In the gambling world, the gold rush that is attracting all the biggest names among the world’s major casinos and bookmakers is the US, where a wave of legalisation is opening up the market.

But another new gambling market is currently making fewer headlines but from a smaller base its potential for growth is perhaps even more remarkable.

Since pretty much the dawn of the human race, wherever there are games of skill and chance, it is only a matter of time before two parties are betting on the result.

So it was inevitable that with the rise of esports, betting on these games would spring up too.

In fact, esports betting is the largest revenue stream in the esports market, with almost C$1.3bn last year compared to global esports revenue of C$1.4bn.

Luckbox, which is based in the Isle of Man and is poised to float on Toronto’s Venture Exchange this week, is one of the first movers in the esports betting market and one of the few pure-play names.

WATCH: Luckbox gets set for Toronto listing to ‘continue building the story and drive value’

The company was built from scratch by a team now led by CEO Quentin Martin, a former top-ranking professional cardplayer and esports gamer in the UK and Canada, who eventually swapped his gaming deck for a desk and a job in the online gambling industry.

Martin, who still plays “as much as this job will allow me” and has a PS5 at the top of his Christmas wish list, was part of the senior management team at egaming giant Pokerstars, which became The Stars Group and was taken over by FTSE 100 group Flutter for US$6bn earlier in 2020.

Along with two co-founders also from Pokerstars, Martin helped start Luckbox in 2018 and soft-launched a live product in spring last year.

“We got into it with a company vision of esports betting done right. Unlike early on in the esports betting landscape where there were a lot of companies that weren’t licenced, myself and the other two founders came from a company that always had a very strict ethical perspective of doing the right thing by the customer. And that was kind of the guiding light of Luckbox as we got started.

“And we want to bring that kind of integrity and authenticity into the esports betting landscape. That’s why we have an Isle of Man licence, which, particularly from a player-protection perspective, is one of the best gaming licences in the world.”

Luckbox currently accepts customers from about 80 territories globally and is a dedicated esports betting site, though in the coming weeks will be adding the option to bet on around 100 more traditional sports and other events, including football, baseball and tennis.

What makes esports betting different?

While the lazy assumption of most non-gamers is that it’s just for kids, more than half of the UK adult population play video games ‘on most days’ and of those aged over 40, almost more than four out of ten play games on most days.

As people who played computer games as children have grown up, many have not tossed aside the joypad as they got older, with an estimated 2.7bn regular gamers around the world in 2020, of which more than two-thirds are of legal betting age.

“Our average customer is 32,” says Martin. “And around the world we are talking about a really large pool of people – and it’s getting bigger every single year as people get one year older.”

Esports is more mainstream than you might think, with Generation Z more likely to watch computer games than traditional sports. For example, the 98mln worldwide viewers of the last Super Bowl was far eclipsed by 137mln that watched the League of Legends World Championships – and that even excludes China.

Martin says esports betting, which uses the same licensing and infrastructure as the existing traditional sports betting industry, offers the potential for higher profits and has barriers to entry from the betting models.

“We average 5% margin, which is very good compared to the traditional sports betting space and some of our direct esports betting competitors.

In the multiplayer online battle arena (MOBA) game Dota 2, probably the second largest esports game, there are levels and gold and creeps and towers and teams of five, and more than 100 playable characters to choose from.

“There are more variables and so it makes the betting models slightly harder and behave in a slightly different way,” says Martin.

“And more importantly, the games are ‘patched’ by the publishers every few months. Imagine being a soccer fan and next month the goal is suddenly two metres wider and the referee is now also giving out orange cards, whatever they do. As a result we sometimes need to adapt our models.

“So, the basics are the same for bookmakers, but you need to have a dedicated understanding of the games and different titles to really succeed.”

Grabbing market share

Still very early on in its revenue days, the main goal for Luckbox in the coming year is to scale the business, with Martin channelling significant investment into user acquisition and growing its share of a market that is rapidly emerging from its infancy.

Currently the esports betting market made up of varying degrees of competition: most traditional sportsbook giants – split between those that are and those that are not actively pushing esports, and then specialist esportsbooks – split by those with poor licences and those with better licences.

Of those few traditional bookies that actually seem to care about esports and are really doing something about it, Martin says the only two that stand out are privately owned Betway and Pinnacle.

He says some others are doing quite well but are struggling to add new games because their product bandwidth is taken up by their existing features for traditional sports and casino games, which generate them more money.

“But most of the other traditional bookies aren’t doing anything proactively on esports, they just get esports from their odds provider and they’re not doing any acquisition for any marketing, so they’re really starting to lose a competitive advantage in this area.”

Among the band of dedicated esports books, some registered in Curacao, “kind of the cowboy licence of the gambling world”, and those tend to be fairly poorly funded, with poorer deposit/withdrawal options for customers as a result.

But Luckbox, which raised C$5mln in the summer, is among only a handful of diehard esportsbooks that are based on the more prestigious licences on the Isle of Man or Malta, of which Martin says there are only three other standout competitors.

While consolidation has been a theme among the big European and Canadian sportsbook operators in recent years, the sky-high compliance costs are not yet a feature of the early esports betting entrants.

But in future, as the company looks to scale up and move into new jurisdictions, Martin says consolidation, mergers and acquisitions will be a driver for Luckbox too.

“We’ve already had some acquisition offers from players in this space, we expect to receive more as we start to offer these companies access to a completely new user demographic that they’re struggling to acquire.

“I would say that that’s the likeliest future plan, a trade sale to one of the gambling behemoths a few years down the line.”

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