejects slot machines, according to Chris Grove, the gambling industry analyst who predicted a $12.9 billion value for eSport's betting by 2020.
In China, thousands of people bet millions of yuan on a single match. Match-fixing is common. Middlemen run the system. Many are chat group moderators on Tencent's ubiquitous social platform, WeChat, where some groups require weekly dues. Otherwise, a reliable go-between comes in the form of well-known players. Almost no one ever meets face-to-face. The ecosystem is a busy junction of trust and deception.
Efforts to stymie skin gambling are successful when undertaken. Steam heavily lowered demand for skins through a serious of cease-and-desist orders, which were followed by public scandals. Some eSports YouTube personalities promoted skin gambling sites without disclosing partial ownership. Others worked out deals to get an inside look, and then misled viewers to raise their own profit.
Cash betting and regulated gambling operators benefited from increased activity in the aftermath.
But there are no regulated gambling operators to turn to inside China.
UnikoinGold: Decentralized Regulation
Unregulated betting sites are a risk not only for gamblers, but for the industry itself. To ensure the future of the eSports industry, and its potential profits, a new kind of cryptocurrency has emerged.
UnikoinGold, a token on the Ethereum blockchain, intermingles points-based virtual gaming rewards tokens won by gamers and decentralized digital currency bet by spectators. The currency was launched by Unikrn, a eSports betting platform started by former-Microsoft Ventures creator Rahul Sood.
UnikoinGold's pre-sale took in $15 million from investors including Mark Cuban, Brock Pierce, Blockchain Capital, Pantera Capital, and CoinCircle. The currency bills itself as a holistic alternative: offering responsible bookmaking for the long haul in eSports. People who presently own skins can even turn them in for UnicoinGold.
"A lot of skin gambling sites that pop up and get shut down are not responsible. It's not good for the industry," Unikrn Asia General Manager Spencer Yang explained over the phone from Macau, East Asia's gambling mecca.
The problem with this system is that a large part of the illegal network is in China, where cryptocurrencies are banned. Though stateless, decentralized currencies are not anonymous. Anyone can see the docket, including authorities.
"There is no real anonymity. There is an address," says Yang. "You don’t see who this guy is. But if someone participates in any illegal activities, they will be able to knock on the doors of the exchanges and say, 'hand over the user ID of this particular address for this transaction.' That is the law."
Yang adds that while the state cannot regulate the currency on the blockchain, it can regulate the on-ramp and the off-ramp.
Where The Unregulated Path Splits
In the United States, United Kingdom, and Australia, eSports is undeveloped as an entertainment platform. The nature of being a spectator is inherently different in eSports. Traditionally, fans watch eSports through personal screens. But financial commitment, through gaming software, gear, in-game purchases, and betting, is common. Even corporations that wield broadcast rights and sponsorship will only supply a portion of the viewing base's demand.
The competition and the betting can both influence one another, in either direction. What happens when sponsored, big-name players are trading skins and disenfranchising viewers?
The reality is that unregulated betting, so long as it remains vastly more popular than regulated betting, can take the sport out of the mainstream as quickly as a prime-time broadcast can put it there. UnikoinGold is a promising start, but it doesn't tackle the root of the problem – Chinese gamblers.
The Chinese eSports industry is certainly innovative in terms of entertainment. Casual gamers are everywhere. Colleges now offer degrees in Competitive Videogaming. Tencent, which owns the company that developed League of Legends, announced the construction of an eSports-dedicated town prepared to host large-scale events. In terms of eSports as part of the entertainment industry, China is ahead of the curve, but in terms of regulated gambling, it is still far behind.
As things stand, the odds of eSports generating $12.9 billion by 2020 may be good, but predicting where that money will flow to is a trickier proposition.