Abstract
In the title scene of the 2015 documentary All Work All Play: The Pursuit of Esports Glory (2015), there is a highlight montage featuring black and white clips of different sports, accompanied by a nostalgia-inducing piano number. Scattered among the gray videos of the athletes are video clips of cheering and enthusiastic fans, some in small bowling alleys and Ping-Pong rooms, and others in packed stadiums and arenas. Suddenly, the music comes to a crescendo, while the scene shifts to a new arena, this one in color. In a brief glimpse of the arena, spotlights bathe over the capacity crowd, which is heard cheering over the fading music. The transition has been made to an esports arena, and the message is clear: esports has arrived, and is not just a sport like any other. It is the sport of the future.
Esports has long been pontificated, both in the media and in this journal's pages, as the next frontier of gaming. 1 Newzoo, a leading esports market research firm, has estimated that esports revenues will more than double between 2016 and 2020, catapulting from a $698 million industry to $1.5 billion in just four years. 2 As esports continues to progress as a mainstream and international sporting phenomenon, its growth will continue to take on many forms. Esports competitions have seen their tournaments sell out stadiums around the world, from Madison Square Garden 3 to Toronto's Air Canada Centre 4 to Seoul's World Cup Stadium. 5 Universities have begun to offer esports scholarships, 6 and in 2016, the International eSports Federation (IeSF) and the International Olympic Committee (IOC) took preliminary steps in the process of accrediting esports as an Olympic sport. 7 It was recently announced that the Asia Games, an IOC-recognized event and the second largest multi-sport international sporting competition after the Olympics, will feature esports as an official medal sport in the 2022 games in China. 8 As one expert has put it, “it's an esports world, and we're just living in it.” 9
One by-product, or perhaps the cause, of the esports explosion is a flourishing esports betting industry. As is the case with many competitive activities, the competitiveness of esports can often times engender a culture where gambling becomes a big part of the sport, whether it is intentional (or desired) or not. Esports betting is already widely available. Nine out of the top 12 rated sportsbooks, according to sportsbookreview.com, offer traditional esports betting on their sites. 10 The traditional model of esports betting is cash betting, which mainly follows the same model as traditional sports betting, with the only difference being that the bettor is wagering on a DotA 2 (Defense of the Ancients 2) or CS:GO (Counter-Strike: Global Offensive) tournament instead of a boxing or soccer match. The traditional method of esports betting makes up over 90% of the $649 million spent on esports cash betting in 2016, so it is by far the most common and lucrative of all esports cash betting methods. 11 Another element of esports gaming, which was until recently the most profitable sector of esports betting, is skin betting. 12 Without going into too much detail since it is outside the scope of this article, skin betting is betting done with virtual accessories and in-game items which have no intrinsic value, but can be sold for real money on secondary markets. For example, individuals can bet on esports using these virtual items, such as a sword sheath, some of which can be worth hundreds of dollars. 13
There is another dimension of esports betting that is based on what is referred to as head-to-head gaming. Head-to-head gaming is when players, or groups of players on the same team, compete against other esports players. This form of betting is different from the traditional method of betting mentioned above and it is this style of betting that is the focus of this discussion. Head-to-head betting is when two players (or teams of players) bet on themselves in an esports match, not unlike a player betting on themselves to win a hand of poker. It seems natural that players would want to bet on themselves, especially since the majority of esports games are skill-based. Daily fantasy sports (DFS) and poker are two highly lucrative examples where people bet on themselves to win, albeit in different ways. However, head-to-head gaming enterprises have not fared well when tried, and the market shows that it is not very lucrative. Of the $649 million wagered on cash esports betting in 2016, only five percent was spent on head-to-head wagering. 14 According to Internet data analytics service Alexa, the highest ranked head-to-head esports platform over the last three months is Challengeme.gg. Alexa uses its Global Rank metric to measures a site's popularity using a combination of average daily visitors and page-views over a three-month period, and it ranked Challengeme.gg as the 44,919th most popular website in the world. 15 In another common head-to-head format, websites like Worldwinner, GSN, and Skillz host the competitions on their websites and mobile applications. These companies offer titles that are far more based on chance, such as card games, Scrabble, and Bejeweled. This article will only deal with the former category, since they cater to more of the “pure skill” games that are relevant to the scope of this article.
This article proposes a theory to explain the demonstrated lack of interest in esports head-to-head gaming, a phenomenon the authors call the Chess Conundrum. The Chess Conundrum exists when two players partake in a game of pure skill, which would include many of the most popular esports titles. In such games, the more skilled player will almost always win, and the loser, having lost money, will not return to play again. 16 It is because of the Chess Conundrum that websites that offer such games will never be able to be maximally profitable, at least not until current gaming algorithms are perfected to make head-to-head betting more attractive. Until such time, the business of head-to-head gaming for esports will never scale, and will always remain stagnant.
Esports Summary
Esports is a term used to define competitive video gaming, but it is a very broad term. Many types of games fall under the umbrella of esports. Esports can be played on PCs, gaming consoles such as Microsoft Xbox or Sony PlayStation, and even on mobile phones. There are teams and leagues of professional esports athletes, and there is a plethora of esports enthusiasts who play and spectate as amateurs. Titles vary as well, from shooter games to fantasy titles to Hearthstone and sports genres such as hockey, football, and soccer. There are games that can be played one-on-one, and some are comprised of teams playing against each other. The most popular esports games are action games, whether they are real time strategy, first-person shooter (FPS), or multiplayer online battle arena (MOBA). 17 These genres and sub-genres are analogous to different card games. Most card games use the same 52 cards, but the games themselves vary tremendously. Similarly, esports titles can be “shooting games,” but they can be as different as Crazy Eights and Texas Hold ’Em. At the risk of oversimplifying or stating the obvious, the purpose of all esports, regardless of the genre or format, will be to defeat your opponent. What that entails will depend on the structure of the game. For example, in MOBA games, such as DotA 2 and League of Legends, the purpose of the game will be to destroy the other team's base, or main structure. Games can be streamed and watched all over the world across traditional mediums such as YouTube, as well as through the esports website Twitch, which was bought by Amazon for $970 million in 2014. 18 Traditional media giants Time Warner and ESPN have invested in producing streaming content, and Facebook has decided to challenge Twitch in the live-streaming sector using their own platform to get involved in the esports industry. 19
Legal Issues Surrounding Esports
Before diving into the Chess Conundrum, it may be useful to provide a brief overview of the broader legal issues that impact head-to-head gaming. “Gaming” means playing a game for a prize, which is distinct from “betting,” because betting involves wagering on an event where the outcome is independent from the bettor. 20 As mentioned earlier, esports wagering is done with betting and gaming: through participating in an esports match and wagering on the outcome (head-to-head gaming), or through betting on external matches. Whether head-to-head gaming needs to be regulated in a given jurisdiction comes down to a familiar analysis in gaming and gambling law, namely whether esports is considered a game of chance, skill, or mixed chance and skill. Making this determination is difficult since it requires a complete examination of the activity to gauge the level of luck or skill. Different countries have different tests for determining what level of chance is acceptable in an activity before it can be considered gambling, but the usual test is whether skill or luck predominates. 21
In some cases, it is straightforward and obvious; playing the slots is determined purely by luck, whereas a mathematics contest is pure skill. In other cases, games that contain even the smallest element of luck could, theoretically, render it mixed skill and chance, even if the element of luck is so small that it is almost inconsequential in the game. 22 For example, in a recent Supreme Court of Canada decision, R. v. Riesberry, 23 the Supreme Court held that because a computer randomly assigns horseracing post-positions, and some post-positions are more advantageous than others, horseracing might be said to contain a systemic resort to chance, and can therefore be classified as “mixed chance and skill.” To paraphrase one commentator, if the randomization of post-positions in horse racing is enough to classify an activity as mixed skill and chance, how should the law treat other skill games with a slight resort to chance, such the coin toss to determine who goes first in chess? 24
This example, and the questions that follow it, highlights the inherent murkiness and ambiguity in gaming law, and is especially pertinent to esports. Many esports titles, including the most popular ones, require almost pure skill, 25 and the amount of chance in esports varies from title to title. For example, League of Legends, the most popular esports title, has some internal randomization, but it is largely negligible in determining the outcome of a match. StarCraft II and CS:GO, two of the most popular esports titles in the world, contain no elements of inherent randomization, such as “spawning.” The only top-10 esports title to feature a significant amount of chance, as determined by global Twitch streams in 2016, is Hearthstone, an esports card game that is, in some ways, very similar to poker. 26 A 2016 UK Gambling Commission discussion paper stopped short of categorizing all esports as games of chance, but did maintain that many esports games would be considered games of chance under British law, “because many esports contain elements of chance, even if the eventual outcome is largely determined by skill.” 27
The Chess Conundrum
Despite the overwhelming evidence that esports is rapidly growing, head-to-head esports betting is a miniscule part of a massive and affluent online gambling market that spent over $40 billion in 2016 and is projected to grow almost 50% by 2020. 28 Clearly, the product has not been able to endear it to esports bettors. It is this article's position that the reason why head-to-head gaming struggles is precisely because so many of the popular titles are so heavily based on skill. In games of skill, like chess, the more skilled player should always win. This is why matchmaking for games of skill is of critical importance to the participants. If a chess player is consistently matched up against a player of greater skill, they should always lose.
Head-to-head gaming websites use algorithms to match or rank players of equal, or at least comparable, skill. There are two common structures for head-to-head gaming betting. One involves a matchmaking site where players are displayed, matched by the site's matchmaking system, and agree to compete. All of the popular head-to-head sites, such as Gamersaloon, Challengeme, and WorldGaming, offer matchmaking for all the top esports titles. These games are not hosted on the website itself, but are played on the title's gamer page, or through consoles such as Xbox and PlayStation. When the players agree to compete, both submit their bet into an account that the website holds in escrow for the winner. After the match is complete, both players report on the website who won, and the money is transferred to the winner, minus a rake or service fee for the site facilitating the betting.
The problem with esports and head-to-head gaming is that there is no element of luck to aid the less-skilled or experienced players. Competitions of skill, like chess or mathematics contests, should always be determined purely by the skill of the competitors. In contrast, if, say in poker, you have some semblance of skill and you are playing against other, more talented players, you still have a chance to win if you are dealt excellent cards and your opponent is not. Being dealt “pocket aces” provides a tremendous starting advantage to the player, no matter their skill level. The element of luck involved in games, such as the dealing of cards, can give the less skilled player an advantage, even over a far-superior skilled player. At the very least, it gives the less-skilled player hope that they could win, and therefore motivation to try.
However, despite the element of luck, if a head-to-head game has a considerable skill element, such as poker, more experienced players can prey on lesser-skilled players. When a player of superior skill targets a lesser skilled player, this is known as “bumhunting.” 29 Essentially, bumhunting is a phenomenon that can theoretically exist in any game that pits gamers against each other in a game that includes skill. When money is at stake, as is the case in online poker, DFS, and head-to-head esports, this creates an obvious problem.
In 2016, PokerStars shut down their “heads up” cash tables as part of its “commitment to reducing predatory behaviour” 30 and, in January 2017, announced that it was introducing a “SeatMe” feature that would try to reduce such behavior. 31 The “predatory behavior” discussed mainly consisted of highly skilled players, known as bumhunters, waiting for lesser skilled players to join their table and pouncing on them for an easy victory (and cash prize). In addition to the predatory nature of this practice, bumhunting in online poker is bad for business. The skilled player usually sits at the table waiting for an easy target, which deprives the website of collecting a rake on that player. Perhaps even more significantly, when a lesser skilled player gets beat time and time again by superior players, it makes it increasingly less likely that the defeated player will want to return. 32
A similar trend has been identified in the world of daily fantasy sports. As DFS grew and entered the mainstream, so did the realization that it, too, faced a bumhunting problem. Popular outlets including ESPN, Rolling Stone, and the New York Times have all identified the “shark and minnow” 33 relationship in DFS, not unlike what takes in place in online poker rooms. 34 DFS sharks are experienced and highly skilled, and the novice player, or the minnow, is likely to lose approximately 70% of the time, 35 with other estimates putting it as high as 80%. 36 Last year, one of the leading DFS websites, RotoGrinders, published an article providing tips on basic head-to-head strategy. One of the key suggestions was for novice gamers to hand pick their opponents to avoid this problem, because “there is nothing more off-putting to new players than to get smoked by a top player that has thousands of dollars in winnings.” 37 The reality is, if minnows can strategize by manually picking their opponents, so can sharks. While the website maintains that by doing a little research, a novice could avoid many of the DFS sharks, an earlier article from the same website suggests that more advanced DFS participants can increase their chances of winning by doing the opposite. 38
In 2009, a Toronto company called WorldGaming started one of the original head-to-head gaming platform websites. WorldGaming offered gamers the opportunity to connect to players of similar skill, set up a match, and wager on the outcome of their matches. A year later, the company teamed up with Sir Richard Branson's internationally recognized Virgin Enterprise Limited brand and was renamed Virgin Gaming. Virgin Gaming's new CEO at the time, Rob Segal, boldly stated to the Canadian Broadcasting Corporation that “we're doing for video games what the Internet did for poker.” 39 Virgin Gaming expanded their scope in the online head-to-head gaming world when they entered into an agreement with EA (Electronic Arts) Sports to be the only sanctioned host of EA's integrated online platform for head-to-head gaming, a platform called EA Sports Arena. 40 EA Sports Arena offered players of the popular EA Sports game titles, such as NHL, Madden, Tiger Woods PGA Tour, and FIFA, the ability to connect and play in head-to-head matches and tournaments, with Virgin Games taking a 12% rake on all wagering that came through the EA Sports Arena. 41
Despite Segal's confidence in the Virgin model, within four years of their deal with Virgin to host the EA Sports Arena, EA Sports terminated their agreement with Virgin and shut down the Arena. Among the reasons for shutting down the Arena, EA cited alternative options for gamers, and, most significantly, stated in August 2014 that “less than 0.2 percent of our players were participating in Arena events on a regular basis. That told us that our fans weren't seeing value in the Arena service, and we decided to focus our efforts on developing new, engaging services for our players.” 42 Three months before the EA split, Virgin Gaming became, once again, WorldGaming, shedding the international brand's name for their original title. 43 One year later, in September 2015, WorldGaming was bought by Cineplex, Canada's largest chain of movie theatres, as part of Cineplex's plan to incorporate esports into their existing infrastructure of theatres. 44
Within five years, WorldGaming started as an esports and head-to-head gaming pioneer, rose meteorically as part of an internationally recognized brand, and ultimately returned to its roots as a head-to-head gaming facilitator, albeit in a different form and under new ownership. While one can theorize and hypothesize about the reason for WorldGaming's transitional history, we believe that the Chess Conundrum played a pivotal role in the tumultuous history of what was one of the Internet's first head-to-head gaming pioneers.
While the exact reasons are unknown, at least to those outside of Virgin Gaming, it may be likely that “bumhunting” was so common in the EA Arena that players refused to partake, and the matchmaking systems utilized were insufficiently equipped to deal with the issue. Only an algorithm that ensures fairness and an equal playing field would adequately protect the novices from the highly skilled players. Websites like Challengeme and Gamersaloon are continuing to improve their own matchmaking capabilities using their algorithms to match players in a matchmaking service similar to what Virgin Gaming did several years ago with EA Sports Arena. 45 For all of these sites, time will tell if they are successful.
These examples speak to the heart of the Chess Conundrum, and it is why head-to-head esports games will suffer until modern technology and matchmaking algorithms are competent enough to truly match players of equal skill. The problem for head-to-head bettors, and for the websites that offer them, is that players who begin to lose consistently will have little incentive to return. The attrition rate becomes very high and the result are all these players dropping off the site, leaving only the most skilled players left to wait for new “prey.” If online games that include a varying degree of chance, including poker and DFS, are susceptible to “predatory behavior,” how much more so will head-to-head games of pure skill suffer from such behavior? In games where the more skilled player is bound to win, appropriate matchmaking algorithms become that much more important. It is the authors' contention that one of the contributing factors of Virgin Gaming's failure is because they lacked the necessary technology to counteract the “shark vs. minnow” problem, and 99.8% of EA Sports gamers responded accordingly by effectively ignoring the EA Arena. Until a time when perfect matchmaking artificial intelligence (AI) is invented to ensure that only players of the same skill play against each other, the business of head-to-head wagering for esports cannot scale and will not be profitable.