The risks and rewards of operating in the esports vertical

With an increase in fraudulent activity, exacerbated by the speed of social media and the innovation of a young demographic, Vlastimil Venclik, co-founder and CEO at Oddin.gg, speaks to iGB about managing emerging trading risks for esports betting.

Oddin.gg is a B2B provider of esports odds feed, risk management, and iFrame solutions. Vlastimil Venclik is the co-founder and CEO at Oddin.gg and aims to significantly improve the engagement within esports betting and build relationships which shape the future of esports and betting in the vertical. Venclik has over 7 years industry experience, holding senior and managerial roles within IT development and integration in the industry. 

Covid-19 saw sporting events brought to a halt, significantly curtailing available betting markets. For esports, competitions could move online, which led to betting activity accelerating.  This then resulted in a host of challenges unique to the vertical. For esports odds feed and risk management provider Oddin.gg, this ramped up their exposure to a new generation of bettors, and a host of unique and complex trading and financial risks.

Risks vs sports

“Every single incidence of fraud can be extremely costly for the operator”, says Oddin.gg CEO Vlastimil Venclik.

He outlines two key  trends that will raise the risk profile of esports wagering going forward: “Higher prize-pools lower the motivation of esports players to match-fix; yet there is a higher liquidity in esports betting, which has the potential to attract more bettors with fraudulent intentions,” Vencilk explains. “So, while the number of risks isn’t growing, as esports becomes more mainstream, every risk has the potential to be more serious.”

With esports still in its infancy compared to traditional betting sports, many operators are still navigating this landscape of emerging risks.

“Traditional sports are long established, and there are not that many changes in their core betting models anymore. But esports are relatively new and the games are still developing, so there are a lot of changes to keep on top of.”

“When it comes to risk management, esports trading is confronted with a certain fraud risk – usually a form of match-fixing,’ he adds. Operators need to constantly improve their risk detection tools. Oddin looks to ensure there is an early warning system in place, by maintaining a list of teams and players that have been involved in fraud in the past.

“This record is constantly updated to reflect the frequently changing team rosters in esports. Both the trading team and data scientists work closely to analyse how these bets are developed. We aim to prevent betting-related fraud by updating our information on teams and tournaments known for these illegal practices on a daily basis and, ideally, identify suspicious betting patterns in real-time.”

Constant updates

In classic sports the tournament schedule and team composition are known in advance. Esports, on the other hand, is significantly harder to anticipate; teams can consist of anyone from semi-pro players to amateurs. It is therefore vital that companies like Oddin.gg track these tournaments and set the liability to match the possible risk of odds volatility,

Many parameters should be considered, such as the prize pool, the organiser, the quality and the reputation of the teams and their players. It is very important to have the liability set for the entire match, so that bettors cannot abuse the side market offers that are related to the match.

These odds are most often punished by bettors who live in the region where most of the tournament’s players come from due to having more knowledge than the bookmakers. After the limits are set correctly and the match is listed, it is critical to monitor the volume from these players.

Venclick says that in order to be able to make long-term revenue in such tournaments, it is necessary to have a specialised team responsible for risk management, which always sets the liability correctly and monitors the tournament development.

|We have experienced first-hand that some clients had the same liability for tier 1 as for tier 3 tournaments,” he explains.”In such a case, it is important to recognise the issue from the incoming tickets and recommend the partner to set the proper limits.”

Different demographics

Venclik adds that many of the issues they are now managing on behalf of their clients arise from the younger target audience for esports betting. According to Global Web Index, 32% of the esports viewing audience is aged 16-24. This demographic is social media savvy and far more reactive than the audience platform providers are used to.

“[They] are better at using social media to find out about last-minute changes to rosters and map picks, using this information to get bets in before traders have had a chance to change the odds. It’s critical for us to stay on top of this information.”

With traditional sports there is, on average, a five-second delay between the live event happening and its transmission onto TV. For online esports tournaments, the streaming delay can be anywhere between one and five minutes, drastically increasing the risk of a potential exploitation of the odds.

Oddin’s preference is therefore to use data with no more than a two to three second delay. “Even then we still need to be careful and check the tickets in real-time to stop someone, say, getting in the players’ room or an arena without an audience, as we found during the Covid era. In cases where there is no official data, we are even more careful how we approach trading on these events”, explains Venclik.

Frequent game patches

However, with risks becoming more complex, so does the challenge of detecting and mitigating these. Tricks used by fraudulent punters include using multiple accounts, VPNs to hide IP addresses and device IDs, and changing stake sizes to avoid detection.

Odds suppliers have to stay on top of regular in-game changes, otherwise known as ‘patches’. This demands a “competitive trading team”, who not only “have a deep knowledge of the games”, but are aware of the risks associated with esports-specific markets:

“As soon as the patch is released in the patch notes, we update our model. After that, we store all the data from matches played after the update for additional improvements.”

Risk management for esports is also made harder by the average fan’s knowledge and understanding of the games. “Your average esports bettor can play these games at a much higher level than the average soccer fan betting on soccer. This deeper understanding of the game leads to, on the whole, far smarter betting strategies. That’s why the requirements for recruiting risk analysts are even higher in esports.”

Tactical recruitment

This in turn means Oddin.gg has to search for talent outside of the typical trader recruitment circles, says Venclik.

“A background in esports and betting experience are both essential. There is an enormous amount of data, so being able to think logically and work with it constructively are important skills.

“The requirements are different to those for a legacy sports trader position, and an experienced and capable trader willing to gain the understanding and passion for esports would be a suitable candidate.”

While providers have the potential to reap significant financial benefits when entering this exciting new betting vertical, it is clear that they are not offset by a multitude of risks.

However, Venclik’s focus on early detection and mitigation will give operators the confidence that a partner such as Oddin.gg can help them unlock the huge potential of this new betting demographic while being shielded from its unique trading risks.

Author: Raymond Fleming