Abstract
Editor's Note: Pinnacle Sports has long been the leader in establishing a sports betting business in the esports field. To glean their lessons learned, we interviewed Veronique dos Reis, legal, compliance, and regulatory affairs manager for that operator.
I graduated in France with a specialization in new technology laws in 2006/2007. My first experience in the gambling industry was in 2007, when I joined the legal team of Unibet in London. I don't know why, but when I saw the job advertised I was certain it was the right job for me. I gained great experience, often the hard way, but I can only thank my mentor back then for the opportunity.
Hungry for more, I passed the bar and moved on from Unibet. I was trained in the private practice area in major law firms, such as Di Blasi in Brazil, Allen & Overy and Baker McKenzie in Paris. I learned a lot in private practice but coming from a fast moving and challenging industry such as gambling to what was perhaps a less “creative” environment wasn't for me. This is when I decided to go back to my first love, the gambling industry, by taking the position of the head of legal and compliance at Kambi Sports. I was then approached by Pinnacle for a very challenging mission and, looking back at my two years in this company, I can conclude that it has been my best career move to date.
When it comes to Pinnacle, the company was established in 1998 and is known for being the world's sharpest bookmaker. Bettors want the best odds, the highest limits, and they want to be welcomed back to bet again if they win. That's exactly what we do. Renowned for our “high volume/low margin” business model, our reputation is built on the fact that if you bet with Pinnacle, you get better value than anywhere else.
I grew up in a house with brothers passionate about Magic: The Gathering and esports, and I am sure my case is not isolated. So, it was a surprise that no one had tapped into the market sooner. Obviously, it's easy to look back now and see indicators that exponential growth was feasible, even likely; but, when you compare the progression of esports betting in terms of popularity to any other sport, nothing else comes close. Due to an interest in esports within the company (specifically our trading team—we find pro gamers share similar traits with expert traders), we naturally had our finger on the pulse. As with betting on any other new market, there was a lot of research involved but some expert knowledge of the industry internally gave us the upper hand.
Before we started offering any odds on esports, we knew that there were five main components that esports bettors would look for: last minute betting, quick grading, live betting, a variety of leagues, and interesting prop markets, all of which have obviously been central to what we offer.
We've faced several challenges since taking our first esports bet back in 2010, and have had to evolve with the industry. One example of this is the shift from a predominantly amateur sport to one that is now full of professionals. Because the industry has grown so rapidly and it's yet lacking an official governing body, we sometimes face difficulties in acquiring reliable data regarding results. This said, we have since made considerable investments in acquiring the feeds that help us post and grade markets more efficiently.
Pinnacle and its employees have a rich heritage in esports and competitive gaming. Marco Blume, our Director of Trading, has been involved in esports as a fan and player before the term even existed. He plays League of Legends to Diamond level and, before he joined Pinnacle, he was a professional Magic: The Gathering player.
Marco felt that the way fans were so invested in watching esports was no different to other traditional sports. He thought that there was also a natural demand to have what, in the betting industry, we call an “interest” in the outcome. With considerable skill in trading sports, a wealth of knowledge about esports and an eye for its potential success, the decision to start offering esports betting was an easy one to make.
Looking back from where we are now to where we started, I think investing in resources in terms of our trading team would have benefitted Pinnacle. Although we had expert handicappers and a solid team of traders from the outset, more staff would have allowed for smoother operations. However, we were quick to notice this and the esports trading team at Pinnacle now rivals soccer in terms of size.
Our head esports trader also told me that “… we could have transitioned a bit better from StarCraft 2 being the main esports game to DotA2 [Defense of the Ancients 2]/CS:GO [Counter‐Strike: Global Offensive] being the main games.” But, one of the drawbacks of being the leader in the industry is that, for all the planning and projections you make, sometimes you have to react after the fact. It's easy to forget that esports is still in its infancy and behavior of fans and bettors is still hard to predict. One downside of being a frontrunner in the market is having to learn these lessons ourselves.
When I joined the company, esports was already an established segment of the offering and, to be honest, I could not see any reason to look at the potential legal implications in the sense of having separate regulations for esports. This said, the technology and the offering always comes first. Then, we look at how it should be regulated, if it needs to be approached differently. Consequently, when the regulators started to question the legal status of esports, I started being intrigued myself as to what would they be after and try to understand what would be so different about esports than a sports competition—other than the technical aspect of it (in the sense of video games)—that would require such attention. Being in the gambling industry for 10 years, I having undergone quite a few license applications and audits, I decided to put myself in the shoes of the regulator, asking myself “what would they be looking for?” and the main outcome from my analysis was “customer protection.”
From a responsible gaming perspective, the requirements for protective tools have already been laid out by the regulators and are implemented by the operators, so this concern would therefore be solved. Then comes the transparency of the outcome of the game as a second important point. A regulator will expect operators to provide results from a trusted source. The industry has moved from an amateur to a professional structure, which has enabled better access to the game data. Finally, the last point would be the integrity of the sport itself. Integrity issues are detrimental for the esports industry and the athletes, likewise for the gambling industry and its customers. It is, therefore, important for operators to have procedures and processes which enable the detection of integrity issues in an efficient fashion.
Skin betting effectively paved the way for esports betting and is one of the main contributors to the success we've seen in market growth. It is widely regarded as the forerunner of esports betting. Skin betting highlights how the notion of risk and reward was popular within the gaming community long before betting on the sport existed. Although “bettors” were risking in‐game items on the outcome of a match, a monetary value could easily be assigned to these items. This meant esports betting was a natural progression for a lot of the community who had already been involved in skin betting.
The issue with skin betting was the lack of governance and integrity. It's the responsibility of legitimate operators like Pinnacle to offer esports betting that protects the interests of the consumer as the highest priority.
It is worth pointing out that, despite what many believe, the success of esports betting doesn't necessarily spell the end for skin betting.
The combination of money and young athletes has the potential for the same downside that many competitive sports have experienced to some extent. However, the degree to which the esports community is invested in the games, its embedded knowledge and digital connectedness cannot be matched by other sports—forums and communities like Reddit act as policemen.
This offers real hope that esports' experience of dealing with the challenges of match fixing may be different, as attempts to cheat are more likely to be exposed; but, it is no less likely to do damage if not addressed by authorities.
Esports is growing at a phenomenal rate, yet it faces challenges in terms of cohesive governance. Many authorities lack the experience of reputational management and the requirements for effective organisation and control. The relative chaos behind the scenes at major events, for example, reflects the grassroots nature that they still possess and, while endearing to fans, this is also an opportunity for exploitation. The same would never be true of comparable international sporting events; but we expect esports to reach that maturity level since there is no need to reinvent the wheel, but just put existing procedures or processes from other sports industry in place.
The level of scrutiny placed on any betting market is always paramount for Pinnacle. If we don't have full confidence in the fact that bets are placed in good faith, we won't offer the market. We use various systems to detect suspicious wagering activity and work closely with various governing bodies—such as the ESIC (Esports Integrity Commission)—to ensure that we negate any issues surrounding integrity.
Pinnacle's first esports betting landmark was set in May 2010 when we took our first ever esports bet on the game StarCraft 2—struck by a Canadian customer called Simon. Since then, Pinnacle has expanded its offering (DotA 2, CS:GO, League of Legends, Overwatch, Heroes of Storm, and Hearthstone being the most popular), introduced live esports betting, launched a dedicated Esports Hub, and surpassed the total of five million esports bets.
After hitting two million bets in November 2015, we reached three million bets in June 2016 and by February 2017 we had taken our five millionth bet—two million bets in less than six months demonstrates a growth curve no other betting market has ever matched.
It has taken just seven years for esports to become the fifth most popular sport to bet on at Pinnacle. Given that it has already surpassed ice hockey in terms of bet count, the sky really is the limit. Our projections see 10 million bets by Q1 2018, which is truly astounding.
As of 2016, the esports industry produced an estimated $493 million in revenue. 1 These kinds of figures suggest that esports is here to stay and will likely continue to propel itself into mainstream sports. At Pinnacle, the continued growth of esports has got us all excited about the future of betting on the sport and the potential for even more growth. The fact that the global esports viewing audience is expected to reach 385 million by the end of 2017 2 adds substance to the claim that competitive esports will one day sit alongside the very biggest sports in terms of popularity.
The more successful a market is, the more competitors there will be. Obviously, that is a very basic rule of business but it is certainly one that applies to esports betting. Esports is no longer the niche market it was back in 2010 and although more and more bookmakers will start offering odds, it's hard to see someone rivalling the quality of product that Pinnacle offers.
From Pinnacle's perspective, we will continue to grow our resources and esports betting capability and offering. While we will stay true to those five key components the company outlined at the beginning of this esports betting journey (last minute betting, quick grading, live betting, a variety of leagues, and interesting prop markets), we still have some very exciting plans for the future.