Mission146
Posted by Mission146
Mar 26, 2017

Video Game Betting is Big Business

For those of you old enough to remember this, I’d like to take a trip down memory lane to a time when betting on video games was a simple and low cost affair.

How it would generally work is that you wouldn’t really bet large amounts against one another, and more often than not, it would be on a Street Fighter or Mortal Kombat arcade game at the local pizza store. The, ‘Champion,’ which was an informal title meaning the most recent kid to win a match, would wait for another challenger to rise up from the ranks of those sitting around downing milkshakes. A challenger would make himself known, and being the challenger, he would have to insert a quarter for both himself and the champion.  

The champion would either win or lose the fight, and having won, could play in one player mode on the other kid’s quarter unless another challenger immediately rose up from the ranks.  

Occasionally, the betting would be a little more serious. The two kids might play a best-of-seven series (with the loser in a given fight having to insert another quarter to get back in) and the overall loser would have to buy the winner a slice, or perhaps a milkshake. Sometimes, things would get really serious, and the stakes in a series would approach sums as lofty as five bucks.  

We even set up the occasional, ‘Tournament of Champions,’ which would simply be four, eight or eleven kids going head-to-head in best of seven matches with the winner advancing.  For every quarter each player spent on a game, the player had to match that quarter in the prize pool with 75% generally going to the winner and 25% for second place.  

If you imagine that the average series would go six rounds (that’s about right) with the winner of a given fight not having to buy back in, then you would have about $1.75 per round. There would be seven rounds in the overall competition, so the total prize pool might occasionally be as high as $10.00.  

Needless to say, with the prevalence of social media and the ability that the Internet gives people with common interests to come together, things have changed...a lot. For instance, here’s a video of a Madden tournament that saw the winner being paid $30,000.

Again, that’s the biggest tournament that took place for that game for the entire year, but it still highlights how the ability to play and communicate with as many people as you want across the world changed things! Players can play one another and communicate across countries and massive tournaments take place for just about every game that goes online. That’s not necessarily to say that they are all played with such big stakes, but the stakes definitely beat what we used to play for at the pizza shop.

Of course, not all of these eSports consist of sanctioned and sponsored events such as the Madden video above. Many of the eSports matches that take place the world over are the equivalent of two kids betting in the pizza arcade, just for much bigger amounts, and often for stolen money. Much like chips in the casino, foreign objects of varying colors are used to take the place of cold hard cash in video game betting. However, the seeming innocuousness of these video game, ‘Skins,’ does nothing to ameliorate the often very real financial losses.

What is a Skin?

The idea of a, ‘Skin,’ is that it is an item that can modify the look of an in-game piece of equipment. Video game skins can run from under a dollar (USD) all the way up into the mid-hundreds depending on how, ‘Rare,’ the skin in question is. Most people are not going to believe that players are going to care too much about being able to change the appearance of the grip of a pistol into something unique, of course, but the fact that the skins are tangible in-game items is essentially designed to conceal the fact that the players are gambling for money.  

Unlike casino chips, these skins cannot necessarily be, ‘Cashed in at the cage,’ but often must be sold to another player with an interest in betting. These skins can be earned by playing the game, winning bets for the skins of other people, buying them directly from the manufacturer and trading them directly with other players.  

The Steam Community Market contains several of these items that can be purchased directly from their sites, and the valuations of these items are little different than playing the stocks.

By clicking on an item, an individual can see the recent buy offers (prices and quantities) as well as the recent sell offers. The individual can also see the price history of a given item to determine how an item is trending. As would be expected in any market; the cheaper items will be more common and the more expensive items, rarer.  

Some of you might be thinking, ‘So far, so good,’ the players are responsible for what they think the value of a skin should be and are doing business with one another directly.  

Not so fast.

The kicker comes in when one realizes that Valve corporation takes a 15% cut of these skins when an individual sells them on the marketplace.  Naturally, the marketplace also happens to be the only place that these skins can be sold. While skins can be traded, the only place to actually convert the skins to cash is to actually sell them on the marketplace. The only way to do that is to pay the 15%. It’s best compared to a rake in Poker.

Players wanting to bet with skins can do so any variety of ways. For one thing, there are actual casino games in which skins can be bet with players acting as both casino and/or player depending on the circumstances. Additionally, much like actual sports betting, eSports betting on any number of events is a popular pastime among skins bettors. For example, the Madden championship linked above on Youtube probably saw a lot of skins action for the two competitors.

ESports outcomes saw wagering of five and a half billion dollars over the course of 2016, according to the analysts at Naruscope.

However, that is expected to decrease substantially given that Valve has decided to crack down on skin gambling websites. Valve, however, does continue to operate its marketplace.  

The thinking is that, even with the Valve crackdown, some of the market for eSports gambling will simply operate with cash, instead. Additionally, several other alternative forms of currency, as the skins themselves are effectively, are expected to spring up and be used for wagering over the next few years. Either way, eSports, which was expected to be a 30B industry by 2020 has had projections slashed to about 40% of that.

Interestingly, eSports has also been found to be more of a spectator sport, as far as betting is concerned, than a sport for participants. The majority of cash money wagering that has taken place in the realm of eSports has been betting on events and outcomes of the matches of others, well over 90% of cash betting, in fact. The remaining less than 8% is split almost 2:1 between head-to-head wagering and fantasy type wagering on eSports.  

With respect to the cash betting, even major providers of traditional online sportsbooks are involved with names such as Pinnacle, Bet365 and Ladbrokes in the fray. Here’s an example of eSports betting in action.

While skins betting on eSports is anticipated to slow down a bit, cash gaming is expected to increase as more sportsbooks choose to jump into the fray. Additionally, it is also expected that the current sportsbooks offering lines on eSports will expand with respect to both events and games covered.  

Professional Players

ESports betting is not remarkably different from betting on any other kind of sports, it simply exists on levels. The biggest level of, ‘Skin,’ or cash eSports betting is on events featuring individuals or teams who are considered, ‘Professional,’ players.  

Another thing that people might wonder is, “How do the professional players make money?”  The most likely answer to that is by way of one of the means that traditional athletes get money: sponsorships. ESports events of all sizes are broadcast often by the betting sites that host them as well as on other sites, and the highest level players will often be paid by sponsors. Sponsorships may include things such as clothing, or companies that have nothing to do with gaming at all, but usually it will be hardware manufacturers (headphones, controllers, mouses, gaming chairs) as well as a variety of other things.  

Additionally, the eSports players may also market themselves directly in an attempt to garner further income. One common way of doing this is to broadcast on several media platforms, such as Twitch, where a subscription to an individual’s broadcast costs $4.99/month with the individual banking half of that money. Furthermore, players may stream their videos on YouTube and other sites hoping to get some advertising revenues by those means.  Often, these players will stream tutorials to help others with an interest in the game.  

Finally, tournament wins are another way of making bank for the players.  

How Does One Bet on eSports?

ESports betting is very similar to other forms of betting. Individual bettors out there may decide that they have a, ‘Favorite player,’ or, ‘Favorite team,’ and will tend to back that player or team regardless of the event. Over one-quarter of players have indicated that they delve more deeply into team/individual stats for particular events and games on particular settings. One could presume, like anything else, if a bettor is motivated enough they may be able to learn enough to overcome the edge against them.  

In fact, one might argue that might even be easier with eSports unless the websites simply have a greater base edge working against the players.  Since eSports is such a young industry, it is possible that extremely perceptive individuals might be able to analyze the play of a given player as opposed to his/her opponent(s) and determine whether or not the first player would have an advantage in a matchup based on playing styles.  

Skins betting is an entirely different animal altogether. While it seems that Valve shut down some of the biggest players in the Skins betting game, as far as third-party websites are concerned, many of the smaller ones remain and it is unknown whether or not Valve will take notice of them.  

There is very much a gamble within a gamble when it comes to trading in Skins. The Skins can change in value simple depending on what the subjective value the skins have to players is and how they are sold on the marketplace. The marketplace itself almost functions little differently than a stock market, so it is possible that such techniques as, ‘Short selling,’ may also take place in the skins market.  

Steam also creates some stipulations for individuals who purchase these skins, depending on the skins being purchased.  In some cases, the purchaser may not trade, sell, or both, a skin that has been purchased for a week. One would suspect that is to avoid short selling, but there is still a ton of volatility in the skins market.  Here’s just one example.

In just the ten days between March 15th and March 25th, the particular weapon to which I have linked has seen prices as high as two units at $75.50 each. However, the item now sits at under $30 for the last nine units sold on March 24th (as of the time of this writing). Currently, the highest bid offer on this particular item is $23.77 for one unit.  

If you have the interest, you can look up the historical price trends of the most expensive items that have existed longer than a year. If you do that, then you will likely notice a precipitous drop in price right around the time that Valve announced its crackdown of skins betting. The prices have essentially not recovered since then, for many of these items.  

When a bettor/player purchases a skin, that is the game within a game that the bettor is playing. In addition to hoping to win when one makes a skin bet, the player must also hope that the skin holds its value in the marketplace.  

It should also be mentioned that not all of these bettors are purchasing the skins with their own money, credit card information is frequently stolen (often by family members) in order to get these skins and try to turn a profit. Here is just one story of such coming out of Australia.

Individuals will often compromise the credit card information of family members in order to have some skin in the game, if I may, and the bills can often run in the thousands. As with gambling on anything else, some people are not satisfied with losing or winning certain amounts and keep betting more and more until they have lost everything to which they have access.  

The worst part of this is that, while Valve might be considered loosely regulated, many of these skins betting websites are not regulated in any way whatsoever. The result, of course, is that they don’t care where the skins in question came from and have no means to verify same, they just accept the bets.  

Furthermore, the sites that accept skin betting, sometimes just actual casino game sites (unregulated) have no mechanisms in place with a mind towards player protection. They have nothing beyond the minimum age verifications, and sometimes not even that, and the players have no mechanism to know that the game is fair.  

Ironically enough, the straight cash game is the most legitimate manner in which to bet if one wants to bet on eSports. Sites such as Pinnacle offer odds on the game and, much like their sports betting odds, everything that Pinnacle does is regulated. Furthermore, while it is not impossible for a stolen credit card to be used to make a deposit onto the major online gambling websites, it is less likely as those sites have a number of age and identity verifications measures in place.  

The long and short of it is that the skins bettors get into the skins game fundamentally hoping that any purchased skins hold the value that they had at the time they were acquired, or otherwise to have the value improved. Obviously, that is going to require an innate understanding of the short-term trends of the market for a particular skin such that the age old principle of, ‘Buy low, sell high,’ needs to be employed.  

The second step to winning is to try to get your money (skins) in good. The way to do that is definitely not going to be to go through largely rogue websites who can do essentially whatever they want and play casino games that are likely rigged. The only real chance a bettor may have, which might not be much of one, would be to understand eSports events or other sporting events (which are also sometimes bet on with these third-party sites) and to try to beat the odds there.  

In other words, the actual games are not always fair and the prospects are almost never promising. Perhaps the biggest problem still is that the skins available simply tend to lose value once they become more common and are not as new. Valve is certainly playing the game, too, by (presumably) trying to work the supply/demand angle such as to generate the most revenue off of the skins it releases to the players. Let us not forget that they get 15% of all purchases in the marketplace.  

In fact, let’s just do a comparison of $100 in skins compared to $100 in online craps. Now, if you ask me, what is my mathematical expectation for my $100, here would be my answer:

Craps:

In craps, the best bet to make is the Don’t Pass bet and you can make an optional odds bet that carries zero house edge. Ignoring the possibility of making an Odds bet, if you deposit $100 into an online casino and make $100 in bets on the Don’t Pass, then you are expected to lose $1.40. The result, of course, is that your $100 is expected to turn into $98.60 absent any other bonuses.  

eSports:

If you make a purchase of $100 in skins, then the first thing that you have to do is some pretty thorough research in order to hope, at worst, that your skins are going to at least hold their value for as long as you need to keep them. It is also important to remember that other people are going to see what you (and others) paid for that/those particular skins and are fundamentally not going to want to pay more than that.  It is also worth of mention that these skins have little to no tangible real world value.

If you get on one of the third-party websites that offer casino-like games you can play, then it is impossible to know whether or not you are operating against fair software. Even games such as, ‘Coin flip,’ could be 45/55 against you, if not worse, and it would take a pretty meaningful sample size to prove it.  If you did prove it, then that site could theoretically just shut down and open up with different graphics under a different name.  

Alternatively, you might choose to try your luck betting on eSports or other professional sporting events. This seems a little more fair because, at least, the result is going to be based upon a real life event in which a given result either did or did not happen. Of course, you are then going to have to rely upon the third-party website to actually pay you whatever skins you have won as the result of your bet. If you lose your bets, then you are simply out that $100 in skins.  

It gets worse after that, of course. Even if you do win and decide to, ‘Cash out,’ it’s going to require you to go back and sell your skins on the marketplace hoping they have not lost value. About that:

Using our example above of the skin that was $70 just days ago and now sits under $30, even if a player made a single even money bet based on that skin and won, the two skins combined are no longer worth what was originally paid for the first skin. At least, not for the time being. As if this weren’t bad enough, the two skins (which already represent a roughly $10 loss if sold now, despite winning the bet) will also be tagged with a $9 fee upon being sold.  

The long and short of this example is the player could use a $70 skin, bet it all, win and still lose money in the process.  The game upon which the skin was bet might even be completely unfair and the player just got lucky...lucky enough to win and only be down $19 in the process.  

What is the expected value of $100 in Skins?  How the Hell should I know?  I can’t quantify it like I can with a game such as Craps because there is more information than anyone, other than perhaps some of the people in control, could possibly know about it.  

Who is the Target Market?

Forgive the cynicism, but if I am going to bet on eSports at all, I want to do it with real cash money that I can deposit and withdraw at my leisure with a website that is regulated by SOMEONE!!!  In other words, I think anyone of legal gambling age with access to a regulated website is probably making actual cash deposits and doing it there. So, who does that leave?

The best case scenario is that there are individuals in countries who cannot access the more legitimate wagering sites who are, as a result, using these skins as a proxy for money and betting on these third-party sites. Some individuals might even be savvy enough to play the, ‘Skin Market,’ without otherwise doing any kind of gambling.  

The worst case scenario is that the skins markets might be targeting other individuals who would have no access to the regulated gambling sites. Namely, minors. The purchase of these skins as only a loosely designed gambling front benefits minors the most because the sites they will be going to in order to gamble the skins only do a very minimal age check, if at all. It’s almost like being a minor and going to a porn site that says, “Click yes to continue if you are 18+,” very few minors hit the, ‘No,’ button there. They want to see the porn. Now, minors want to gamble.  

Given only a cursory examination of the more sordid tales I have read regarding some of these minors using skins as a gambling front, I see that the most common age range is 13-18. Not only are these kids gambling, but they are also gambling a game more difficult to win than those found in the casino.  

Conclusion

When it comes to eSports, it is important to recognize that not every form of eSports is legitimate. In its, ‘Cleanest,’ form, eSports takes video games and converts them into real life gaming spectacles for the public consumption in the realms of both gambling and entertainment. The vast majority of the actual eSports players are making legitimate livings by way of advertisements, sponsorships, subscriptions and tournament winnings.  While it may seem silly to people who would describe themselves only as fans of, ‘Real sports,’ eSports players are actually very little different from professional athletes.  

Furthermore, there are legitimate gambling outlets at which regulated eSports wagers can take place. Many of these outlets are among the familiar bookmaking sites that even casual gambling observers are familiar with. The bets that are made at these sites are usually cash that has been deposited into the site and the sites will pay out appropriately based on whether or not the player wins or loses.  

On the flipside of all of that is the underbelly of the eSports industry, and perhaps one that some industry leaders would rather not have present, the skins game. The skins games are largely unregulated, cannot be regulated, and essentially consist of kids gambling very serious amounts of money.  

Some of these kids will quite possibly develop into gambling addicts before they are even legally old enough to go into a gas station and buy a lottery ticket. Perhaps worse still, many of these kids will have done it and will continue to do it on their parents’ dime with the folks none the wiser as to what is going on. In many cases, the parents just believe that the charges to the credit card accounts are for some sort of upgrades in an online video game and, as long as the parents take no issue with the amounts, are otherwise oblivious to what’s actually going on.  

It is difficult to say what the future of eSports will be with Valve shutting down the largest of the third-party operators in the skins game, but we should all hope that the legitimate cash game grows and the manufacturers of these games continue to crack down on gambling targeting minors.

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