Illustration by Sam Woolley
Gambling on esports matches is, right now, unsafe and unfair for bettors, just as gambling on traditional sports is. As you'd expect, people are still doing it anyway; and as you'd expect, laws and regulations have struggled to keep up.
The facts, neutrally stated, are simple: In the United States, esports betting—as with sports betting generally—is only legal in the state of Nevada. Read it as a testament to human ingenuity or to the depths degenerates will go to to get action, but fans and bettors have found plenty of unsavory online spaces to place wagers anyway. This may be good and it may be bad; what you think probably depends on whether you're in the money.
Skin betting, the trend that wouldn't die
Skin bettors don't use U.S. dollars, but instead bet with "skins"—video game items that can alter the appearance of, say, a character's weapon. Skins from Valve Corporation's Counter-Strike: Global Offensive are the go-to casino chip of choice on most skin betting sites.
Skins are valued at different amounts. CS:GO's Karambit Doppler covert knife skin is one of the market's pricier items, running from $350-$400; on the cheaper side, the Supernova skin for a P250 pistol hovers around 42 cents. You can earn skins from playing the game, and you can also get them by buying them or trading for them with other users. Valve's Community Market allows users to track the market value of different in-game items and use those price points to make their trades and sales with one another. Whenever players sell skins to each other—which can only happen on Valve's Community Market—Valve gets a 15 percent cut.
Naruscope expects esports-related wagers to rise to $12.9 billion by 2020.
The popularity of the skin economy led to a rise in external skin betting sites, which use Valve's API to allow users to upload skins and place bets. Users can "cash out" by removing their skins from these sites, but in order to get actual cold hard cash, they have to circle back to Valve's proprietary marketplace and sell their skins. As a result of that added layer of abstraction, skin betting isn't quite like betting real money yet. (Or at least that's what everyone involved hopes the U.S. courts will say about it.)
Skin bettors use skins to bet on common gambling games, like blackjack and roulette, and also to participate in betting on the outcomes of esports tournaments. Analysts at Naruscope estimate that $5.5 billion was wagered on esports outcomes in 2016; a majority of those bets, according to their findings, unfolded on unregulated skin betting websites. Naruscope expects esports-related wagers to rise to $12.9 billion by 2020.
Skin betting has come to mainstream attention over the last year, and parents are sharing horror stories with major news outlets about their underage kiddos participating in this hazy world, which is understandable to a point. Most skin betting sites don't implement age restrictions, and the Valve marketplace doesn't have one in place either.
Last October, the Washington State Gambling Commission brought criminal charges against Valve to quell the rise of online skin gambling rings. Valve ended up cracking down on skin betting in Counter-Strike scenes by sending cease and desist letters to 23 different skin betting sites, saying they were violating Valve's Steam Subscriber Agreement. This year Valve took aim at skin betting sites that had popped up in Team Fortress 2 scenes, but skin betting is still going on, despite some sites closing in response to the C&Ds.
Skin betting has always been rife with stories about unsafe sites and scams, and Valve's crackdown only resulted in the practice going further underground. Some of the skin betting sites they went after were the more reputable ones, allowing sketchier sites to thrive in an unregulated environment. Numerous recent posts on Valve's forums include users cautioning one another against placing any bets on sites like easy-trade24.online, or csglobalcoin, or CSGO Dance, or CSGO Salty—the list goes on—with new posts every day from users alleging they've been scammed or tricked or that certain sites have been rigging bets.
Why participate in skin betting if the risk is seemingly so high? The answer is simple: most people already have some low-value skins on hand, just from having played games. So, betting for more skins feels like free money. At least, it does at first. One bettor who goes by "Bman" told told me, "they feel less real, so situations that I normally would shy away from, like specific underdog bets, I will now partake in ... If I started with bitcoin, I would have quit after my first significant loss."
Nitrogen Sports, an online sports betting site that deals in bitcoin, also includes esports in its purview.
Is bitcoin safer?
An alternative to skin betting—one which has been around for much longer, and seems to be growing in prominence—is bitcoin gambling. "Recently I have converted to bitcoin and use sites such as ggbook and Nitrogen Sports," a gambler who goes by @esportsbettor on Twitter told me. "With the uncertainty of Valve's upcoming actions in regards to skin betting, I felt it was time to move on [from skin betting]."
@esportsbettor said that many skin betting sites have fewer participants than previously, meaning there's less potential to rake in big winnings: "The current skin betting sites do not offer as much value as they previously did to bettors. The main reason for this is that the volume is low due to uncertainties regarding the sites." In contrast, skin bettor Bman said that, although the shuttering of CSGOLounge's betting portal was "the biggest hit" to the skin betting scene, he had found many skin bettors still participating on other sites. If any of those sites get too popular, though, it seems likely that Valve will come after them.
"Choice of currency or valuable credit doesn't affect online gambling's legality under U.S. law—it's illegal regardless of whether you use pennies, Disney Dollars, or Dogecoin."
Skin betting sites violate Valve's policy on the usage of their API, and also exist in a gray area amidst gambling laws. Bitcoin gambling doesn't have the former problem, but its legality is too unknown. Although U.S. courts haven't yet made a concerted effort to crack down on bitcoin gambling, it's a huge, looming concern. SatoshiDice, the leading bitcoin gambling website, started to block United States IP addresses in 2013 as a precautionary measure. While many other bitcoin sites do allow U.S. residents to place bets, it might only be a matter of time before the faucet gets turned off.
"Choice of currency or valuable credit doesn't affect online gambling's legality under U.S. law—it's illegal regardless of whether you use pennies, Disney Dollars, or Dogecoin," Fred Jennings, an attorney at computer crime and technology law firm Tor Ekeland P.C., explained. "The main statute that criminalizes online betting, the Wire Act (18 U.S.C. 1084), criminalizes the placing, or assistance with placing, the bet or wager itself using a wire communication."
But, Jennings continued, other laws more specific to internet gambling, like the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), may for now contain an "arguable loophole" for cryptocurrencies like bitcoin. The UIGEA "carries both criminal and civil penalties for online gambling, but prohibits wagering a more narrowly defined list of valuable instruments," Jennings said. "In essence, it prohibits accepting credit, proceeds of credit, electronic fund transfers, checks or drafts, or other transactions which involve a financial institution (see 31 U.S.C. § 5363)."
It's a matter of debate among lawyers as to whether bitcoin falls under the UIGEA's purview.
The UIGEA was signed into law in 2006, and went into effect a few years later. In 2011 it led to the "Black Friday" crackdown on online poker sites, in which hundreds of millions of dollars worth of player deposits were frozen, money they never got back. After Black Friday, online poker pros had to find new gigs or move to other countries to continue. Incidentally, the UIGEA's carve out for fantasy sports is what ultimately led to the daily fantasy boom.
But does the UIGEA apply to bitcoin wagers? According to Jennings, that's an "unsettled question," adding that "courts show little consensus on even basic definitions around bitcoin – including whether it is money." In a 2015 federal case over the JPMorgan hack, a New York judge found it was. In a Florida state money laundering case, a judge found that it was not. It's a matter of debate among lawyers as to whether bitcoin falls under the UIGEA's purview.
The possibility of a sudden U.S. government crackdown looms large over the world of bitcoin gambling. Since bitcoin is a decentralized payment processing system, it could be more difficult to figure out who to prosecute, when it comes down to it. But, clearly, SatoshiDice wasn't willing to take that risk when they decided to implement region-blocking for U.S.-based bettors.
"There are no audits. There are no requirements that moneys be segregated or held in trust. You're really beholden to the honesty of the operator."
If you're just a bettor, you probably don't need to worry about getting into hot water with the law. "If we're talking about US federal/criminal prosecution, those federal anti-gambling laws target businesses, not the bettors," sports attorney Daniel Wallach said. "The most severe risk that bettors would face in the unregulated environment is that they lose their money and have no recourse … So the risk is the integrity of your deposits. If they're not safeguarded, there's no federal deposit insurance corporation backing it up. There are no audits. There are no requirements that moneys be segregated or held in trust. You're really beholden to the honesty of the operator."
Bitcoin's digital ledger methodology, the blockchain, provides a public record of transactions—in theory helping protect bettors. But this hasn't necessarily prevented bitcoin sites from taking players' money in the past. BitcoinLiveBets.com seemed like a reputable site for many bettors until 2014 when the site suddenly shut down and absconded with all bettors' money—estimated to be in the tens of thousands of dollars.
In a similar, but less extreme, situation, Bitbook.bz also shut down in 2014. Though players did eventually receive their winnings, they endured 10 days of waiting, during which time the site went dark and stopped responding to inquiries.
Esports league regulations (or, the lack thereof)
There is a growing movement to legalize sports betting across the United States—it is currently only legal in Nevada (and, technically, to a much lesser extent, in Oregon, Delaware, and Montana)—which, if successful, would also legalize esports betting. That wouldn't necessarily help the skin bettor who likes playing online blackjack, but it would be a huge boost to the growing esports gambling industry. Regulation would give bettors increased confidence they wouldn't get ripped off, and the rest of the United States could participate without traveling to Vegas.
As billions are bet on esports and the movement to legalize sports betting accelerates, though, the esports industry is nowhere near where traditional sports leagues from MLB to the UFC are in terms of being able to assure bettors of the integrity of the competition they promote.
"The betting volume in comparison with the incentive to win the entire tournament is at a concerning ratio."
In 2015, there was a high-profile match-fixing scandal at a CS:GO tournament, in which pro players threw a match for the sake of winning big at a skin bet. Last week brought the news that a Dota 2 team analyst had placed bets in favor of his own team, as well as another team, at a Valve-sanctioned tournament. The team analyst, incredibly, didn't break any Valve rules, as they haven't issued any official statements about gambling on Dota 2 tournaments. Their official statement about CS:GO tournaments doesn't ban the practice, but "recommends" against it:
We recommend that you never bet on any CS:GO game or match. This recommendation applies both to current professional players and anyone who wishes to participate in a Valve-sponsored CS:GO event in the future.
Banning participants from betting on esports won't necessarily prevent all match-fixing, but having clear rules and a set of consequences would certainly help. Traditional American sports haven't had many match-fixing scandals—the Black Sox, Pete Rose, and the CCNY point-shaving scandal stand out precisely because they're so uncommon—in part because of clear, unambiguous prohibitions against athletes and people working for teams betting on competition.
"I don't think that the esports industry has their act together quite the same way, because there aren't any governing organizations," said Wallach. "It's a hodge-podge of different leagues and teams and game developers."
The other reason match-fixing is so rare in traditional sports is because athletes' salaries are high enough to make match-fixing not worth the risk, which is why the most straightforward way to reduce the risk of match-fixing in esports is to increase pros' salaries.
"Without the publisher's full cooperation, any oversight body is hugely limited in its scope, and one could argue act more as a publicity vehicle as they are not capable of carrying out effective integrity measures."
In a report last year on the state of esports and gambling, Chris Grove, the editor of LegalSportsReport.com, wrote, "As esports mature, salaries and compensation for the average player should increase, providing an economic check against match fixing." Currently, as Genius Sports's Moritz Maurer explained in the report, "The prize pool of many competitions is dwarfed by the average wagers on any event of the tournament. … The betting volume in comparison with the incentive to win the entire tournament is at a concerning ratio."
If esports pros can earn a whole lot more money from throwing a match than from winning, of course some will be tempted. On the off chance that they are caught, at worst they will see a lifetime ban, but there might be no consequences, depending upon the game they play. Genius Sports's Christopher Dougan told Compete that incidents like match-fixing tend to manifest in "competitions in eSports that were lacking a professional structure," and that were hesitant to implement "appropriate rules for their participants."
Finally, because game publishers own the game, esports leagues present unique regulatory challenges. "There have been attempts of establishing eSports oversight bodies, but they are limited at the competition level due to the fragmented structure in eSports and unlikely to be effective without the involvement of the publishers," said Dougan. "Without the publisher's full cooperation, any oversight body is hugely limited in its scope, and one could argue act more as a publicity vehicle as they are not capable of carrying out effective integrity measures."
In the absence of any regulatory structure, some third-party alternatives have cropped up. Since esports betting is already legal in Nevada, sports data companies like Genius Sports and Sports Radar—which monitor sports matches for suspicious behavior and potential match-fixing issues—have already begun to incorporate esports into their purview. If they work, this will amount to a market solution, but here as elsewhere that's a dodgy bet, at best.
What if sports betting is legalized?
Whether esports leagues are ready to implement further regulations or not, the movement to legalize sports betting nationwide—including esports betting —is already well underway. New Jersey has been one of the key states involved in the issue, with New Jersey congressman Frank Pallone Jr. at the forefront of efforts to change policies surrounding esports betting in particular:
Gambling is taking new forms—from daily fantasy sports, to betting on e-sports, and even online casino games using virtual 'skins' instead of cash—that attempt to bypass the law. Current federal gambling laws are hopelessly out of date, leaving the American public vulnerable to unscrupulous behavior. No matter the form of the games, we must ensure integrity, accountability, and basic consumer protections, including appropriate age limits, are in place.
In his statement, Pallone is primarily referring to the Professional and Amateur Sports Protection Act (PASPA), which the sports attorney Daniel Wallach also considers out of date. "There's a potential that PASPA can be declared unconstitutional," Wallach said. "If PASPA goes away, then it's sort of open season for sports betting and esports betting. The floodgates would open for both sports betting and esports betting, without the federal statutory impediment."
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It's happening anyway
The continued interest in skin betting—despite Valve's crackdown—and the ongoing rise of esports bitcoin betting sites have proven that esports fans really want to bet on matches. They want to participate in placing bets on their favorite teams and players just as sports fans have for generations, and they want to know that the games they are betting on are undoubtedly being played above the board.
But that isn't the reality that currently exists. Esports pros' wages are relatively low and prohibitions against them betting nonexistent, increasing the risk of match-fixing. Even given honest play, betting on esports matches online means navigating a world of questionably legal, inaccessible, and scam-ridden operators.
One way or another, change is coming. The biggest open question is whether that change will be driven by the esports and esports gambling industries themselves or whether the change will be driven by the might of the federal government—and, if so, whether it will work to fix the problem, or to make it worse.