Esports: where the law is headed

The esports gaming business is buzzing with reaction to the end of PASPA but the roadmap may be more convoluted than some expect. Mark Balestra sorts the high hopes from the hype

Traffic at the increasingly busy intersection of esports and gambling undoubtedly peaked in May with the repeal of PASPA. The reversal is great news for anyone who is positioned to prosper from wagering on esports but, now that the “Ding Dong the Witch Is Dead” dance has wound down, it’s worth taking a practical look at what this really means for esports betting.

By way of background, PASPA was the federal law that kept sports betting illegal in nearly every US state. Enacted in 1992, the bill made it illegal to engage in bookmaking activity throughout the country with the exception of four exempted states. Nevada was the only state among the exempted group to allow fully fledged sports-betting services.

Judicial efforts to do away with PASPA had persisted for the better part of a decade but the Supreme Court only finally struck down the law as unconstitutional on 14 May. The move instantly allows the rest of the country to tap what the American Gaming Association projects to be a $150bn underground sports-betting market.

Now every US state that wishes to regulate sports betting can to do so and a handful of states are acting. At the time of the Supreme Court decision, New Jersey, New York, Connecticut, Pennsylvania, West Virginia and Mississippi had already authorised sports betting through laws contingent upon PASPA being struck down. Legislators in at least a dozen additional states are considering similar measures.

A few hurdles remain – West Virginia, for example, is hung up on a spat over who is to pay the so-called “integrity fee” due to sports leagues – but it is anticipated that regulated sports betting could be available outside of Nevada in a matter of weeks.

This is huge news for esports betting, which Eilers & Krejcik Gaming predicts will be a $13bn industry by 2020. When assessing the long-term impact for esports betting, the math is simple: the more states that regulate it, the more revenue it generates. But what does it mean in the short term? Specifically, to what extent will the repeal accelerate industry growth?

Unfortunately for those banking on legalised esports betting, the forthcoming proliferation will probably take longer than many expect. It’s easy to assume that esports betting will ride along in the race among states to regulate sportsbooks but consider that it has already been regulated for a couple of years in Nevada. Downtown Grand became the first Las Vegas casino to take the plunge in 2016 and remains the only property in the state to offer esports betting.

The Nevada Gaming Control Board and the esports Integrity Coalition in 2017 signed a memorandum of understanding to share information and promote integrity in esports betting, yet the casino industry is still hesitant to adopt. It’s hard enough combatting collusion and match-fixing among consumers betting remotely via electronic devices; with esports, regulators and operators also have to deal with the sports themselves taking place in the digital space.

This whole other layer of necessary oversight has, to date, has Nevada operators away. The players can be compromised and, despite the MOU, operators are not yet satisfied with policing mechanisms. Further, despite the MOU’s acknowledgment of esports, the parameters of that classification are not very clear.

The mindset is likely to extrapolate with additional states rolling out esports betting. Nevada has always been a model for the gambling industry in other US states and, for the most part, the rest of the country will do as Nevada does. Sports betting will be approached in new jurisdictions with caution and reliance on Nevada’s lead. And should a highly publicised esports betting scandal emerge, cautious gradual acceptance could, at least temporarily, give way to adamant rejection.

Notwithstanding these challenges, New Jersey might be the best bet for next in line. Tropicana Atlantic City has already hosted a number of esports tournaments. The operators of Revel Casino (now Ocean Resort Casino) in 2016 announced plans to open an esports lounge but those ambitions appeared to fall by the wayside through a transition of ownership (see our interview with Seth Schorr on p19 of iGB Affiliate 69 for more). These developments may very well foreshadow an endgame of actually offering betting on esports. But the leap from embracing esports as entertainment to actually taking action on esports contests is a long one.

It’s going to happen; regulated esports betting will be widely available in the US. But the process of getting to that point could be slow and arduous. Those wanting to derive great promise from the Supreme Court ruling should probably think of it as checking off a hugely important item on the to-do list, rather than look at it as an acceleration of the march towards regulation.

Mark Balestra is US special counsel, igaming law, for Vancouver-based Segev LLP. Balestra has guided clients in a variety of capacities in the gaming and gambling industry for nearly 20 years.