Cracking the esports conundrum

11 July 2019

Esports has a massive fanbase, and there is a growing realisation that the company that cracks the code of developing an offering that brings betting to this highly engaged audience will profit handsomely. Having built a platform from the ground up, led by a team of experienced igaming and esports professionals, Luckbox is well-placed to succeed.

Esports betting is talked up as the next big thing in igaming, but so far no operator has quite managed to create an offering that bridges the gaming and betting worlds.

Luckbox aims to be different. The operator’s executive team is populated by a number of gambling industry veterans, including co-founders Lars Lien (pictured) and Mike Stevens, both veterans of PokerStars. The founding team are all avid gamers, but with Sujoy Roy, the UK’s first professional gamer, it has some serious esports clout on board as well.

With know-how spanning two sectors, development of its esports betting product has been a long-term project. Work has been ongoing for more than a year, with the beta launch completed in late June.

“It’s taken about a year to scale the team and build the business,” Lien says.

Built from the ground up
“We have recreated the traditional gaming company from the ground up, with all that that entails, with sportsbook, risk management, more than 30 payment processors, streams, business intelligent systems, we have a wider esports [betting] offering than anyone else. But that does take some time to build.”

It’s this attention to detail that Lien believes will set Luckbox apart from rivals. Dedicated esports betting sites lack experience of real-money gambling, he says, while sports betting operators moving into the vertical lack authenticity among the target audience.

“The gambling operators don’t understand esports, the esports operators don’t understand gambling,” he says. Luckbox, however, will look to bridge the gap.

This means that not only can customers bet on the site, but they can also stream events live, chat with other viewers, and view statistics and roster information.

The key challenge it faces is presenting the core betting mechanics in a way that feels intuitive to an audience to whom betting is unfamiliar. Lien points out that the core esports audience - male, aged 18 to 40 years old - largely matches up with the key betting demographic. However, he notes that the sort of innate understanding of betting that previous generations had is dying out.

“This is not a children’s scene anymore; many of these games have a core audience of north of 30,” he says. “There’s a big perception issue, as lots of gamers are adults, so I think that’s a misconception that it’s a kids’ thing.

“But then you have an interesting dynamic; gamers have lost the traditional mechanic of the father taking the son to the football match and stopping at the bookies on the way,” he explains. “So the sports betting mechanics are totally new to them.”

Resource gap
Furthermore, traditional bookmakers tend to present esports odds in the same way as on any other sport. For a novice bettor, this is hardly appealing. The sportsbooks have the funds to develop the sort of offering that Luckbox has created – but no bookie seems willing to go all-in on esports.

“They have 100 developers – do they [allocate development resources to] football, where they make their money, or risk spending on building for the future on esports?

“The established categories will always win out. Then they will make the rational decision to wait and see which of the esports start-ups makes it big, then move in.”

“There is a desire to crack esports but there is a resource gap,” Lien continues. “Betway, for example, is doing some great stuff, but the problem is it can’t compete with development resources, because it has these massively bigger categories so it is spending money on esports, but that doesn’t mean it can spend resources on esports.”

However, it’s not just the traditional bookmakers that suffer from this resource gap. For esports in-play betting accounts for around 60% of turnover, compared to upwards of 80% for other sports. While Lien argues that in-play “absolutely should be” core to any esports betting product, it suffers from infrastructure issues.

This is because tournament organisers’ links to data aggregators is “rather poor”, he says.

“Certainly the type of minute-long markets [popular] in the traditional [betting] industry are very under-developed [in esports],” he explains. “In a game like Dota 2 there are multiple metrics you can use to anticipate who’s going to win, gold being one, experience being another, type of hero chosen for that particular match.

“Then you have kills and non-playable characters slain, so you have so many more opportunities compared to a sport such as football, where everything is based on binary outcomes.”

The potential is there, but until the publishers and tournament organisers get on board, in-play could well lag behind.

Skin in the game

The same could be said of skin betting. While Luckbox’s Isle of Man licence allows it to roll out skin betting, Lien says that it will not accept skins as collateral for bets for the time being.

“In our view, we need to act with integrity in every matter,” Lien says, noting that Valve Corporation, the publisher of one of the most popular esports titles, Counter-Strike: Global Offensive (CS:GO), has publicly spoken out against skin betting.

Skin betting has proved a particularly controversial topic in recent years. Valve has been the subject of lawsuits for allegedly facilitating it via its platform, prompting it to come out against the issue. Despite this, many argue that it will be unregulated skin betting sites becoming licensed and legitimised that will bring esports betting into the mainstream.

Lien says Luckbox is “very excited” about the skin betting market, but adds: “We would rather take our time and do it right, rather than rush in for some quick bucks.

“So for the time being we are going to give out some rewards as skins, but we’re not taking the plunge – it is important to partner publishers to do this properly.”

Unfortunately, to date publishers have appeared reticent to support esports betting in any way. Despite this, Lien argues that a growing consensus that loot boxes, a widely used monetisation method in popular console games, are gambling could soon prompt a rethink.

Kinder Eggs
Loot boxes, where customers pay for a virtual box containing a randomly-assigned item, have come in for scrutiny in recent years, with regulators in a growing number of jurisdictions arguing that they are a form of gambling. Electronic Arts, which uses the mechanic in a number of titles including the wildly popular FIFA football sim, faced criticism recently after an executive described them as no different to Kinder Eggs at a UK parliamentary committee hearing.

In Lien’s eyes, it’s only a matter of time before loot boxes are regulated as a form of gambling.

“That has already happened in Belgium, and it looks plausible that it might happen in the UK, in Norway, and quite frankly that’s a move that I welcome,” he says. “I believe that a loot box is absolutely a form of gambling. The feeling that customers get when they bet, whether the reward is real or virtual, is the same.

“So there should be similar controls, such as [spending and loss] limits,” he continues. “I don’t necessarily believe loot boxes should be banned outright, but they should certainly be limited to a small amount.”

The publishers aren’t doing anything wrong, he is quick to add, but they should take responsibility for educating players about participating in games with gambling-like features. This is where esports betting operators can come in. Not only can they help educate the wider gaming sector about the intricacies of running a regulated offering, but they can help mitigate the loss, or at least restrictions on, a massively successful monetisation method.

“I’m hoping that we can really get into that space,” Lien says. “Initially not by leveraging government action [on loot boxes], but in a sense of adding value in a real money context.

“We saw what happens with the skins market – basically overnight it exploded into a $6bn dollar market, so there is clear demand for a good product, and game publishers see and understand that.”

Yet he’s realistic enough to know that this will not be an overnight shift: “It’s a very tricky move for them, there are PR risks, partnership risks, regulatory risks – there’s a perception issue here.”

Luckbox has emerged at a time when the esports betting sector is still gestating. With issues around infrastructure and acceptance to contend with, it has work to do to establish itself in the market. But with a team led by veterans of both the esports and igaming sectors, not to mention “the widest and deepest odds markets anywhere”, according to Lien, it could be capable of finally leading the vertical into the mainstream.