The U.S. Supreme Court on Monday struck down the Professional and Amateur Sports Protection Act (PAPSA), which prohibited states from authorizing many forms of sports gambling. This is a landmark decision for the sports-betting industry, which now unlocks one of the largest gambling markets in the world. For nearly 26 years, Nevada has been the only state in the U.S. allowed to offer a wide array of popular sports-betting options. In 2017, $4.8 billion was wagered at Nevada sportsbooks, though an estimated $150 billion was illegally wagered on sports by Americans that same year.
In the wake of the Court's decision, the far-reaching ramifications on the sports industry are being analyzed and overanalyzed, with official statements already being released by MLB, the NFL, the NCAA and many other key stakeholders.
Meanwhile, in our video gaming corner of the world: virtual radio silence. No comments from the League Championship Series, Overwatch League or any other major esports league.
Make no mistake, the court's decision will have a profound impact on the development and growth of the esports industry. Let's get into the how, when and why.
The pivotal line from the court's decision reads: "Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own."
As a result, states are now free to regulate sports betting as they see fit. New York, Pennsylvania and West Virginia are among the states expected to legalize sports betting imminently, with many more to follow. One research firm estimates 32 states will likely offer sports betting within five years. The contour of these laws remains to be seen, but it's important to note there won't be a national policy on this issue for the foreseeable future; instead, operators will be forced to comply with piecemeal, state-based legislation.
The current state of esports betting
It has been nearly two years since Narus Advisor published the last comprehensive analysis of the size and scope of the esports-betting marketplace, but its most recent report concluded that $5.5 billion worth of cash and in-game items would be wagered globally on major esports titles in 2016. That same report estimated this number would grow to $12.9 billion by 2020. Notably, the majority of this betting occurred through the use of in-game items such as betting currency. But both the growth curve and the predominance of skin betting was in a world with PASPA on the books.
Speak to any major betting operator -- online or brick and mortar -- and they're thinking deeply about how to capitalize on the explosive growth of the esports industry and the correlating increase in wagering on esports events. A few major sportsbooks already offer lines on esports matches. By the time the dust settles from this decision, virtually all of them will.
Viewed in this light, the lack of more recent data is troubling. Like the industry itself, esports betting is poised to explode, and we've barely wrapped our heads around the scope of the betting that's already occurring.
Whether you like it or not, esports gambling is only going to get bigger. This simple fact must frame the entire debate surrounding the role of wagering in the esports industry.
The esports industry is at an important crossroads: We need to decide whether we're going to embrace the rise in esports betting or try to shun gambling altogether.
Gambling has its problems, to be sure -- chief among them are threats to competitive integrity, addiction and underage betting. These issues, coupled with the stigma surrounding gambling in the U.S., are the primary reason why many traditional sports leagues have historically chosen to prohibit any affiliation with betting. And while some esports teams/competitions have taken on betting sponsorships and worked with groups such as the Esports Integrity Coalition, the largest operators in the industry -- Blizzard-Activision and Riot -- have thus far shied away.
This approach seems defensible; gambling can be harmful, and major brands don't typically want to be affiliated with such harms. However, all of these negative externalities are magnified when league operators refuse to participate in the ecosystem.
This is why NBA commissioner Adam Silver has flipped the league's position on gambling; it's not that he's pro gambling, he's just a realist, and he wants to use the NBA's leverage to promote a system that includes mandatory monitoring and reporting of unusual betting-line movements, a licensing protocol, age verification, geo-blocking technology, mechanisms to identify and exclude people with gambling problems and education about responsible gaming. The NBA has also proposed the imposition of an "integrity fee," which would require operators to pay a percentage of the gambling handle on league games to allow the league invest more in compliance and enforcement actions.
The best part about the rise of esports is we get to learn from of our stick-and-ball predecessors. In some cases, following traditional sports is the right way to go and there is no need for us to reinvent the wheel. But when it comes to gambling, traditional sports in the U.S. have gotten this issue wrong for decades, and the smarter leagues are finally shifting course. I want to live in the world Adam Silver envisions, and we don't have to massively course correct to get there -- we can build it from the ground up.
Monday's decision is a watershed moment for sports, and it can be for esports, as well. Let's seize the moment, capitalize on the growth of esports betting as a means to enhancing growth for the industry itself, and implement an industry-wide effort to combat the potential problems that will result from increased wagering on esports in the U.S.
Remember, gambling on esports is happening whether we like it or not. The real question is if we're going to ignore the problem or become a part of the solution.