Skins In The Game: 2016 WILL GREEN - Analyst, Esports Betting Report

Skins In The Game: The size of esports skin betting in 2016, its convoluted closure, and how it could shape the future of esports wagering 2016 WILL GREEN - Analyst, Esports Betting Report

Table of Contents THE ORIGINAL ESPORTS LOUNGE 1 What s In This Report About The Author LOUNGE S SEVEN-MONTH, $1 BILLION HANDLE 2 Betting On Lounge In 2016: By The Numbers VALVE S CRACKDOWN ON SKIN BETTING 4 Four Skin Betting Scandals LOUNGE S FINAL DAYS 5 An Ending Not On Its Own Terms Other Sites Attempted Workarounds Outside The U.S. CORE CONCEPTS 6 THE FUTURE OF SKIN BETTING 7 How Some Regulators Are Beginning to Address Skins A SKINS CASE STUDY: CSGOFAST 8 LOUNGE S PRODUCT PIVOT: COIN BETTING 9 KEY TAKEAWAYS 10 APPENDIX A - SINGLE-GAME SKIN BETTING DATA 11 About The Author Will Green Will Green is a sports betting analyst at LegalSportsReport and its sister publication, EsportsBettingReport. He previously worked as a reporter at Sports Illustrated covering the intersection of sports and gaming. He contributes to Fortune and appears regularly on SiriusXMesports, and has moderated panels of top experts on sports betting and sports gaming. He can be reached via email at will@esportsbettingreport.com or on Twitter at @wfcgreen. About Narus Advisors A consultancy offering guidance to clients at the intersection of esports, online gambling, and land-based gambling. NarusAdvisors.com

The Original Esports Lounge On Jul. 10, 2016, the world s largest esportsbook, CSGOLounge, took in 321,000 skins on a Counter-Strike: Global Offensive match between professional teams SK Gaming and Team Liquid. The betting handle was the site s largest of 2016. By Aug. 16, the site no longer offered any skin betting at all, and said it was converting to an alternative entertainment platform. The events of the 37-day period in between, and Lounge s subsequent pivot to a different type of sportsbook style betting, are the subject of this report. It uses Lounge as a case study for the decline and transformation of an industry that took in $1 billion in handle in the first half of 2016 alone. Facing four skin gambling scandals in the span of a month as well as multiple lawsuits alleging it supported unregulated and underage gambling, game maker Valve ordered skin gambling sites to cease and desist using its API, Steam, to facilitate commercial gambling transactions. This action dealt an enormous blow to the industry, resulting in the closure of dozens of skin gambling sites, including Lounge and its sister site for the game Dota2, Dota2Lounge. Lounge s tortuous shut down process illustrated the near impossibility of skin wagering sites thriving in the face of Valve s disapproval. It also showcased the inability of skin wagering sites to achieve regulatory approval, even if Valve had wanted them to. Skin wagering is not completely dead. Some sites continue to flout Valve s ruling, but simply do so from countries outside of the US. Plus, CS:GO players still acquire skins in-game items acting as cosmetic alterations to weapons through normal gameplay, as well as on buying and trading platforms. As long as skins remain a critical part of the game s ecosystem, they will likely serve as a virtual currency that those so inclined can exploit for wagering, and other purposes. And now, wagering on Lounge itself isn t even dead: The site partially released in late September a virtual coin-based, sportsbook-style wagering platform. But several key questions remain: Will Valve continue to aggressively go after skin wagering sites? Where and how will new skins casinos start to pop up? And what will they look like? WHAT S IN THIS REPORT Comprehensive skin betting data for over 200 professional CS:GO matches from top 2016 tournaments: Match odds, tournament betting volumes and total USD handle sizes, demonstrating how large the industry grew A breakdown of the four major skin gambling scandals precipitating Valve s crackdown: Whom they implicated, how they eroded trust, and the elements of the skin betting industry they helped cast greater scrutiny on An analysis of Lounge s decision to shutter skin betting, and how it relaunched: How it attempted to stay in the market, its shift to a coin-based betting product, and the challenges facing esports betting with virtual currency A recap of how targeted sites reacted to Valve s crackdown: The attempted workarounds by sites, and how websites named in the company s cease and desist letters have closed, stayed open, or pivoted to something new An overview of regulators reactions to skin gambling: How governmental bodies are beginning to interpret various forms of esports wagering (including skin gambling), and what their comments and actions signal about the industry s future 1

Lounge s Seven-Month, $1 Billion Handle Betting On Lounge in 2016: By The Numbers In the first seven months of 2016, the final time period in which Lounge operated skin betting at full capacity, the site took in approximately 103 million skins in handle. TOTAL HANDLE 103M SKINS An analysis involving the listed prices of hundreds of thousands of these skins determined that the average real-world value of an item bet on Lounge was approximately $9.75. Based on these figures, Lounge took in the USD equivalent of $1 billion in betting handle during the first seven months of 2016, over a period that involved roughly 2,800 professional CS:GO matches spanning dozens of events and hundreds of exhibitions. Four tournaments the Intel Extreme Masters tournament in Katowice, the Major League Gaming tournament in Columbus, the ESL One tournament in Cologne, and Turner and WME/IMG s ELEAGUE in Atlanta attracted 18.3 million skins, or 18 percent, of the 103 million total items wagered during the period. Despite widespread investment in esports and the growth of all forms of skin wagering in 2016, this period did not feature the highest consistent betting volumes in Lounge s short history. The site s 2016 single-match high handle of 321,000 skins, for example, was bested more than 80 times by matches in 2014 and 2015. This could be attributable to the rise of numerous skin wagering options competing for consumers attention, or to the erosion of consumer trust following skin gambling scandals. Regardless, month-over-month betting volumes and average handles were on the rise headed into the summer of 2016. Then, at the height of the professional CS:GO season, just as the title eclipsed League of Legends and Dota2 to become the mostwatched esport on casting platform Twitch, Valve decided to take action against skin gambling sites. Figures obtained over seven-month period in 2016 before Lounge shut down TOTAL HANDLE (USD) $1B PER-MATCH HANDLE (USD) $358,000 TOTAL MATCHES ~2,800 PER-MATCH HANDLE 37,000 SKINS 2

Lounge s Seven-Month, $1 Billion Handle (continued) Lounge s four largest tournaments by per-match volume 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 SKINS IEM Katowice Per-Match Handle MLG Columbus Per-Match Handle ESL One Cologne Per-Match Handle ELEAGUE Per-Match Handle $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 USD Lounge s four largest tournaments by total volume 1M 2M 3M 4M 5M 6M 7M 8M SKINS IEM Katowice Per-Match Handle MLG Columbus Per-Match Handle ESL One Cologne Per-Match Handle ELEAGUE Per-Match Handle 10M 20M 30M 40M 50M 60M 70M 80M USD The 10 most-bet-on matches on Lounge in 2016 Date Team 1 Team 2 Handle (Skins) Tournament Jul. 10 SK Gaming Team Liquid 321,155 Cologne Apr. 3 Natus Vincere Luminosity Gaming 307,643 Columbus Mar. 5 Luminosity Gaming Fnatic 288,028 Katowice Apr. 2 Natus Vincere Astralis 287,718 Columbus Jul. 7 Team Liquid mousesports 272,428 Cologne Jul. 8 Natus Vincere Team Liquid 254,382 Cologne Apr. 1 Luminosity Gaming Virtus.Pro 245,278 Columbus Jul. 9 SK Gaming Virtus.Pro 242,746 Cologne Jul. 9 Fnatic Team Liquid 240,792 Cologne Apr. 1 Fnatic Astralis 220,496 Columbus 3

Valve s Crackdown On Skin Gambling On July 19, Valve sent a cease and desist letter to 23 skin wagering sites that used Steam to conduct activities it said violated the API s terms of service. While Lounge was the first site mentioned in the letter, Valve s action was likely spurred on by a series of scandals involving four different skin gambling sites during the summer of 2016. Two of those sites owners were found to have wagered and won on their own sites using house money, without disclosing their ownership position. A third paid a sponsored player more than $100,000 to promote the site while it admittedly rigged the outcomes of his rolls to severely increase his chances of winning. A fourth site s owners were directly linked to a professional CS:GO franchise, which Valve ostensibly prohibits. By Aug. 1, Valve had not only named all four sites in C&D actions, but all the sites had shut down, as well. Ownership scrutiny would not escape Lounge either. On Aug. 15, The Esports Observer reported that the parent company of esports organization and ELEAGUE Season 1 champion Virtus.Pro also owned 90 percent of Lounge. Whether resultantly or not, Lounge shut down all skin betting the following day. Despite these scandals potentially eroding consumer trust, skin betting volumes on Lounge specifically rose during the Summer of 2016. Moreoever, the scandals if anything appeared to drive interest in CS:GO as a sport. Owing in part to the climaxes of ELEAGUE and ESL One Cologne, CS:GO became the most watched esport in the month of July 2016 on Twitch, with 31.8 million hours streamed. Four Critical Skin Gambling Scandals YouTube account HonorTheCall juxtaposed video of caster TmarTn gambling and winning on CSGOLotto (a site he said he found online) with documents confirming TmarTn actually owned the site. By virtue of TmarTn s position, he could have had advance knowledge of lottery outcomes, potentially providing him with a significant advantage over other players. The site stopped taking skin bets on Jul. 8 and quietly went offline later that month. Sponsored player m0e, who advertised for CSGODiamonds by streaming his gambling on the site to his followers, exposed his own wrongdoing when he revealed a conscious effort by both him and the site to leverage proprietary data and supply him with winning rolls. This allowed him to beat the house-backed game and create the impression others easily could, too. He was paid $91,000 (and more in affiliate fees) for his work. He kept the money. Nearly 60 pages of Skype logs, obtained and published by journalist Richard Lewis, showed conversations between CSGOShuffle s supposed owner and its paid developer. The conversation appeared to illustrate dozens of successful requests by the owner, caster PhantomL0rd, who gambled personally on the site without disclosing his ownership, to obtain the outcome of jackpots and thereby improve his personal odds of winning. Terminology: Skin Betting v. Skin Gambling v. Skin Wagering In this report we use the term skin betting to mean sportsbook-style wagering on the outcomes of esports events, skin gambling to mean wagering on the outcome of casino-style games like roulette or blackjack, and skin wagering to refer to both forms together. Skype logs published by numerous outlets purported to show that an owner of pro esports organization FaZe Clan also owned CSGOWild. The site left the US market at the end of June, but two days after being named in Valve s first C&D, it said it would shut down in just 48 hours. The process was beset by confusion, scammers posing as Wild mods, and user complaints that skin balances couldn t be withdrawn. 4

Lounge s Final Days JULY 10 JULY 25 AUG 1 AUG 15 SEPT 26 Accepts largest Promulgates Restricts skin Reported that Launches coin-based, handle of 2016 new terms and betting, vows parent company sportsbook-style betting on ESL One conditions to apply for owns pro esports on CS:GO matches Cologne Final without gambling franchise publishing license JULY AUG JULY 19 JULY 29 AUG 11 Appears in first Ignores 10-day Trade bots reportedly Valve cease and window to comply banned/suspended desist letter with Valve s C&D by Valve SEPT AUG 16 Announces it is shutting down all skin betting immediately 2016 An Ending Not On Its Terms Other Sites Attempted Workarounds Outside The US Unlike other skin betting sites, Lounge s reaction to Valve s C&D order stood out for its uniqueness, if not its inefficacy. While its steps were proactive, they failed to fully address Valve s request and did not appear to consider the necessary preconditions for their achievement. The changes appeared more appropriate for a regulated esports cash betting product (which Lounge did not offer) as opposed to a skin betting product. In an updated set of terms and conditions announced on Aug. 1 and backdated to Jul. 25, Lounge said it would: Ban users in 16 countries and five territories from skin betting, while continuing to offer the product in other countries Apply for a gambling license in those 16 countries to offer skin betting Develop a Self-Exclusion Responsible Gaming Policy by which users could have their accounts suspended for a minimum of six months Require the additional use of traditional email and password log-ins for all users, including users accessing skins through their Steam account Prohibit the use of Virtual Private Networks that allow players from banned countries to access betting features Other skin gambling sites similarly attempted to avoid facilitating the conversion of skins to gambling currency, while still offering a gambling product Skin gambling sites CSGOStrong and CSGOCosmos, both named in Valve s C&Ds, pivoted their business models in early August to no longer accept direct skin deposits. Instead, the sites outsourced the conversion of skins-to-digital-currency to Skntrades. Players would acquire coin for skins on Skntrades, then fund their balance on Strong or Cosmos directly with those coins, as opposed to skins. This relationship ostensibly added a layer of protection between the sites and any skins-to-currency conversion. By August, the websites for Strong, Cosmos and Skntrades were offline in the US, but this microsystem was still functioning in other parts of the world. European bettors reported in August that CSGOFast, a casino-style skin gambling site that warned users in July it was suspending operations and shutting down its Steam trade bots, was actually continuing to allow players to fund accounts and place wagers. While US users were locked out of accessing the site at all, users elsewhere in the world looking to gamble on the site were funneled to a variety of account-funding options, including G2A Pay, the real-money payment arm of game marketplace G2A, as well as PayPal, Skrill, Webmoney and more. 5

Core Concepts The rise in esports popularity, the consequent growth of skin betting, and 2016 s skin gambling scandals, each focused an intense spotlight on Valve, skins, and the esports wagering ecosystem. Such scrutiny illustrated several concepts underpinning the skin betting industry. Valve Prints The Currency Used To Bet On Skins And Also Owns It Lounge s inability to offer legal, regulated skin betting is attributable foremost to the construct of Valve s skins ecosystem. Even if skin gambling were legal under a nominal state or federal regulatory framework, Valve would still own not only all skins, but the marketplace by which players acquire, access and manage them. Lounge s hopes of offering licensed skin betting were, therefore, contingent upon the consent of the owner of the virtual currency used to conduct said betting. Any sites offering skin wagering, which Valve said violated Steam s terms and conditions, have zero latitude to even amend skins-based products, let alone offer them. A Lack Of General Esports Wagering Regulations Belies A Greater Lack Of Skin Wagering Regulations Skill-based, P2P games such as real-money gaming competitions are generally permitted in at least 36 states. Despite that, only two states in the US are believed to have a regulatory framework actively governing esports players betting cash on their own performance. No US states have developed a regulatory framework governing players betting virtual items, such as skins, on the outcomes of either their own matches or professional esports matches. The same appears to be true in most other countries. Skin Wagering Grew Faster Than It Could Be Effectively Regulated Because Of Its Unparalleled Convenience Imagine if recreational basketball players won special currency for their efforts in a never-ending stream of pickup games, and whenever they went to the sidelines, televisions played NBA games and rows of bookies sat eager to accept only the very currency the players had just won on the court as payment for bets. If those players wanted to bet on pro basketball, surely they would do so instantaneously on the sidelines with the bookies rather than getting in their car and and driving to a casino. Indeed, skin betting s popularity was fueled by its unrivaled convenience namely the speed, simplicity and accessibility of wagering blended seamlessly with skin acquisition during CS:GO gameplay. Valve merged in a single screen experience both the virtual world in which a currency is acquired and managed, and the real world in which that currency is wagered. Valve Benefitted Indirectly From Skin Wagering, But Kept The Industry At Arm s Length Valve is aware skin betting drives increased fan engagement in professional CS:GO events, but has done little to address its legality or develop player protections. The closest the company came to addressing skin gambling head on before the July 2016 C&D action was in a February 2015 warning in light of the suspension of 26 players involved in a match-fixing scandal the previous year. Professional players, teams, and anyone involved in the production of CS:GO events, should under no circumstances gamble on CS:GO matches, associate with high volume CS:GO gamblers, or deliver information to others that might influence their CS:GO bets, Valve said, noting it would generally assume pro players had inside information. 6

The Future Of Skin Betting On its surface, Valve s crackdown against sites including Lounge will decimate the skin gambling industry. If Valve continues to pursue and disrupt more of these sites as they creep up, the industry faces grave challenges. This is reflected in projections from top industry experts. In August, Narus Advisors and Eilers & Krejcik Gaming drastically reduced projections of skin gambling s global handle in 2020 from nearly $20B down to less than $1B, a drop of over 90%. The same report reduced the global projected handle in 2020 for all esports gambling, including skins, cash and other forms, from $30B to nearly $13B. But upon closer inspection, case studies such as CSGOFast (see next section) and the fact that there are hundreds of skin sites operating throughout the world, might indicate otherwise. Only as Valve began to take definitive and self-contained measures to eliminate skin wagering altogether (e.g. the banning of bots) did some governmental bodies begin to establish official policy toward skin wagering. Furthermore, even if skins are not used to wager directly, skins could continue to exist around the periphery of wagering activity. It s unclear how Lounge s move to offering coin-based sportsbook-style wagering (see page 9) will interact with or affect the skins marketplace. The site, however, still facilitates one of the largest skin-trading platforms in the world. It could offer bettors who have won otherwise value-less coins the chance to purchase skins as a form of cash out. How Some Regulators Are Beginning to Address Skins In August, as part of a larger paper on esports wagering, the UK Gambling Commission noted that as long as skins can be converted somehow into real-world dollars, and therefore act a de facto virtual currency, skin wagering websites would require a license to operate legally. Hours later, the Netherlands gambling regulator called skin gambling a game of chance. It said that, while operators of such games required a license to operate legally in the Netherlands, no license was available for them to apply for. The French government s esports representative body, France esports, has advocated for the development of simple regulations governing tournament wagering, but has not addressed skin wagering nominally. Some of the fraud surrounding esports wagering appears driven by unregulated esports wagering markets, including numerous match-fixing scandals. Thus, integrity and anti-fraud efforts are likely to address the esports wagering space regardless of skin wagering s future prevalence. In addition to regional and national governments addressing skin gambling, other independent groups will aim to address match-fixing, integrity and other scandals in the esports space that could be connected to unregulated skin wagering. Declines in skin gambling will easily outpace gains in cash gambling. While we believe alternative products will arise to fill the void left by the absence of skin gambling, the chance of another product rivaling the size and scope of skin gambling is minute. Chris Grove Partner, Narus Advisors Up until now, the lack of regulation on skin betting has hampered esports integrity through the alarming levels of underage gambling and match-fixing. The broader skin gambling crackdown represents a chance to get this right and invite the relevant parties to tailor game-specific regulation. Moritz Maurer Head of Esports, Genius Sports 7

A Skins Case Study: CSGOFast Forms of skin wagering are still likely to exist in the future, despite significant headwinds. No skin wagering operator illustrates this more readily than CSGOFast, whose perseverant entrepreneurship has led to the development of several creative workarounds. In light of the recent announcement from Valve CSGOFAST has decided to close operations. All bots are stopped now, games are not functioning, a note on Fast s website read. But as of Sept. 1, over a month after Valve demanded it stop facilitating skin gambling, Fast still operated games and still operated bots just outside the US. When users in other parts of the world logged on to Fast, they were presented with more options than ever to fund their account, several of which involved real-money deposits through gaming marketplace G2A and its suite of payment processors, which inlcude PayPal, Webmoney, Skrill, Visa and MasterCard. In this sense, Fast appeared to have pivoted to an unregulated, real-money casino gambling site with no connection to CS:GO. Gamblers on the site wagered with, and were paid out in, Fast coins. But they could still purchase skins from Fast s skins marketplace. In fact, since Fast coins hold no value outside of the ecosystem of Fast wagering, the primary way for gamblers to cash out from the site was via the purchasing of skins with Fast coins. Those skins were transferred to gamblers via Steam trade bots, and could then be sold on third-party sites like OPSkins for $USD. Thus, even if Fast wasn t facilitating the use of skins as a deposit currency, it was still facilitating skins as a gambling payout, directly in violation of Valve s order. Instead of taking skins from a user s Steam account, Fast accepted skins from one s G2A skin account, but the deposit process still used Steam s trade bots. So, Fast also used Steam s interface to conduct commercial gambling transactions. Fast even facilitated skin betting. Via an advertising partnership with HLTV.org, the site ran sportsbook-style betting on HLTV s individual match pages. The embedded betting option was not visible to American users, but was visible to those outside the US. The account funding options for this sportsbookstyle betting appeared to be the same as they were for funding Casino-style gambling accounts. It s unclear why, as of Sept. 1, Valve hadn t banned Fast s trade bots, and eliminated its skin transferring capabilities. Its cease and desist order did not apply just to the US, but worldwide. But Fast s continued ability to do business demonstrates several key takeaways (see page 10). 8

Lounge s Product Pivot: Coin Betting On Sept. 26, more than one month after Lounge shut down sportsbook-style skin betting worldwide, it quietly rolled out a new form of betting on the outcome of professional esports matches. The site prompted users to sign up for the same email-and-password style accounts that it launched in reaction to Valve s order to cease and desist using Steam to facilitate gambling. Formerly, users could log in to the site only using their Steam account. Once bettors did sign up, they received 100 coins for free. Bettors could then allocate some or all of those coins across any upcoming professional CS:GO matches, just as they could in the first half of 2016 with their skin balance. The layout and design closely resembled the skin betting aesthetic bettors were used to. A standings page listed the users with the highest to-date cumulative coin betting balance and those who had made the highest number of correct wagers. Many facets of this new feature, including how the coin-based betting system monetizes and what coins are worth, are unclear. Several features of the product, such as an Earn Coins function, have not been deployed yet. Coins are not new to the CS:GO wagering universe. Sites such as Fast, for example, employ the use of a coin-based system to facilitate casino-style gambling games. Users convert skins to coins in order to gain currency to use to bet on the site, and can use coins to purchase skins as a method of cashing out, since winning and retaining virtual coins effectively leaves the holder with nothing of real-world value. Esportsbook-style coin betting on games featuring traditional sports, such as EA s FIFA and Madden series, is also not new. Two operators of a Fifa coin betting site in the United Kingdom were charged in September by the UK Gambling Commission with providing gambling facilities and enticing children to gamble. Their operation was not necessarily doomed to illegality, but was unlicensed, one of several requirements for operating a betting business in the UK. However, coins, along with balance management, standings and betting statistics, are new to the CS:GO sportsbook betting universe. Competing with other users to have the highest coin balance, which from Lounge s standings tables we can assume holds some future importance, illustrates a product that emphasizes a relative measure of skill. How and if regulators, courts, Valve or other actors choose to consider this fact could open up a new regulatory chapter for esports betting, and determine whether or not Lounge s new product is economically scalable. Lounge s New Coin Betting: Questions To Consider How do users cash coins out? If and when users cash coins out, will they receive anything of real-world value? Will coins be determined to have real-world value? Will users be able to purchase additional coins for real money? Will users be able to acquire additional coins without consideration? Will users win anything for achieving the highest coin balance or making the most correct bets? Will coins be used to wager on outcomes of non-cs:go matches, or non-esports matches? 9

Key Takeaways Skin wagering will only exist to the extent Valve allows it to exist Valve is a private company that created and owns skins, the Steam marketplace and CS:GO, the digital gaming world from which skins derive their primary function as cosmetic weapons alterations. Therefore, Valve, not regulatory bodies, remains the single largest threat to skin wagering s existence. If Valve wanted to, it could pursue skin wagering more aggressively and shut down all trade bots even remotely connected to skin wagering. That it has only weakened skin gambling as opposed to completely crushing it raises more questions than answers, but does not diminish the fact that Valve still has the firm upper hand over skin sites. Skin wagering will still continue, albeit at a highly reduced level Valve can shut down every Steam trade bot that it wants, but it will have a much harder time stopping determined developers from creating new skin gambling websites and creating new bot accounts. In this way, the future of skin gambling could be subjected to a continual game of cat and mouse. As long as the ecosystem s primary ingredients Steam, CS:GO and skins themselves exist, sites such as Fast will likely continue to pop up. While both skin gambling and skin betting should continue at a drastically reduced level going forward, the necessary components remain available for savvy entrepreneurs to exploit. Government bodies will focus on esports cash wagering regulation, not skin wagering regulation Of the many European regulatory bodies to discuss esports betting in general, only the UK and Netherlands commissions have nominally referred to skin betting. As more regulatory bodies learn about the nature of skins and the difficulties of regulating skins wagering, this is not likely to change. Two US states (Nevada, New Jersey) have addressed esports wagering on any level, and neither of those have mentioned skin betting by name. Nevada regulators are currently in the process of determining whether to classify esports for wagering purposes as a sport or as an event. Meanwhile, New Jersey s Division of Gaming Enforcement adopted temporary regulations in early 2016 governing and legalizing forms of esports head-to-head wagering, calling it a skill-based contest. Only some skin wagerers will embrace regulated, real money esports betting As esports grows as a spectator sport, more and more spectators could choose to engage with esports through gambling. A reduction in readily available skin wagering options would seem to point willing esports bettors toward more transparent, regulated, real-money esportsbooks. To an extent, this is true. Revised estimates from Narus Advisors and Eilers & Krejcik Gaming predict the global esports cash gambling handle will grow from $649M in 2016 to almost $12B in 2020. But several factors, including the convenience of acquiring skins directly during the game play experience, and the previous ease of transferring skins from gambling sites to and from one s Steam Wallet, will likely hinder the conversion of many CS:GO bettors to cash betting on esports at a traditional sportsbook. Furthermore, as long as third-party sites like OPSkins allow for the conversion of skins to real money, the utilization of skins as a digital currency remains likely. While the virtual currency aspect of the skins marketplace may represent a potential legal obstacle, in the United States esports wagering s legal liability may be largely determined by whether esports are considered a sport. John T. Holden, Ryan M. Rodenberg and Anastasios Kaburakis forthcoming Maryland Journal of International Law 2017 It appears Valve has decided to put an end to all forms of betting at least, as far as it is able to. While I understand the rationale of the decision, I m disappointed it took this approach. The problem isn t betting. The problem is unlicensed, unregulated betting. If betting is conducted responsibly it can drive engagement and additional revenue streams, with manageable negative impacts. Bryce Blum General Counsel, Unikrn 10

Appendix A - Single-Game Skin Betting Data Intel Extreme Masters Series - Katowice 2016 Individual match betting data Source: CSGOLounge Date Round Team % Odds Team % Odds Items March 2 Group A Fnatic 72 1.38 Na'Vi 28 3.58 141,576 March 2 Group A NiP 68 1.46 mouz (win) 32 3.13 88,449 March 2 Group A Na Vi 64 1.56 LG (win) 36 2.75 59,419 March 2 Group A mouz 80 1.25 Mongolz 20 4.87 42,580 March 2 Group A Fnatic 69 1.45 LG (win) 31 3.19 69,184 March 2 Group A NiP 87 1.15 Mongolz 13 7.52 27,158 March 2 Group A Fnatic 76 1.31 NiP 24 4.21 56,949 March 2 Group A Na'Vi 60 1.65 mouz 40 2.50 62,851 March 2 Group A LG 94 1.07 Mongolz 6 15.78 29,011 March 2 Group A Na Vi 63 1.57 NiP 37 2.72 136,718 March 2 Group A LG 74 1.35 mouz 26 3.78 56,274 March 2 Group A Fnatic 96 1.04 Mongolz 4 23.61 30,914 March 2 Group A Na'Vi 95 1.05 Mongolz 5 18.89 8,665 March 2 Group A LG 67 1.48 NiP (win) 33 3.05 44,907 March 2 Group A Fnatic 80 1.24 mouz 20 5.02 16,052 March 3 Group B EnVyUs 57 1.74 Astralis (win) 43 2.33 102,231 March 3 Group B FaZe 80 1.25 E-Frag 20 4.93 45,486 March 3 Group B Astralis 68 1.46 Virtus.Pro 32 3.13 93,005 March 3 Group B TStorm 62 1.60 E-Frag 38 2.65 39,957 March 3 Group B EnVyUs 75 1.32 Virtus.Pro (win) 25 4.04 76,047 March 3 Group B FaZe 80 1.25 TStorm 20 4.93 39,353 March 3 Group B EnVyUs 66 1.51 FaZe 34 2.93 83,590 March 3 Group B Astralis 91 1.10 E-Frag 9 11.23 27,742 March 3 Group B Virtus.Pro 70 1.43 TStorm (win) 30 3.27 82,433 March 3 Group B Astralis 71 1.40 FaZe 29 3.45 61,831 March 3 Group B Virtus.Pro 81 1.24 E-Frag 19 5.17 47,374 March 3 Group B EnVyUs 75 1.33 TStorm 25 4.00 65,272 March 3 Group B Astralis 70 1.42 TStorm 30 3.34 56,274 March 3 Group B FaZe 56 1.79 Virtus.Pro 44 2.24 90,360 March 3 Group B EnVyUs 84 1.19 E-Frag (win) 16 6.26 20,842 March 4 Play-In Na Vi 74 1.34 TStorm 26 3.85 110,392 March 4 Play-In Fnatic 81 1.23 Virtus.Pro 19 5.24 206,606 March 4 Semis LG 63 1.58 Na Vi 37 2.69 155,532 March 4 Semis Fnatic 69 1.44 Astralis 31 3.21 158,447 March 5 Champ Fnatic 69 1.44 LG 31 3.25 288,028 Average Skin Handle By Round Skins/match 75,597 Group A 58,047 Total skins 2,721,509 Group B 62,120 Total handle $26,534,713 Knockout 157,744 Handle/match $758,135 Final 288,028 11

Appendix A - Single-Game Skin Betting Data (continued) Major League Gaming - Columbus 2016 Individual match betting data Source: CSGOLounge Date Round Team % Odds Team % Odds Items March 29 Group A NiP 75 1.32 FSid3 25 4.04 186,038 March 29 Group A LG 74 1.35 mouz 26 3.84 152,986 March 29 Group B FaZe 63 1.57 Liquid 37 2.71 154,373 March 29 Group B Fnatic 94 1.07 Splyce 6 15.40 99,374 March 29 Group C EnVyUs 73 1.37 CLG 27 3.68 134,586 March 29 Group C Astralis 85 1.18 Gambit 15 6.53 69,470 March 29 Group D Na'Vi 75 1.33 Cloud9 25 4.01 123,885 March 29 Group D G2 55 1.82 VP 45 2.20 157,319 March 30 Group A mouz 63 1.59 FSid3 37 2.66 178,608 March 30 Group A LG 72 1.39 NiP 28 3.52 142,229 March 30 Group B FaZe 87 1.15 Splyce 13 7.59 79,660 March 30 Group B Fnatic 88 1.14 Liquid 12 7.99 101,627 March 30 Group C EnVyUs 69 1.44 Gambit 31 3.22 132,513 March 30 Group C Astralis 81 1.24 CLG 19 5.15 95,411 March 30 Group D G2 52 1.92 Cloud9 48 2.07 116,102 March 30 Group D Na'Vi 65 1.54 VP 35 2.80 184,111 March 31 Group A mouz 56 1.77 NiP 44 2.28 203,850 March 31 Group B Fnatic 89 1.12 FaZe 11 9.16 125,659 March 31 Group C CLG 52 1.92 Gambit 48 2.06 178,051 March 31 Group D Virtus.Pro 52 1.91 G2 48 2.08 179,192 April 1 Quarters Na'Vi 83 1.20 NiP 17 5.79 189,406 April 1 Quarters Fnatic 77 1.30 Astralis 23 4.28 220,496 April 1 Quarters Liquid 75 1.33 CLG 25 3.96 159,822 April 1 Quarters LG 77 1.30 Virtus.Pro 23 4.29 245,278 April 2 Semis Na'Vi 55 1.82 Astralis 45 2.20 287,718 April 2 Semis LG 73 1.37 Liquid 27 3.66 150,910 April 3 Champ Na'Vi 63 1.58 LG 37 2.69 307,643 Average Skin Handle By Round Skins/match 161,345 RR Day 1 134,754 Total skins 4,356,317 RR Day 2 128,783 Total handle $42,474,091 RR Day 3 171,688 Handle/match $1,573,114 Quarters 203,751 Semis 219,314 Final 307,643 12

Appendix A - Single-Game Skin Betting Data (continued) ESL One Cologne - 2016 Individual match betting data Source: CSGOLounge Date Round Team % Odds Team % Odds Items July 5 RR 1 Na Vi 81 1.22 FSid3 19 4.85 115,667 July 5 RR 1 Gambit 63 1.56 CLG 37 2.54 126,603 July 5 RR 1 Astralis 74 1.32 Dignitas 26 3.66 130,626 July 5 RR 1 Virtus.Pro 59 1.65 mouz 41 2.37 138,894 July 5 RR 1 NiP 80 1.24 OpTic Gaming 20 4.55 158,859 July 5 RR 1 Fnatic 77 1.28 FaZe 23 4.01 171,093 July 5 RR 1 SK 59 1.66 G2 41 2.33 188,217 July 5 RR 1 EnVyUs 53 1.82 Liquid 47 2.07 188,477 July 6 RR 2 Dignitas 72 1.37 CLG 28 3.34 115,031 July 6 RR 2 Astralis 78 1.26 Gambit 22 4.26 118,907 July 6 RR 2 OG 52 1.86 FSid3 48 2.03 133,109 July 6 RR 2 SK 75 1.31 FaZe 25 3.73 160,017 July 6 RR 2 EnVyUs 52 1.85 mouz 48 2.04 162,063 July 6 RR 2 Liquid 57 1.70 Virtus.Pro 43 2.26 176,390 July 6 RR 2 Na Vi 57 1.72 NiP 43 2.26 180,323 July 6 RR 2 Fnatic 56 1.74 G2 44 2.19 224,348 July 7 RR 3 NiP 86 1.15 FSid3 14 6.63 133,730 July 7 RR 3 Fnatic 73 1.34 FaZe 27 3.48 150,616 July 7 RR 3 Dignitas 61 1.60 Astralis 39 2.42 200,688 July 7 RR 3 Liquid 55 1.76 mouz 45 2.17 272,428 July 8 Quarters SK 89 1.12 FSid3 11 8.39 147,834 July 8 Quarters Fnatic 85 1.16 Gambit 15 6.27 170,185 July 8 Quarters Virtus.Pro 74 1.34 Astralis 26 3.53 181,971 July 8 Quarters Na Vi 70 1.41 Liquid 30 3.08 254,382 July 9 Semis Fnatic 69 1.41 Liquid 31 3.06 240,792 July 9 Semis SK 75 1.32 Virtus.Pro 25 3.69 242,746 July 10 Finals SK 61 1.61 Liquid 39 2.39 321,155 Average Skin Handle By Round Skins/match 177,969 RR Day 1 152,305 Total skins 4,805,151 RR Day 2 158,774 Total handle $46,850,222 RR Day 3 189,366 Handle/match $1,735,193 Quarters 188,593 Semis 241,769 Final 321,155 13

Appendix A - Single-Game Skin Betting Data (continued) ELEAGUE - 2016 Individual match betting data Source: CSGOLounge Date Round Team % Odds Team % Odds Items May 24 Group A Luminosity 82 1.22 Renegades 18 5.09 63,870 May 24 Group A Luminosity 81 1.23 Renegades 19 4.80 36,231 May 24 Group A Cloud9 50 1.94 Liquid 50 1.94 87,217 May 24 Group A Cloud9 56 1.74 Liquid 44 2.22 46,543 May 24 Group A Luminosity 86 1.16 Liquid 14 6.68 47,171 May 24 Group A Luminosity 82 1.22 Liquid 18 5.14 33,759 May 25 Group A Liquid 57 1.73 Renegades 43 2.23 58,048 May 25 Group A Liquid 64 1.55 Renegades 36 2.62 37,240 May 25 Group A Luminosity 74 1.34 Cloud9 26 3.61 62,588 May 25 Group A Luminosity 81 1.23 Cloud9 19 4.83 39,506 May 25 Group A Cloud9 62 1.60 Renegades 38 2.48 52,562 May 25 Group A Cloud9 67 1.49 Renegades 33 2.83 46,048 May 26 Group A SF Luminosity 85 1.18 Liquid 15 6.09 65,119 May 26 Group A SF Cloud9 66 1.51 Renegades 34 2.76 111,783 May 27 Group A F Luminosity 85 1.18 Cloud9 15 6.05 99,205 May 31 Group B NiP 79 1.27 OG 21 4.36 75,850 May 31 Group B NiP 84 1.18 OG 16 5.87 49,243 May 31 Group B G2 91 1.09 Selfless 9 10.65 32,520 May 31 Group B G2 91 1.10 Selfless 9 9.74 20,859 May 31 Group B NiP 58 1.70 G2 42 2.23 102,018 May 31 Group B G2 53 1.84 NiP 47 2.07 65,563 June 1 Group B G2 86 1.16 OG 14 6.44 70,606 June 1 Group B G2 77 1.29 OG 23 4.03 29,123 June 1 Group B NiP 85 1.18 Selfless 15 6.09 53,974 June 1 Group B NiP 78 1.27 Selfless 22 4.30 32,448 June 1 Group B OG 78 1.27 Selfless 22 4.25 56,532 June 1 Group B OG 77 1.29 Selfless 23 4.04 29,850 June 2 Group B SF G2 92 1.08 Selfless 8 12.10 46,564 June 2 Group B SF NiP 87 1.15 OG 13 6.91 56,755 June 3 Group B F G2 65 1.53 NiP 35 2.67 179,577 June 7 Group C Astralis 72 1.37 NRG 28 3.30 59,847 June 7 Group C Astralis 73 1.34 NRG 27 3.52 42,795 June 7 Group C CLG 51 1.92 SK 49 1.97 67,866 June 7 Group C SK 69 1.41 CLG 31 3.07 50,602 June 7 Group C Astralis 82 1.21 CLG 18 5.04 59,088 June 7 Group C Astralis 86 1.15 CLG 14 6.71 53,918 June 8 Group C NRG 67 1.46 CLG 33 2.85 70,410 June 8 Group C CLG 55 1.76 NRG 45 2.17 45,961 June 8 Group C Astralis 85 1.17 SK 15 6.00 62,069 June 8 Group C Astralis 74 1.34 SK 26 3.53 42,530 June 8 Group C SK 65 1.51 NRG 35 2.68 53,902 June 8 Group C SK 66 1.49 NRG 34 2.73 44,593 14

Date Round Team % Odds Team % Odds Items June 9 Group C SF Astralis 91 1.09 NRG 9 10.54 24,164 June 9 Group C SF SK 72 1.37 CLG 28 3.30 50,248 June 10 Group C F Astralis 89 1.12 CLG 11 8.27 75,134 June 14 Group D Fnatic 88 1.13 TSM 12 7.61 48,284 June 14 Group D Fnatic 89 1.12 TSM 11 8.39 28,974 June 14 Group D FaZe 66 1.49 Dignitas 34 2.76 59,378 June 14 Group D FaZe 72 1.37 Dignitas 28 3.32 41,147 June 14 Group D Fnatic 65 1.51 FaZe 35 2.68 71,495 June 14 Group D Fnatic 76 1.30 FaZe 24 3.85 69,933 June 15 Group D FaZe 81 1.22 TSM 19 4.84 31,602 June 15 Group D FaZe 83 1.19 TSM 17 5.45 26,485 June 15 Group D Fnatic 84 1.17 Dignitas 16 5.89 40,595 June 15 Group D Fnatic 88 1.13 Dignitas 12 7.52 43,843 June 15 Group D Dignitas 70 1.40 TSM 30 3.12 51,967 June 15 Group D Dignitas 57 1.70 TSM 43 2.26 50,609 June 16 Group D SF Fnatic 94 1.06 TSM 6 16.20 40,935 June 16 Group D SF FaZe 76 1.30 Dignitas 24 3.82 68,253 June 17 Group D F Fnatic 72 1.36 FaZe 28 3.36 115,186 June 21 Group E Na'Vi 83 1.20 EchoFox 17 5.32 95,443 June 21 Group E Na'Vi 85 1.17 EchoFox 15 6.00 58,656 June 21 Group E mouz 65 1.50 FSid3 35 2.72 70,720 June 21 Group E mouz 63 1.54 FSide3 37 2.58 52,588 June 21 Group E Na'Vi 64 1.54 mouz 36 2.59 75,418 June 21 Group E Na'Vi 64 1.52 mouz 36 2.63 64,501 June 22 Group E mouz 67 1.46 EchoFox 33 2.87 79,244 June 22 Group E mouz 69 1.42 EchoFox 31 3.03 41,255 June 22 Group E Na'Vi 71 1.38 FSid3 29 3.26 66,288 June 22 Group E Na'Vi 73 1.35 FSid3 27 3.42 60,814 June 22 Group E FSid3 56 1.75 EchoFox 44 2.18 57,108 June 22 Group E FSid3 51 1.91 EchoFox 49 1.97 38,289 June 23 Group E SF Na'Vi 85 1.17 EchoFox 15 6.06 47,368 June 23 Group E SF mouz 66 1.49 FSid3 34 2.76 58,949 June 24 Group E F Na'Vi 83 1.20 FSid3 17 5.37 93,105 June 28 Group F Virtus.Pro 82 1.21 col 18 5.09 46,511 June 28 Group F Virtus.Pro 87 1.14 col 13 6.96 29,086 June 28 Group F EnVyUs 67 1.46 Gambit 33 2.85 58,943 June 28 Group F EnVyUs 55 1.77 Gambit 45 2.15 43,814 June 28 Group F Virtus.Pro 55 1.77 EnVyUs 45 2.14 62,176 June 28 Group F EnVyUs 50 1.92 Virtus.Pro 50 1.96 55,275 June 29 Group F EnVyUs 83 1.19 col 17 5.48 25,481 June 29 Group F EnVyUs 86 1.15 col 14 6.64 22,846 June 29 Group F Virtus.Pro 65 1.5 Gambit 35 2.73 48,680 June 29 Group F Virtus.Pro 63 1.56 Gambit 37 2.53 39,007 June 29 Group F Gambit 73 1.35 col 27 3.42 31,521 June 29 Group F Gambit 69 1.42 col 31 3.04 30,841 June 30 Group F SF EnVyUs 90 1.11 col 10 8.83 39,751 June 30 Group F SF Virtus.Pro 74 1.34 Gambit 26 3.53 88,877 July 1 Group F F Virtus.Pro 51 1.90 EnVyUs 49 1.98 148,602 15

Date Round Team % Odds Team % Odds Items July 13 LCQ FSid3 69 1.41 Renegades 31 3.07 72,532 July 13 LCQ Virtus.Pro 73 1.35 Gambit 27 3.47 73,699 July 14 LCQ G2 52 1.88 mouz 48 2.01 160,182 July 14 LCQ FaZe 87 1.14 CLG 13 7.16 69,474 July 15 LCQ Virtus.Pro 79 1.25 Renegades 21 4.42 94,250 July 15 LCQ mouz 55 1.78 FaZe 45 2.13 117,233 July 21 Quarters Fnatic 76 1.30 EnVyUs 24 3.84 112,550 July 21 Quarters Na'Vi 79 1.25 Cloud9 21 4.40 87,114 July 22 Quarters Astralis 70 1.40 mouz 30 3.16 109,866 July 22 Quarters NiP 52 1.88 Virtus.Pro 48 2.00 125,512 July 29 Semis Fnatic 65 1.50 Na Vi 35 2.71 115,961 July 29 Semis Virtus.Pro 63 1.55 mouz 37 2.55 102,509 July 30 Final Fnatic 66 1.48 Virtus.Pro 34 2.77 112,055 Averages Skins/match 62,760 Group A 59,126 Total skins 6,464,279 Group B 60,099 Total handle $63,026,720 Group C 53,542 Handle/match $611,910 Group D 52,579 Group E 63,983 Group F 51,427 LCQ 97,895 QF 108,761 SF 109,235 Group WD Avg 51,413 Group SF Avg 58,231 Group Final Avg 118,468 16