Sports gambling not just about 'fantasy' anymore

Competitors practice ahead of qualifying matches at the 2015 Call of Duty European Championships at The Royal Opera House on London, England.
Rob Stothard | Getty Images
Competitors practice ahead of qualifying matches at the 2015 Call of Duty European Championships at The Royal Opera House on London, England.

There are two new trends in the world of sports betting that you might have missed: Entity betting and eSports gambling. Reports this week on both trends highlight the changing nature of the field.

First, if you don't know what "eSports" is, you're not alone—it's the latest in video games. And betting on the activity, which is basically placing bets on other people gaming, has grown to $8 billion in total bets annually, and it even has a Reddit forum dedicated to it. That's according to a detailed report published this week by Chris Grove, a partner at Narus Advisors.

To be clear: eSports don't even mean sports-related video games. They're often more fighting based, like Counter-Strike: Global Offensive, Call of Duty, and StarCraft II.)

Grove projects the industry will hit almost $30 billion by 2020. Some of the biggest backers in the space now include Disney's ESPN and Turner, and lots of others are getting in on the act. For example, go online to the Yahoo Sports main page, and you'll see "eSports" listed in the menu above the NFL, NBA, and MLB.

The backing from media giants will only help push eSports into the mainstream, bringing more attention and money to the gambling side of it.

Of course, this will lead into all kinds of headwinds and Grove's report lists a few of them. Legal uncertainty is always at the top of the list.

Since it's such a new thing, will it get dumped in with rules governing sports betting, or will it find its own loophole? What about the fact that minors are going to be the biggest consumers and players in the space? And what about enforcement: Can it be done effectively?

Another big headwind may also appear in the form of match fixing. Because the esports "players" don't make that much money compared to how much is at stake on the gambling side, it's easy to see how somebody might tank a match for a big payoff.

And since these are all computer-based games, let's not forget another problem: Computer hacking. If somebody has incentive to get an outcome the way they want it, they could, and there's always the potential of getting a hold of personal information. Hackers have put a lot more effort into things for smaller payouts.

On the growth side, casinos want to use eSports gambling as a way to reach out to the next generation of gamblers. There have been many stories in the past couple years suggesting that the 30-and-under crowd haven't been gambling as much as older generations. This could clearly be a positive for gaming revenues.

When Nevada meets Wall Street

Entity betting basically operates like a mutual fund for gambling. You can be an out-of-state "investor" giving your money to a professional "fund manager" in Nevada. That person then invests in a diversified portfolio of "trades."

Or basically, you're giving money to a professional gambling operation that bets on a bunch of games over the course of the year. You're hoping for them to be right about 55-60 percent of the time, and earn a piece of that return.

A recent Sports Illustrated article covered the topic. It's Nevada betting being inspired by Wall Street tactics.

One main difference that contrasts it from a typical investment—and this is important because the so-called "investor" has no say in how the bets are made. The fund manager is the one who gets to decide what the bets are. It's this arms-length distance that prevents it from being a straight bookie/bettor relationship.

Because of the uniqueness of this approach, entity betting may face hurdles to grow. Think about all the possible hurdles: state and federal laws, banking and payment processors, and finding companies to take the other side of trades.

Nevada law specifically legalizes entity betting, but it's a small industry right now. Time will tell if this grows and can scale up despite the hurdles.