The Nevada gambling market is always evolving and exploring new revenue growth streams. One of the newest and groundbreaking opportunities comes in the way of third-party, electronic sports (esports) betting. In essence, esports is a form of online, skill-based contests where players compete against each other in tournament-style contests on video games played on traditional gaming consoles or computers.
State legislatures and courts have long segregated games of skill from those of chance since the start of this country. See, e.g., State v. Am. Holiday Ass’n, 727 P.2d 807 (Ariz. 1986) (describing how different jurisdictions have distinguished between games of chance and games of skill). Skill games avoid prohibition not through an exemption, but rather because they are not gambling. See, e.g., Colo. Rev. Stat. § 18-10-102(2)(a) (the definition of gambling “does not include bona fide contests of skill . . . in which awards are made only to entrants or the owners of entries . . . .”) (emphasis added). That is, skill games are carefully designed to avoid the application of gambling laws by removing the chance element. Unlike gambling games, no person can expect to win a skill game by mere good luck, random moves or pursuant to one or more favorable chance events.
Accordingly, from golf tournaments and trivia contests, the opportunity to win prizes in bona fide competitions of skill has been entrenched in American society. More recently, the Internet and mobile devices have brought a myriad of new opportunities and this sector continues to grow daily with the addition of new skill game operators and games. In 2021 alone, the global esports market exceeded $1 billion. By the end of 2022, the market is expected to be close to $1.5 billion, with figures exceeding $5 billion by the end of the decade. The esports market consists of a wide range of revenue streams from sponsorship deals, consumer purchases on video games, in-app spending and merchandise, as well as ticket sales from esports tournaments.
The explosion of esports has had a tremendous impact in the regulated gambling industry as well. This is no more evident than in Nevada, which has seen new laws and regulations arise concerning third-party betting on esports. In particular, during the midst of the COVID 19 pandemic (when no live sports were being played worldwide), the Nevada legislature created the Esports Technical Advisory Committee (“Committee”), which is tasked with providing recommendations to the Nevada Gaming Control Board (“Board”) on what is necessary to safeguard the integrity of third-party wagering on esports in Nevada. Shortly thereafter, the Board approved the placement of third-party wagers on esports competitions with regulated sportsbooks in Nevada on a per-event basis. In essence, any Nevada sportsbook wanting to offer wagers on esports would be required to obtain approval from the Board before taking such bets.
Then late last year, the Committee prepared a draft set of proposed regulations, which would amend Gaming Regulation 22, relating to race books and sports pools, to allow books to accept wagers on esports events in the manner of traditional sporting events so long as the books fulfill certain due diligence requirements.
Such due diligence requirements include obtaining information relating to the video game used for the event, the video game publisher, the event operator used to host the events, technology used to determine the outcome of the event and event rules (the rules must, among other things, demonstrate that the event will be adequately supervised, with effective safeguards in place to protect the integrity of the event and be in compliance with any applicable laws). At the time of writing this article, it is anticipated that the proposed regulations will be discussed by the industry, and ultimately considered for approval by the Nevada Gaming Commission, in the near future.
In short, the esports industry has the potential to attract a new market of audiences for sportsbook operators. However, like other sports currently made available for betting in Nevada, safeguards need to be in place to ensure the integrity of the event. Nevada regulators are again taking the lead in demonstrating their willingness to promote growth in the marketplace and maintain protections in the betting environment.
About the authors
Glenn J. Light is a Partner and Chair of Lewis Roca’s Commercial Gaming Industry Group. He provides counsel on nearly every aspect of commercial gaming transactions, including corporate structure, financing and due diligence.
Karl F. Rutledge is managing partner of Lewis Roca’s Nevada offices which include Las Vegas and Reno, and a member of the firm’s Commercial Gaming Industry Group providing counsel on gaming, eSports, fantasy sports, sports betting and promotional marketing.
Salma G. Granich is an associate in Lewis Roca’s Commercial Gaming Group. Her background includes legal research and writing on commercial and interactive gaming matters and assisting clients with gaming licenses and compliance issues.
About this article: This article was originally published in Communiqué, the official publication of the Clark County Bar Association, (Mar. 2023). See https://clarkcountybar.org/member-benefits/communique-2023/communique-mar-2023/.
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