E-sports provide new opportunities for betting and gambling

8 min read
Stacked poker chips of various colors. (Image Credit: Amanda Jones)

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On the evening of June 18, the online chat room for a “League of Legends” match on VPGame was blowing up. Both sides were professional Chinese e-sports teams: Shanghai-based FunPlus Phoenix and Hangzhou-based LGD Gaming.

A lot of users appeared to be on the side of LGD gaming. “LGD throw g1 dont understimate LGD when they get serious,” a user named “bwesit-yawa” commented after LGD gaming lost the first game. “LGD PLEASE BE AGRESSIVE GOGOGO,” a user with the handle “Gmode” said before the last and final game.

What had them excited wasn’t just the spirit of the game: when LGD lost, fans complained that they’d lost money on bets.

Many thought the fix was in. “This level of match fixing is really impressive,” a commenter with the handle “9527” said sarcastically in Chinese.

“My 30 became 220 TYTY,” a user named “X!!-It’s hard to win” boasted after the match ended, claiming to have won at odds of more than seven to one, using an abbreviation for “thank you, thank you.”

Those who lost were far less happy. “JUST GO LOSE IDIOT FPX FCK YOU ALREADY LOST F5K SO LOSE MATCH WINNER TOO FCKING IDIOT GO DIE,” a user with the handle “NEVER GIVE UP” wrote, referring to a bet on which team would get the first five kills in a game.

E-sports is big in China, and it is quickly growing bigger. The size of the e-sports market, which was RMB 8.48 billion (around $1.23 billion) in 2018, could more than double by 2020 to RMB 21.10 billion, according to a report from China Central Television (CCTV), the country’s state television broadcaster.

According to the report, the industry will create massive demand for e-sports professionals in China— half a million by 2020. A recent report provided to TechNode by PricewaterhouseCoopers predicts that the e-sports industry will rake in more than $202 million in revenue in 2019.

The sudden emergence of the industry has also provided new opportunities for betting and gambling in the form of tournaments of different sizes, creating a grey market of “guessing contests” that often pay out with physical or digital commodities rather than cash.

Gambling for money is illegal in mainland China, except for state lotteries. Yet, despite the general ban on such activities, some e-sports betting platforms are still operating and are easily accessible in China.

Bookmakers usually claim to be e-sports news or live-streaming websites. Describing their services as “prediction contests” or “guessing contests,” these websites are licensed by China’s Ministry of Culture. However, legal experts believe that, while some of these contests fall within the bounds of the law, others are downright illegal.

Digital casino chips

In casinos, customers have to buy chips before they can place bets. In e-sports, the virtual chips come in various forms, but they are as much real money as their casino equivalents.

One of the most well-known Chinese guessing content websites is live-streaming platform Huomao. Unlike larger live-streaming platforms, Huomao, which was launched in 2014, offers a very limited number of content categories, with a very heavy focus on competitive games such as “Dota 2,” “CS:GO,” and “League of Legends.” Out of the 16 categories on the website, only six are for individual games, four of them e-sports. In comparison, New York-listed live-streaming platform Huya hosted 434 categories as of June 18.

Huomao allows users to gamble using “cat bean” tokens (Huomao’s name means “fire cat”) purchased with cash. Every new user is invited to purchase the chips, at an exchange rate of 1,000 per Chinese yuan. Transactions can only be made with Alipay and WeChat Pay, with upper limits reaching as high as RMB 99,999 per top-up if users choose Alipay.

Users can then place cat bean stakes on the results of tournaments for four e-sports titles: “Dota 2,” “CS:GO,” “League of Legends,” and “Honour of Kings.” On June 18, the platform was making book on 15 matches. The bets are similar to those in regular sports betting: the result of a match; the result of a match with an Asian handicap, a match where the favorite is deemed to start three games behind; as well as the total games won in a match—whether the total exceeds 2.5 in a “best of three” match.

Users win cat beans rather than cash—but these can be exchanged for gift cards at the same 1,000 beans to the Chinese yuan rate in amounts of RMB 100 or 500. Gift cards are available for Tmall, JD.com, Apple Store, NetEase Yanxuan, as well as membership cards for iQiyi and Youku. Also up for exchange are physical gifts such as iPads and game mice, with the iPad priced at 3.3 million beans.

Screenshot of Huomao’s store page, where users can redeem tokens for gift cards. (Image Credit: TechNode)

Similar betting opportunities can be found on a number of other websites, with minor differences. VPGame and xxdianjing disguise chips as free gifts that come with the purchase of otherwise useless virtual items. These “free” tokens can then be used for betting, with VPGame requiring users to exchange the chips that come with the initial purchase—named “V coin”—into a second of kind of “P coin” before being able to place any bets. The tokens won from bets on xxdianjing can be exchanged for gift cards and physical rewards, or virtual items in games on VPGame.

An even more prevalent kind of e-sports betting uses a special kind of chips: high-value cosmetic items—decorations or “skins” that can be used to change the appearance of weapons or game avatars—in “Dota 2” and “CS:GO.” A “Dota 2” item named the “dragonclaw hook”  can fetch more than $450 dollars on skins.cash, a website where users can sell these items for real money.

While Huomao does allow users to bet with virtual cosmetic items, VPGame is often recognized as the largest platform for this kind of betting. To participate bets, users can either purchase skins directly on the website with normal tokens, or deposit cosmetic items from their accounts on Steam, the world’s largest digital game distribution platform. Users can win these items by playing the two games and trade them with other players for Steam credits.

Cosmetic items are valued by the website upon purchase or deposit, based on rarity, and then treated like regular tokens. VPGame rewards winners with vouchers that can either be sold for regular tokens or used as stakes in future bets. Users who wish to keep the cosmetic items or sell them elsewhere are given the option to transfer them back to their Steam accounts. Like beans and gift cards, skins allow users to spend money to make a bet and get money back if they win.

Screenshot of the cosmetic item trading page on VPGame. (Image Credit: TechNode)

Risky business

Chinese regulators make a distinction between guessing contests and gambling. Guessing contests, sometimes called “match predictions,” are legal. But gambling and providing services related to gambling both offline and online are criminal offenses punishable with up to three years in prison.

“There are two red lines for guessing contests,” He Jing, a lawyer with Merits & Tree Law Offices in Beijing, told TechNode. One is taking commissions. The other is allowing money gambling—in effect, a system that allows users to put cash in and get cash back out if they win. Platforms that take cash as stakes are always considered illegal in China, with the exception of sports lotteries licensed by the General Administration of Sport.

These two red lines put some e-sports betting websites in a very precarious position. While Huomao does not take commissions for bets and therefore doesn’t cross the first red line, it has crossed the second one by selling tokens and allowing users to redeem tokens for gift cards and physical items, He told TechNode.

“Gift cards have face value and can be very easily exchanged into cash. The same is true with electronics such as iPads,” He said. “So whether they are seen as cash or goods, the fact that they can be acquired with tokens means that it [Huomao] is most likely a gambling website.”

Even when tokens are disguised as free gifts from purchases of virtual items, which is the case for xxdianjing and VPGame, users are still buying tokens with cash, He said. If websites give users the option to redeem these tokens for cash or goods, they will be considered as gambling platforms, He explained.

However, websites like VPGame, which specialize in cosmetic item betting, are still currently legal, He told TechNode. This is because courts commonly understand the goods regulated in gambling laws to be physical goods. While a number of courts have ruled that virtual game items have some property-like qualities, these cases were not gambling related. At least for now, rewarding users with virtual game items for winning bets is considered tolerable to regulators, though this interpretation is subject to change, He said.

According to He, although some of these items can fetch high prices on third-party trading platforms, the fact that such transactions are performed by players without the help of betting platforms protect the platforms from punishment.

Crooked matches

Gambling also tempts participants to undermine fair play. Analysts warn that it could threaten the industry as a whole.

In April 2018, two teams in the first division of the Dota 2 Professional League, a large-scale Chinese e-sports tournament, were permanently removed from the league for match fixing, with five players banned from competing in the league for two years. Just a few days afterward, two other teams in the game’s secondary league were also banned for match fixing.

The League of Legends Master Series, the biggest tournament for the game in Taiwan, Hong Kong, and Macau, removed the Dragon Gate Team from the series in April for betting on its own matches. The League of Legends Development League also decided in April to ban four players in a team named Rogue Warrior Shark for 18 months of competition for match fixing.

Most recently, on June 18, Tencent’s League of Legends Pro League, the top league for the game in China, revealed match fixing-related behaviors of a regular player and two reserve players from LGD Gaming. The regular player was banned from the league for 18 months, and the two reserve players for 10.

The unfair competition brought about by e-sports gambling could severely impact the quality of matches and thereby the profitability of the industry, and e-sports betting platforms could magnify such a pernicious effect, Liu Jiehao, an analyst from research group iiMedia, told TechNode.

“Unfair tournaments have no future,” Liu said. “On the industry level, e-sports gambling could lead to lowered quality of competition, decreased investment in professional teams, loss of audience, and loss of advertisers.”

Liao Xuhua, an analyst at data consultancy firm Analysys, however, said that e-sports platforms, though illegal and responsible for providing opportunities for match fixing, are not the ones pulling the strings.

E-sports betting platforms depend on the healthy development of the e-sports industry, and doing too much harm to it is counter-productive, Liao told TechNode. “What bookmakers look for is the revenue from fair matches and regular betting,” Liao said. “They [e-sports betting platforms] are the biggest losers of match fixing.”