Emma Oosthuizen
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In this article, the reader is given an overview of the various types of gambling that can be done using video games in the first section.

A Historical Overview of Gambling in Video Games (the 2000s to 2013)

The practice of placing beautiful baseball cards in cigarette packages dates back more than a century, and it is from this tradition that the concept of gambling in video games arose. A Chinese company called Giant Interactive was the first to implement gambling within a video game in 2006, with their free-to-play, massively multiplayer online game. Users in the game could acquire unique items and gain a competitive advantage over their fellow players by purchasing virtual keys that unlock “treasure boxes.” The term “loot box” is now commonly used by gamers to refer to video game treasure box systems. Loot boxes are a type of microtransaction. A “microtransaction” is an in-game exchange of real-world dollars for digital goods.

Japan contributed to the spread of the loot box system in video games by introducing “gacha” mobile games in 2010. Each game mode is a recreation of a common type of vending machine found in Japan. Toys hidden inside opaque plastic capsules are dispensed by this type of machine. Gacha games allow players to spend their own money in order to purchase virtual currency. This money can then be spent on virtual characters or items that can be used in the game. Genshin Impact, the video game that is currently the most played everywhere in the world, has already raked in $874 million in sales since its launch five months ago.

The resounding success of microtransactions in mobile games, as well as the industry-wide trend toward setting prices in stone, can be attributed to the widespread adoption of the gacha model in AAA blockbuster games in the West. This is just one example of a trend. Valve introduced loot boxes to the Western market with the release of Team Fortress 2 in 2010, followed by Counter-Strike: Global Offensive (“CS: G O”) in 2013. The addition of loot boxes to Counter-Strike: Global Offensive boosted the game’s player base. In just two years, the number of players in Counter-Strike: Global Offensive increased by a factor of 1,500, and the game now has approximately 740,000 users logged in at any given time.

The Current State of Online Gambling in the Video Game Industry (2013 to present)

In contrast to their Asian mobile game competitors, Western blockbuster games have given rise to a profitable gambling business through the realm of online competitive video gaming, also known as esports. Esports are competitive video games played at a professional level in front of a live audience. The 2019 League of Legends World Championship, for example, drew over 100 million unique viewers and a peak of 44 million concurrent viewers. The number of people who watched this event online outnumbered the number of people who watched the Super Bowl 2019 finals the same year (roughly 98 million viewers). Prior to COVID-19, industry analysts predicted that the esports sector in the United States of America would generate more than $1.6 billion in revenue by 2021.

Aside from loot boxes, the esports industry gave birth to three major types of online gambling: fantasy esports, sportsbook wagering, and betting with in-game virtual products. One type of online gambling is loot boxes. The popular video game title Counter-Strike: Global Offensive (CS: GO) is to blame for the spread of all of these gambling activities due to its close ties to esports and third-party marketplaces.

What exactly is Fantasy esport?

Vulcun, one of the most popular pay-to-play fantasy esports websites before it was shut down in 2016, had a prize pool worth ten million dollars. Websites like Vulcun, which are similar to fantasy leagues for traditional sports, allow users to select and manage a club while adhering to a fictitious spending limit. Within an eSport title, players used their budget to select real-life esports athletes from a pool of professional teams to represent their squad. The pay of Vulcun’s export athletes was determined by their popularity and previous performance in the game. Furthermore, players in fantasy leagues earned team points each week based on the performance of the athletes they chose to represent them. Vulcun gave cash awards to the players who had the highest scoring fantasy teams at the end of each professional league season.

What is a sportsbook, exactly?

Bets on the outcomes of professional esports matches can be placed via a number of third-party websites known as “sportsbooks.” When it comes to esports betting, a sportsbook-style wager frequently includes betting against the house rather than other players in the game.

What is the “Skin Bet” exactly?

Wagering on in-game currency, the most common type of gambling in video games differs from more traditional types of sports betting. CS: GO popularized the practice of gambling in-game currency, known as “skin betting,” and the game still has a significant market share in this sector.

Steam is a digital distribution network owned by Valve that hosts thousands of games, including Counter-Strike: Global Offensive. CS: GO is a first-person shooter video game in which two teams compete in an anti-terrorism mission. Outside of actual matches, players can collect “skins” to customize the appearance of the weapons they use in-game. Skins can be made by Valve or by gamers in their spare time. Players can win skins through loot boxes, while the official player-to-player marketplace on Steam allows them to buy, sell, and trade skins with one another. For example, one player recently paid a stunning USD 150,000 for a special rifle skin that shone blue, included a sticker for a 2014 competition, and bore the year. However, gamers can only purchase skins on Steam using “Steam Wallet money,” which is a type of virtual currency that can also be used to purchase other games on Steam. When skin is purchased through the official marketplace, Valve takes a 15% cut of the sale.

Because of Steam’s open Application Program Interface (API), third parties were eventually able to establish websites where players could buy and sell skins that were not associated with Steam. These websites have no affiliation with Valve or any other video game developer. Third-party sites integrate the automated programs, known colloquially as “bots,” into Steam. Users can exchange skins from their Steam accounts to bot accounts on Steam. This effectively grants third-party websites control over the skins used by gamers.

A few of these third-party websites have been designed to look like online casinos, with the primary goal of facilitating transactions using skins. Players can use their skins in the same way that they would a casino chip, or they can trade their skins directly onto the website in exchange for virtual website credit. Following that, the player can use these credits to play casino games on the website, such as roulette, jackpots, and slots, in the hopes of winning more skins. Players can “cash out” their gains by requesting that any earned skins be transferred back to their Steam accounts.

Gamers can also use their skins to wager on the outcomes of esports competitions. For example, in the six months leading up to 2016, the website “CS: GO Lounge” assisted players in wagering over 100 million skins worth a total of one billion US dollars.

Players can also use third-party sites to sell their skins to other players in exchange for real-world currency. For example, websites such as “Skin Wallet” use online payment systems to make it easier for players to conduct business with one another. A player can connect their Steam ID to one of these sites in order to auction off their skins to other users. Sellers can then link their PayPal accounts to the site to receive payment for their goods.

According to reports, the presence of a third-party gambling market in Counter-Strike: Global Offensive may have aided the game’s growth as an eSport. Since the introduction of skins in Counter-Strike: Global Offensive three years ago, the number of tournaments has increased by a factor of two, the prize pool for professional tournaments has increased by a factor of three to more than 60 million US dollars, and the average monthly salary for professional players has increased by nearly $1,000.

The Video Game Gambling Market and Its Financial Implications

According to one research firm, the sportsbook wagering industry will generate USD 862 million in revenue by 2024, with players placing USD close to 14 billion in esports bets in 2020.

The betting is done with in-game currency undoubtedly accounts for the majority of the video game gambling market. Another research firm estimated that users wagered nearly USD 5 billion in virtual items during the entire year of 2015. Before Valve sent cease and desist letters to more than forty websites that offered skin gambling in 2016, industry analysts estimated that the skin gambling market was worth approximately USD 7.4 billion. These same researchers predicted that by 2020, the skin gambling industry would have grown to around USD 20 billion and generated nearly USD 3.3 billion in revenue. Valve’s efforts to put an end to the skin gambling industry appear to have been futile. According to a 2018 study, nearly half of the sites that Valve had targeted were still operational, while new skin gambling sites appeared on a daily basis. Reporters have also speculated that the closure of large and well-known skin gaming sites may have aided the rise of smaller sites with lower integrity. Valve stated that any additional efforts to reduce skin gambling operations, such as preventing third parties from using their open API, would result in a service disruption for hundreds of millions of Steam users.

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