Alan McGlade, Contributor
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10/01/2012 @ 6:25PM |6,754 views
What eSports Can Tell Us About the Future of Online Gambling
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(AP Image via Daylife)
More 18-24 year old males watched Major League Gaming’s Spring Championship this year than the Rose Bowl. More than twice as many of them tuned into a video game competition compared to the first round of the NBA Playoffs or the NCAA Basketball Tournament. The growth of the industry known collectively as “eSports” is comprised of leagues built around the live and online streaming of competitive matches between players of popular video games such as StarCraft II, League of Legends, and Diablo III. It represents a major cultural and economic shift from old-world, physical forms of entertainment with limited availability to easily accessible virtual entertainment in the online space. It’s a shift that breaks along generational lines, aided by technology that is increasingly integrated into every aspect of our lives.
The eSports phenomenon and its offshoots have reaped profits for leading video game companies and gotten the attention of traditional entertainment companies. Activision/Blizzard’s Diablo III sold 3.5 million copies in its first 24 hours, and its competitive player vs. player (PvP) update is coming soon. CBS has signed partnership deals with players in the game leagues and live streaming world including Own3D, North American Star League (NASL), Twitch.tv and Major League Gaming (MLG). But arguably this progression of online competition into the mainstream is only the beginning. A number of new companies from gaming start-ups to internally funded casino enterprises are betting that the introduction of legalized online gambling in the US will be the catalyst that drives the market to the next level by creating a whole new kind of ecosystem.
There is a significant demographic divide within gambling in the United States. Casinos still attract large crowds, but increasingly they are populated by middle-aged women pulling slot machine levers. In fact, approximately 60% of casino gamblers are over 50. But that doesn’t mean wager-based entertainment is unappealing to younger people – only that it is manifesting itself in a new way. It should come as little surprise that Facebook is ranked number one on Facebook with over 70 million “likes”. You know what is ranked number two?
That’s right. The only thing Facebook users like almost as much as Facebook itself is a poker game app developed by Zynga that doesn’t even involve real cash. This is an interesting piece of trivia on its own, but it does not begin to capture the impact of wager-based entertainment on the Internet. It was estimated recently at the Global Gaming Expo that 2011’s Total Online Gambling Revenues were $30 billion, with over 40,000,000 regular poker players globally and 15,000,000 online ‘cash play’ poker players.
Of course, there’s an important distinction to be made here. Receiving a cash prize for winning a StarCraft II competition is legal at the federal level in the United States and, depending on the structure of competition, legal in up to 48 states since it is considered a “game of skill”. Playing online poker for real money, a “game of chance” in the eyes of the law despite the skill involved, has traditionally been illegal in North America. Things are changing, however. The Department of Justice, which last year opened the door to Internet gambling by reversing its opposition to Internet gambling as it relates to the federal Wire Act, has paved the way for states to allow all forms of online gambling with the exception of sports wagering. Revenue-starved local and state governments, with budget holes exacerbated by the economic downturn, are taking action. Nevada was the first to legalize online games of chance such as poker, followed by Delaware. Others such as Iowa, New Jersey, and California are seeking to authorize Internet casino games operated by companies with physical casinos.
The federal government doesn’t want to be left on the sideline. They argue that chaos will ensue since the Internet cannot be contained at state borders, but more importantly, they want their piece of the tax pie. A bill to legalize online poker from Democratic Senate Majority Leader Harry Reid and Republican Senate Minority Whip Jon Kyl may appear for a vote before the end of the year.
This brings us back to the evolution of eSports. At first glance, a video game where Terrans and Aliens battle one another in space seems to share little in common with a card game. But not everyone sees it that way. A company called Playhem has built a social wagering and competitive gaming website offering a common platform for head-to-head game play and the streaming of matches. They don’t see traditional video gaming as the necessary limit of eSports; the site is currently being expanded from Starcraft II, League of Legends, and sports video games into the world of online poker. They believe that by breaking the game from the limitations of the physical world (i.e. one person playing one table at one time), while embracing the cerebral competitive nature and entertainment aspects of video games, a completely fresh scene will emerge. 
“We see online poker as much closer to a real-time strategy video game than a physical game of table poker,” said Playhem co-founder Keith Swan. “It’s about strong quantitative skills and the ability to process information about opponents, think quickly, and employ calculated risk taking. Of course, there is the nature of online communities and how they prefer to compete. Video games are always at the cutting edge – nothing is more progressive than the ecosystems around Dota 2, Diablo 3, Starcraft II, and League of Legends. We already see behavior in our free Poker apps on Facebook that very closely mirrors that of these hardcore video games – it’s social and participative.”
Social gaming behemoth Zynga has made it perfectly clear they are positioning themselves for a change in gambling legislation. As mentioned earlier, Zynga’s poker apps are massively popular even though players can spend money on chips but not redeem them for anything. The company recently hired Maytal Ginzburg as COO whose previous gig was Senior Vice President of regulated markets at 888 Holdings, a U.K-based online gambling operator. In 2013 they will launch real money poker in countries where it is legal and they have reportedly begun lobbying efforts in Washington. No one has more data on social gaming behavior than Zynga, although their casual games are apples and oranges to the most popular hardcore gaming titles.
Of course, it’s impossible to completely discount the casino behemoths that have dipped their toes into tech. Caesars runs online gambling sites in Europe and bought social and mobile game developer Playtika last year. Bally Technologies and International Game Technology acquired the first online gaming licenses in the U.S, allowing them provide certain systems and services to casino operators. It is not full national online gambling yet, but it’s a clear step in that direction.
The only thing certain is the culture of playing competitive games online is evolving at warp speed. eSports tells us that the likely winners in the online gambling market will be not only the obvious casino players, but also others that embrace the full spectrum of entertainment and social media around it.
This article was co-authored with Corey Wade, a partner at Sandbox Strategies, a video game focused consulting firm with clients in the rewards-based gaming space including Playhem.
