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Esports faces regulatory scrutiny as popularity grows

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Esports faces regulatory scrutiny as popularity grows

SNL Image

Esports Mid-Season Invitational in Sao Paulo, Brazil, 2017

Source: : LoL Esports

Explosive growth in esports, or competitive video gaming, has attracted a swathe of investors, blue chip advertisers and huge, passionate audiences in recent years. But amid the market's meteoric rise, a crackdown on unregulated gambling and match fixing is underway.

"[Esports] is the product of growth in sports betting at the moment. The bigger the market, the bigger the temptation to manipulate it," Ian Smith, U.K.-based lawyer and esports integrity commissioner at Esport Integrity Coalition (ESIC) said in an interview.

In 2015, if you went online and tried to place a cash bet on esports, you would have found about three operators, he said, adding that today, that number stands at around 150 operators globally, among them a couple of esports specialist online operators.

"I hesitate to refer to them as the regulated market … many are dubiously legal and certainly not well regulated," he cautioned.

Overall, Smith expects esports betting turnover to exceed $150 billion by 2020, including the invisible market, which he said tends to run at roughly 10 to 15 times the size of the visible market.

Not unique to esports, the long held history of gambling — and fraudulent activity — in traditional sports has allowed it to make inroads into the nascent industry, whose audiences are beginning to rival major leagues such as the NFL and NBA.

Esports tournaments such as the League of Legends World Championship received as many as 396 million daily impressions last year while The International Dota 2 Championships' prize pool reached $24.7 million this summer. Meanwhile, this year's Intel Extreme Masters World Championship grew to more than 46 million online viewers and had 173,000 fans attend the stadium event.

Despite efforts toward industrywide standards to tackle the issue of the unregulated market, many betting sites are still able to avoid legal scrutiny.

The biggest challenge is that the overwhelming majority of esports betting occurs on unlicensed, unregulated skin betting sites, according to Bryce Blum, Founder at ESG Law, which represents esports teams, talent and institutions.

SNL Image

League of Legends World Championship in Wuhan, China, 2017

Source: LoL Esports

"Betting regulations have proven relatively effective at combating the types of fraud experienced in the esports marketplace over the past few years, but those regulations only work if the sites operate under their auspices," he said.

Blum believes the inability to properly regulate esports gambling is a missed opportunity for the entire industry.

"The problem isn't betting. It's unlicensed, unregulated betting," he explained, adding that these issues have discouraged publishers and tournament organizers from embracing the potential for esports betting to help springboard the industry's growth.

Moritz Maurer, Head of Esports at Genius Sports, a sports data and commercialization services provider, agreed that unlicensed operators with "zero obligations" toward consumer protection functioning alongside established bookmakers such as Sky Bet and Betway had been a "serious problem."

"When combined with the relatively immature competitive frameworks which surround esports events and the exposure of amateur competitions to unregulated betting activity, it is no surprise that skin gambling flourished in the shadows," he said.

Yet the widespread nature of the threat makes it challenging to purge entirely.

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North American League of Legends Championship Series in Los Angeles, 2017

Source: LoL Esports

The same factors that drive fraud in tennis or football are at work in esports, Chris Grove, senior consultant at gaming research firm, Eilers & Krejcik Gaming, noted.

"Greater regulation and oversight would of course help to act as a check against fraud, but, as proven by traditional sports, it's difficult to ever fully eradicate fraud from any sort of competitive activity," he argued.

Another major challenge is the absence of a central, governing body and standards across other overlooked areas such as the protection of minors, live event safety and security.

If unchecked, these issues, along with match-fixing and other threats, could undermine the market's commercial viability, according to Genius Sports' Maurer.

"Esports is in a critical growth stage right now and the ecosystem is disproportionately dependent on non-endemic investment and sponsorship," he said, pointing out that in sports such as cycling, investors and sponsors alike are typically the first to disassociate themselves from competitions where integrity is in question.

ESIC's Smith warned that further dissatisfaction with the industry's response to risk could prompt regulatory interventions worldwide.

"Unless the industry gets its act together and starts creating some standards, sooner or later, somebody's going to come along and do it for them," Smith concluded.