Will Esports Betting Benefit from Growth of US Sports Gambling?

By Michael Stevens in Esports on May 8, 2019

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For over two decades, the US sports betting market has mainly consisted of offshore bookmakers. Sites based in Antigua, Belize, Costa Rica, and Curacao have been the go-to for American bettors.

The US federal government and states, of course, don’t appreciate seeing millions siphoned off their residents every year. But little was done to change the situation until 2018.

The US Supreme Court made a landmark decision last May to repeal the Professional and Amateur Sports Protection Act (PASPA). This decision has opened the way for states to begin offering land-based and online sportsbooks.

Sports gambling figures are to get a significant boost from legal-and-regulated markets. The general population will feel more comfortable placing bets with trusted casino names, rather than seedy offshore sites.

But will esports betting also see the same boost? Esports gambling is, after all, a newer form of sports wagering that’s just finding its bearings. It has yet to hit mainstream popularity in the US.

The jury is out on whether esports betting will be a big beneficiary of legalized sports betting. Keep reading to find out how it might fare in the legal market along with other factors surrounding the situation.

What Led to Sports Betting Becoming Legal?

PASPA was passed in 1992 to make sports gambling illegal. America has always had a fear of sports corruption, which is still fueled by baseball’s Chicago Black Sox Scandal of 1919.

Major organizations like the NBA, NFL, NHL, MLB, and NCAA all supported PASPA for a quarter century. However, the NBA, NHL, and MLB eventually started to crack and admit that legal betting could be a good thing.

NBA Commissioner Adam Silver said it best by explaining that legalized markets are a better way to monitor corruption than the underground betting industry.

“I view myself more as pro transparency,” he said. “And someone who’s a realist in the business.”

“The best way for the league to monitor our integrity is for that betting action to move toward legal betting organizations, where it can be tracked. That’s the pragmatic approach.”

The NFL and NCAA are still against legalizing sports betting… But the NHL and MLB have issued statements in support of a regulated market.

This quasi-support, combined with former New Jersey Gov. Chris Christie’s efforts, were enough to turn the tide. In May 2018, the Supreme Court ruled 6-3 that PASPA is unconstitutional.

Esports had nothing to do with the turn of events that led to legal sports gambling. After all, few Americans know about the existence of Dota 2’s The International – esports’ most prominent annual event – as opposed to, say, the Super Bowl.

Nevertheless, esports does figure to benefit from the potential sports gambling windfall that may follow. Most online and land-based bookmakers offer some form of esports wagering now. The activity will be more in the public eye at regulated sportsbooks.

What Does the US Betting Market Look like with the Repeal of PASPA?

Ideally, the US government would legalize sports gambling on a federal level. Doing so would allow all 50 states and US territories to participate in the market.

Unfortunately, PASPA’s decision didn’t legalize sports wagering across the country.

It merely did away with the federal ban.

It’s now up to each state to decide if and when they want legal sports betting. Several states have already taken advantage of the opportunity and are either offering lines or in the midst of forming their market.

Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island, and West Virginia all feature full-blown sports betting. Nevada was already offering these services for years while PASPA was in effect. Over a dozen other states are either working on legislation or have plans to do so.

Every state that’s currently running legal sports wagering allows adults aged 21 or older to place bets. The only catch is that gamblers need to be within a legal state’s respective borders when making these wagers.

Online sports betting is also in play if approved by a state. But it’s not a given that all places with legalized betting will allow wagers through PCs and mobile devices. Mississippi, for example, only allows mobile wagers within the confines of a land-based or water-based casino.

Most of the current legal sports betting action centers on popular American sports, like baseball, basketball, and hockey. Esports is being treated as an afterthought while states still settle their markets.

New Jersey initially announced that they wouldn’t allow bets on “high school sports events, electronic sports, and competitive video gaming.”

This statement raised eyebrows among esports enthusiasts, who thought it strange that video games were excluded. However, it only took New Jersey a few days to come back with a new rule: esports betting is allowed as long as every participant is over the age of 18.

This may not sound like such a big restriction. Most esports pros are between the ages of 20 and 25.

However, it will cut out a portion of the market from gambling action. Players as young as 13 have had professional success in games like Fortnite and Rocket League.

It remains to be seen what collective approach states will take on esports gambling. Competitive gaming is still growing at the same time that states are figuring out how to handle their newfound betting markets.

The odds are that some or all will allow esports wagering. But New Jersey could be the trendsetter with their requirement on participants having to be 18+ years of age.

How Quickly Will Legal Esports Betting Grow in the Regulated Market?

Sports gambling is expected to expand across the US at a quick rate. Richard Auxier, from the Urban Institute, spoke with Yahoo! Sports about the spread of betting.

“You could possibly see a bill in all remaining states that have not yet legalized gambling, except for Utah,” said Auxier. “Utah has a constitutional amendment banning gambling so they will not be taking this up.”

He mentions that even Hawaii, which currently has no legal forms of gaming, have discussed sports betting. He adds that we’ll probably see “at least 10s, if not 20 legalizing it.”

It’s difficult to predict what sports will be on the agenda when more places do pass legislation. The most-profitable games like baseball, basketball, and football will be at the forefront.

Esports betting will likely find its way into every state with legalized sports gambling too. Therefore, we could see over 10 states across the US offering esports wagering.

What Could Hold Legal Esports Betting Back?

It might seem like having esports gambling is all roses compared to the sketchy offshore market of today. More people will be interested in betting on video games when dealing with a reputable brand.

However, legal esports wagering isn’t going to be all roses. Here are some potential problems that could prevent the market from reaching its full potential.

Legal Esports Gambling Won’t Bring In Much Money

Auxier discussed how “money is going to be relatively low” for both states and operators when it comes to sports betting.

Nevada sportsbooks make between approximately $230 and $240 million in annual profits from sports wagering. This might sound like a lot, but it’s dwarfed by the casino’s markets $11.9 billion in overall gambling revenue.

States don’t figure to make much from the taxes either. The Silver State pulled in just $20 million in sports betting taxes in 2018 – less than 0.1% of their overall take.

“States shouldn’t be banking on getting a lot of money,” Auxier explained. “And as more states begin to legalize it, they’ll be starting to see even less.”

The Market Might Not Have Many Sportsbook Participants

Some states have unreasonable requirements in place that could turn off potential market participants. Pennsylvania is a perfect example. Their current rules call for a one-time $10 million licensing fee, along with a 34% tax on gross receipts.

Nevada, in contrast, requires a 6.7% tax on gambling operators. No sportsbook will be thrilled about setting up shop in Pennsylvania with such a ridiculous tax rate.

It remains to be seen how reasonable or unreasonable other places will be on the matter. But it’s likely that at least a few other states will feature crazy licensing fees and taxes.

Interstate Sports Betting Is Up in the Air

Sports wagering is currently allowed on a state-by-state basis. However, it still appears to be illegal to offer sports gambling across state lines.

The US Department of Justice (DoJ) offered an opinion on the Federal Wire Act in 2011. They stated that it only appears to apply to interstate sports gambling.

Their latest opinion in November 2018 didn’t offer any reassurances.

In fact, they just expanded their opinion to include that all forms of interstate online gaming appear to be illegal.

Assuming this take is the standard, then esports betting markets wouldn’t have as much liquidity. This means a lower selection of bet types and limits.

Pro Leagues Want Their Cut – Costs Get Pushed on Consumers

Adam Silver may believe that legal sports gambling could prevent corruption. But he’s also financially motivated to take this opinion.

Silver thinks that the NBA should be due an “integrity fee.” The MLB shares his vision for sports leagues receiving 1% of gross sports gambling revenue.

Their stance is that the 1% integrity fee would go towards policing point-shaving scandals and corruption. However, it would also make running a sportsbook much costlier.

Most bookmakers only make around a 5% profit. These margins would be slashed to 4% when including an integrity fee. Such costs would force the bookmaker to offer worse lines and bonuses for all games – including esports.

Pro Age Restrictions Could Be a Problem for Esports Betting

It seems reasonable that New Jersey only wants people betting on esports pros who are 18+. However, this is one of the few games where a minor can thrive.

Assuming other states take a similar approach, then it would exclude some matches from the betting realm. Such a rule would also affect “outrights,” which are bets on who’ll win an entire tournament.

Here’s an Example:
  • A tournament features 12 squads.
  • Only one of these teams has a minor.
  • But their participation would make the entire outright an illegal bet.
  • One possible solution is to exclude the single team from the bet.
  • However, this also makes the outright an iffy proposition, since only 11 of 12 teams are listed.

The Federal Government Could Have a Say

Congress is getting a late start on examining sports betting after the repeal of PASPA. But this isn’t to say that they won’t have the final word.

Rep. Frank Pallone (D-N.J.) has introduced the Gaming Accountability and Modernization Enhancement (GAME) Act. This bill would legalize sports gambling on a federal level and include protections for consumers.

Pallone’s legislation appears to be a good thing for sports betting as a whole. But there’s no telling how esports and other activities would get treated.

Pallone’s bill is unlikely to be the only one brought forth. Lobbying efforts could produce more legislation in the future – some of which may not be so favorable.

Conclusion

US sports betting appears to be on the right path with last year’s repeal of PASPA. Several states have already launched sports betting markets, while others are in the process of doing so.

Regulated betting will help bring the industry out from the underground and into a safer environment. Residents of legal states will no longer have to place bets through offshore operators and shady bookies.

The main question examined here is how much esports betting will benefit. Esports aren’t the most popular form of sports gambling in America. But they should draw more interest, given that competitive gaming is booming across the world.

The chances are that esports wagering will also benefit from America’s regulated market. However, some roadblocks could stand in the way of success.

Low liquidity, bad odds, a lack of interstate betting, and pro age restrictions could all slow down the esports gambling market. It also remains to be seen what the federal government will do in terms of their legislation.

Assuming regulated sports betting doesn’t bring good things for esports, then the offshore market could remain viable. After all, offshore sites have been serving video-game gamblers for years with some degree of success.

Hopefully, though, the US sports gambling market does work out. Esports betting should thrive in this event, especially if the activity gets legalized on a federal level.

Michael Stevens

Michael Stevens has been researching and writing topics involving the gambling industry for well over a decade now and is considered an expert on all things casino and sports betting. Michael has been writing for GamblingSites.org since early 2016.

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