Esports Is Bigtime But The Regulation of Traditional Sports Gambling Will Decide its Fate
David J. Lisko
A few years ago videogame tournaments accommodated a few hundred players, competing for modest prizes, and a few spectators watched. Just a few years later, these tournaments are selling out the same arenas that NBA teams play in. Esports competitors have become celebrities, garnering millions of social media followers and some earning six-figure salaries. In 2017 over $112,000,000 was awarded across official esports tournaments. Twitch.tv, the world’s largest video live-streaming platform, averaged 962,000 concurrent viewers in January, beating CNN by nearly 200,000 viewers. Notable esports investors include Robert Kraft (New England Patriots), Dan Gilbert (Cleveland Cavaliers), and Neil Leibman (Texas Rangers). The NBA has started the NBA 2K League, an esports league with a draft from the world’s best NBA 2k players who will be paid salaries. Varsity collegiate esports with scholarship student athletes is even being discussed.
Gambling on esports rivals gambling on traditional sports. Forbes reports that by 2020 bets on esports competitions will reach nearly $30 billion with over 15 million unique individuals waging bets. People are placing the same types of bets on Counter Strike and League of Legends games as they are on NFL and NHL games, complete with futures and spreads. Esports has also given rise to “skin betting.” Skin betting consists of illegally trading or selling in-game items that are worth real money, such as weapon skins, knives, and clothing. Skin betting has created an underground market of websites that facilitate these transactions. As reported by The Esports Observer, an estimated $5 billion was wagered illegally on Counter Strike: Global Offensive through in skin bets alone in the United States in 2016. Significant issues arose for several top YouTube and Twitch influencers who were involved with these websites by promoting them on streams with rigged odds, giving viewers—some of which are minors—a false sense of success if they participated. One such streamer known as Jason “Phantomlord” Varga recently filed suit in the Superior Court of California after Twitch suspended his account for promoting a Counter Strike: Global Offensive skin betting site that he was allegedly part owner of. Vargas v. Twitch Interactive, Superior Court of California, San Francisco County Case No. CGC-18-564337.
Currently, gambling on esports is regulated like traditional sports. Thus, the best place to look for guidance on how esports will be regulated in the future is the current case before the United States Supreme Court regarding the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), NCAA v. Christie, No. 12-4947, 2012 U.S. Dist. LEXIS 183395, at *5-6 (D. N.J. Dec. 21, 2012). On October 17, 2014, then New Jersey Governor Chris Christie signed Senate Bill S2460 (“S2460”), challenging the constitutionality of PASPA. PASPA was intended to prohibit sports gambling conducted by, or authorized under the law of, any state or governmental entity and to stop the spread of state-sponsored sports gambling. PASPA included a grandfather clause which exempted states with preexisting sports gambling laws and granted New Jersey a one-year window to legalize wagering on sports, which New Jersey did not exercise.
PASPA banned sports gambling in 46 states and limited sports lotteries in three others; Nevada being fully exempted. New Jersey argues that PASPA commandeers the states into enforcing federal law. S2460 partially repealed New Jersey’s longstanding prohibitions on sports betting, resulting in the above cited lawsuit from the NCAA. The NCAA, along with the four traditional professional sports leagues, assert that S2460 violates PASPA, and that PASPA is in fact constitutional. The NCAA argues that PASPA is constitutional because it doesn’t require states to do anything; it simply bars them from allowing sports gambling. After years of back and forth, the case is currently before the Supreme Court, with a decision expected this Spring. Supreme Court pundits reported that during oral argument on December 4, 2017 the majority of the justices appeared to be inclined to agree with New Jersey. Famous Bush v. Gore appellate attorney Ted Olson argued on behalf of New Jersey.
The biggest practical impact of the holding will be whether sports gambling will be generally outlawed by PASPA or regulated differently state-by-state. For traditional sports, whose geographical realities have already been determined and are not likely to change much, this ruling will impact gambling in the locations where they currently have a physical presence. For esports, however, whose physical and geographic imprint can be anywhere, or nowhere, and is being planned now, whether or not PASPA is constitutional will shape the industry’s future. Unlike traditional sports, esports can be played in a cloud that knows no physical location. And esports is now on the cusp of geolocating. In 2017, the Overwatch World League allowed interested buyers to purchase its franchise clubs, which are limited in number, for $20 million each . The hefty price tag stemmed from the Overwatch World League being the first geolocated esports league, resembling traditional sports leagues with plans for dedicated arenas and marketing in each club’s city.
Should esports geolocate? If yes, where to? Whether or not PASPA is held to be constitutional will have a major impact on that decision. Gambling is a huge money maker for esports. Gambling drives fan interest just like it does for traditional sports. Geolocating to places where gambling on esports is legal and friendly is a major factor in the continued growth of esports. Unlike traditional sports, after the Supreme Court makes its decision in NCAA v. Christie, the people shaping the destiny of esports can decide whether esports will be geolocated only in certain jurisdictions or nowhere at all. Esports is going to have a major impact on traditional sports and the Supreme Court’s holding in NCAA v. Christie is going to have a major impact on esports. Regardless of the holding, the world of sports is on the brink of major changes and esports and gambling are going to be drivers of those changes.
David J. Lisko is an Attorney at Holland & Knight, LLP based out of its Tampa office. He is a litigation and sports attorney and a Certified NFLPA Contract Advisor. http://www.hklaw.com/David-Lisko/.
Viktor Lyusi is a law student at the Florida State University College of Law and hopes to work in the sports law industry. https://www.linkedin.com/in/viktor-lyusi-781802b3/.