Investing in esports betting: the insider’s opinion

Since the launch of esports betting platform LOOT.BET in 2016, the total volume of bets placed worldwide on esports is estimated to have almost doubled – growth as dramatic as that of esports itself – making it potentially very attractive to investors. But this, according to Paul Brel, Head of Communications at LOOT.BET’s operator Livestream, is not the only thing that investors should keep in mind when considering esports betting.

To better understand the dynamics of the esports betting industry, and how it differs from the rest of esports in terms of investment, Esports Insider spoke with Brel.

Esports Insider: What have been the main obstacles for esports bookmakers and have they been remedied over the years?

Paul Brel: Until the end of 2016, esports bookmakers were engaged in fierce competition with the skin betting sites that had really given rise to esports betting and held most of the market at the time. However, Valve’s war against those sites caused a huge wave of migration to licensed cash betting platforms, like LOOT.BET, giving the sector a massive boost. Also, from around the same time, pool betting sites users have been moving to cash betting sites – mimicking the trend we saw in ‘classic’ sports betting.

As with ‘classic’ sports, a serious and constant threat for esports betting, and the whole esports industry, is match-fixing – rigged games can inflict significant financial and enormous reputational damage to bookmakers. Furthermore, because match-fixing tends to be more prevalent in low tier regional leagues and tournaments, bookmakers are forced to reduce their limits for bets on those events to minimize the risks. However, we do believe the ESIC’s ongoing efforts, including bookmakers’ cooperation with its betting alert network, along with the increasing professionalism of participants across the industry as it matures, is helping to address these issues.

One issue that is becoming a problem is advertising costs, especially at high-profile events. Some prices have risen a whopping tenfold in just the last two years, and it seems that this process will continue for the foreseeable future.

Of course, one of the persistent barriers is the prohibition of betting in certain countries. But we are seeing more countries and states legalize sports betting, including esports, and we are hopeful this global trend will continue.

Another, perhaps not so obvious, obstacle comes in the form of stereotypes, delusions, and social issues. In many places low betting literacy can be a real problem, demanding an effective educational effort. This is also true regarding issues of gambling addiction, underage gambling, and fraud. However, by providing the right information, building trust, and making responsible gambling a priority, these issues can be overcome.

“Betting is, perhaps, the most promising area of esports for investors.”

ESI: With the growth of esports betting, is it a sensible area for investors to bet on? If so, why?

PB: Esports itself is a very promising industry, and I would even venture to say that betting is, perhaps, the most promising area for investors. Of course, I may be a little biased, but I will explain my reasoning.

Firstly, esports betting is growing faster than the rest of esports. An Eilers & Krejcik and Narus research piece from late 2016 projected that in both the years 2019 and 2020, the volume of placed bets will grow by over 38 percent. In terms of volume, it was projected by another party that it would go from $8 billion to $20 billion, i.e. 2.5 times, between 2019 and 2020. It is estimated that in 2020 bookmakers’ margin, which equals approximately 5 percent, will earn them $1 billion – that’s equivalent to the total amount of revenues of the rest of esports in 2019.

Meanwhile, for 2019 and 2020, esports in general was projected to grow by about 27 percent and 22 percent respectively, and the forecast for 2022 is ‘just’ 14 percent. The difference is obvious, so while esports growth slows somewhat, esports betting growth looks set to remain much healthier. Though, of course, the growth dynamics differ from bookmaker to bookmaker; for example, LOOT.BET’s monthly betting volumes have tripled over the last year, while some smaller platforms have either ceased operations or closed down to reorganize.

By the way, a recent report on investment in the ‘Tech in Sports’ sector, suggests that both esports and esports betting are widely considered to be among the most attractive areas in all of sports. So, we have a combo here.

“The biggest issue facing esports is that it is relatively hard to earn on it at this stage.”

ESI: How is investing in esports betting comparable, and different, from investing in companies that occupy different areas of the industry?

PB: Betting is less, sometimes much less, dependent on publishers’ actions, the current demand for a specific game, or someone’s success in it. For instance, teams and organizations depend heavily on the predictable performance of their athletes, transfers, and the popularity of their key discipline; so much so that even a patch can impact players’ achievements. While developers have no guarantees that their new title will become an esport or remain popular; this even applies to powerhouses like Valve and Blizzard – remember Artifact and Heroes of the Storm? Meanwhile, for the most part, only market dynamics and evolving promotional strategies will significantly affect a bookmaker’s incomes.

Overall, the biggest issue facing esports in the context of investment is that it is relatively hard to earn on it at this stage, with most existing teams and operators still unprofitable. However, it must be stressed that most investors in the industry are not expecting a profit at this stage and are looking at a much longer-term picture.

ESI: We are seeing more and more sports bookies invest in the esports market. Is this a sign of esports being a justifiable market in its own right already or is this an investment for the future?

PB: Considering the current esports betting market volume, I think it’s safe to call it a fully-fledged sector already. And, considering its current and projected growth, along with the growth of esports in general, it seems like a great investment for the future.

Currently for traditional bookmakers esports betting is roughly 5-10 percent of total betting volumes, but there is talk in the industry that esports betting volumes will match those of traditional sports within the next 10-20 years. This is why the shrewdest operators have started either investing in promoting their esports offerings, building specialized esports services, or investing in independent esports betting operators with proven track records. But, while they have more resources than most of the dedicated platforms, I think specialized esports bookmakers have the edge in such a dynamic market – especially when it comes to understanding their audience.

“We expect the age range of our market to grow beyond the stereotypical 18-25 age group.”

ESI: How does the somewhat global nature of betting make betting one of the most promising areas for growth in the industry?

PB: In the long run, bookmakers always profit thanks to their margin, so you can predict their cash flow quite accurately – in stark contrast to the rest of the esports industry, for reasons we’ve already looked at. So, in terms of investment, while esports is labeled ‘high risk, high reward’, betting can be seen as ‘lower risk, high reward’. To summarize, I would say that while unpredictability is the main reason for investors’ skepticism about esports as a whole, betting is arguably the most predictable sector.

And, it should be remembered, that while many esports organizations are more or less bound to their regions, esports bookies can, subject to certain restrictions, successfully operate globally.

ESI: Considering esports has a remarkably young core demographic, how can esports bookmakers succeed while waiting for the current demographic to become of betting age?

PB: Children grow up so fast. Over just the last few years you would be surprised at how many esports fans became adults and started to bet legally. Supporting this, our research shows that 18-22 years old users are the most active. Additionally, other studies have shown that age ranges for esports fans are expanding in both directions, so as time goes by, we expect the age range of our market to grow beyond the stereotypical 18-25 age group, to more mature audiences too.

Of course, while waiting for today’s teenagers to become tomorrow’s adults, it’s important to connect with them and ‘learn to speak their language’. Those companies that succeed in doing this now, will win out in the long run. 

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