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The convergence of gaming and gambling
The Convergence of Gaming and Gambling:
Pay2Win and gambling share a similar business
model
Ingo Fiedler
02. February 2016
Introduction
Business models of gaming
Business model of gambling
Discussion
1. Introduction
2. Business models of gaming
3. Business model of gambling
4. Discussion
Content
What the talk is (not) about
Gambling Pay2Win
Gaming
Play Money
Gambling
(Video)
Gaming
Introduction
Business models of gaming
Business model of gambling
Discussion
Introduction
Business models of gaming
Business model of gambling
Discussion
Gaming and gambling is treated different
• Gambling is highly regulated in all jurisdictions while gaming is not
• Offering of gambling is often highly limited to state-owned operator
or a few license holders
• Offering gambling without a license is criminalized
• Gambling is highly taxed, gaming is taxed like any other product
• The reason for the different regulation is that gambling leads to social
costs and gaming not
• Is that (still) true?
Introduction
Business models of gaming
Business model of gambling
Discussion
Four heuristics to distinguish gaming and gambling
• Heuristic 1: Gaming is based on skill, gambling is based on chance
• Contradiction: Some games (mostly board games) involve 100%
chance. Some gambling forms – e.g. poker or Black Jack –
involve skill
• Heuristic 2: Only gamblers can win money
• Contradiction: Prize money in sports and e-sports is common;
gambling can also be played with play money
• Heuristic 3: Only gamblers pay a consideration
• Contradiction: Gaming products cost money, entry fees to
tournaments are possible; gambling can also be played with play
money
• Heuristic 4: Gambling is addictive, gaming is not
• Contradiction: Gaming and gambling can both be addictive
Introduction
Business models of gaming
Business model of gambling
Discussion
Flat Fee and Pay2Play
• Flat Fee
• Traditional business model
• Pay once, play as often and long as desired
• Example: Super Mario on a Nintendo console
• Pay2Play
• Developed for arcade halls
• Player has to pay to get game started and for each
successive game
• Example: Street Fighter in arcade hall
Introduction
Business models of gaming
Business model of gambling
Discussion
Money spend and number of play in Flat Fee and Pay2Play
• In flat fee games, money spent is independent from number
of plays, in Pay2Play money spent is dependent on number
of plays
Introduction
Business models of gaming
Business model of gambling
Discussion
• Initially a game is sold for a fixed price,
later addon(s) are sold also for a fixed
price
• Similar to flat fee model, difference is
that spending per head is not identical
but "‘staired"’
• Example: Diablo
Addon
Introduction
Business models of gaming
Business model of gambling
Discussion
Pay2Win
• Pay2Win games can most often be played for free, but players need to pay in order to
advance in the game
• Payment is typically made for a temporary boost, an item which gives more strength or
health to the player’s avatar, or just to unlock the next stage
• Similar to Free2Play games, most players do not pay for playing
• Attracts fewer players than Free2Play, but average spending per head is higher
• A small fraction of players ("whales") pay huge amounts to stay on top of the game (some
gamers report to have paid >$10,000 in one month for a game)
• "‘Whales"’ are responsible for a significant part of the revenues
• Financial incentive of the producer is to attract "whales"
• Prominent business model in puzzle games (e.g. Candy Crush Saga) and in competitive
games where players and/or guilds play against each other and are ranked (e.g. The
Hobbit, Kingdoms of Middle Earth)
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of Gaming Revenues
Introduction
Business models of gaming
Business model of gambling
Discussion
• Gambling (for money) is Pay2Play – but other than in gaming, the price is not
fixed per participation but variable
• Gambling is also Pay2Win: the more is spent, the higher the likelihood to win
(of course, only from a gross not a net perspective)
• Similar to Pay2Win gaming: most gamblers play only for small money, a small
fraction – "highrollers" or "most intense gamblers" – gambles for huge amounts
• "Most intense gamblers" are responsible for a significant part of the revenues
• Financial incentive to attract and sustain "most intense gamblers"
• Hypothesis: concentration of gambling revenues is lower for lotteries than for
casino gambling or sports betting
Gambling: Pay2Play and Pay2Win
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of online Fixed Odds betting
Figure: Fixed Odds betting stakes in $ (bwin dataset, n=39,719)
Player group
Top 1%
Top 5%
Top 10%
Share of total playing volume
31.41%
58.49%
71.25%
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of online Live Action betting
Figure: Live Action betting stakes in $ (bwin dataset, n=24,794)
Player group
Top 1%
Top 5%
Top 10%
GINI-coefficient
Share of total playing volume
48.99%
80.14%
89.40%
91.87%
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of online poker revenues (1/2)
Table: Concentration in online poker playing behavior at PokerStars
(n=2,127,887)
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of online poker revenues (2/2)
Figure: Playing volume in $ rake paid over six months by percentiles (n=2,127,887)
Player group
Top 1%
Top 5%
Top 10%
Share of total playing volume
59.59%
83.10%
91.06%
Introduction
Business models of gaming
Business model of gambling
Discussion
Concentration of slot machine revenues
Table: Concentration of German slot machine revenues by number of visits
• Frequency of play is only one of three variables of playing volume
• Empirical evidence that frequent players also play longer sessions and
more intensely  revenues are even more concentrated
Introduction
Business models of gaming
Business model of gambling
Discussion
• Gambling is characterized by a few players being responsible for a
significant proportion of revenues
• The Pay2Win business model of gaming is also characterized by a
few gamers being responsible for a significant proportion of revenues
• One part of the gaming world becomes similar to gambling
• Financial losses in gambling are precipitating, that is, an important
reason for gambling problems
• Hypothesis1: financial losses in gaming are – besides losses in time –
an important reason for gaming problems
• Hypothesis2: Business models like Pay2Win lead to social costs like
gambling and have thus to be eyed by regulators
Introduction
Business models of gaming
Business model of gambling
Discussion
Thank you for your kind attention!
ingo.fiedler@uni-hamburg.de

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The convergence of gaming and gambling

  • 2. The Convergence of Gaming and Gambling: Pay2Win and gambling share a similar business model Ingo Fiedler 02. February 2016
  • 3. Introduction Business models of gaming Business model of gambling Discussion 1. Introduction 2. Business models of gaming 3. Business model of gambling 4. Discussion Content
  • 4. What the talk is (not) about Gambling Pay2Win Gaming Play Money Gambling (Video) Gaming Introduction Business models of gaming Business model of gambling Discussion
  • 5. Introduction Business models of gaming Business model of gambling Discussion Gaming and gambling is treated different • Gambling is highly regulated in all jurisdictions while gaming is not • Offering of gambling is often highly limited to state-owned operator or a few license holders • Offering gambling without a license is criminalized • Gambling is highly taxed, gaming is taxed like any other product • The reason for the different regulation is that gambling leads to social costs and gaming not • Is that (still) true?
  • 6. Introduction Business models of gaming Business model of gambling Discussion Four heuristics to distinguish gaming and gambling • Heuristic 1: Gaming is based on skill, gambling is based on chance • Contradiction: Some games (mostly board games) involve 100% chance. Some gambling forms – e.g. poker or Black Jack – involve skill • Heuristic 2: Only gamblers can win money • Contradiction: Prize money in sports and e-sports is common; gambling can also be played with play money • Heuristic 3: Only gamblers pay a consideration • Contradiction: Gaming products cost money, entry fees to tournaments are possible; gambling can also be played with play money • Heuristic 4: Gambling is addictive, gaming is not • Contradiction: Gaming and gambling can both be addictive
  • 7. Introduction Business models of gaming Business model of gambling Discussion Flat Fee and Pay2Play • Flat Fee • Traditional business model • Pay once, play as often and long as desired • Example: Super Mario on a Nintendo console • Pay2Play • Developed for arcade halls • Player has to pay to get game started and for each successive game • Example: Street Fighter in arcade hall
  • 8. Introduction Business models of gaming Business model of gambling Discussion Money spend and number of play in Flat Fee and Pay2Play • In flat fee games, money spent is independent from number of plays, in Pay2Play money spent is dependent on number of plays
  • 9. Introduction Business models of gaming Business model of gambling Discussion • Initially a game is sold for a fixed price, later addon(s) are sold also for a fixed price • Similar to flat fee model, difference is that spending per head is not identical but "‘staired"’ • Example: Diablo Addon
  • 10. Introduction Business models of gaming Business model of gambling Discussion Pay2Win • Pay2Win games can most often be played for free, but players need to pay in order to advance in the game • Payment is typically made for a temporary boost, an item which gives more strength or health to the player’s avatar, or just to unlock the next stage • Similar to Free2Play games, most players do not pay for playing • Attracts fewer players than Free2Play, but average spending per head is higher • A small fraction of players ("whales") pay huge amounts to stay on top of the game (some gamers report to have paid >$10,000 in one month for a game) • "‘Whales"’ are responsible for a significant part of the revenues • Financial incentive of the producer is to attract "whales" • Prominent business model in puzzle games (e.g. Candy Crush Saga) and in competitive games where players and/or guilds play against each other and are ranked (e.g. The Hobbit, Kingdoms of Middle Earth)
  • 11. Introduction Business models of gaming Business model of gambling Discussion Concentration of Gaming Revenues
  • 12. Introduction Business models of gaming Business model of gambling Discussion • Gambling (for money) is Pay2Play – but other than in gaming, the price is not fixed per participation but variable • Gambling is also Pay2Win: the more is spent, the higher the likelihood to win (of course, only from a gross not a net perspective) • Similar to Pay2Win gaming: most gamblers play only for small money, a small fraction – "highrollers" or "most intense gamblers" – gambles for huge amounts • "Most intense gamblers" are responsible for a significant part of the revenues • Financial incentive to attract and sustain "most intense gamblers" • Hypothesis: concentration of gambling revenues is lower for lotteries than for casino gambling or sports betting Gambling: Pay2Play and Pay2Win
  • 13. Introduction Business models of gaming Business model of gambling Discussion Concentration of online Fixed Odds betting Figure: Fixed Odds betting stakes in $ (bwin dataset, n=39,719) Player group Top 1% Top 5% Top 10% Share of total playing volume 31.41% 58.49% 71.25%
  • 14. Introduction Business models of gaming Business model of gambling Discussion Concentration of online Live Action betting Figure: Live Action betting stakes in $ (bwin dataset, n=24,794) Player group Top 1% Top 5% Top 10% GINI-coefficient Share of total playing volume 48.99% 80.14% 89.40% 91.87%
  • 15. Introduction Business models of gaming Business model of gambling Discussion Concentration of online poker revenues (1/2) Table: Concentration in online poker playing behavior at PokerStars (n=2,127,887)
  • 16. Introduction Business models of gaming Business model of gambling Discussion Concentration of online poker revenues (2/2) Figure: Playing volume in $ rake paid over six months by percentiles (n=2,127,887) Player group Top 1% Top 5% Top 10% Share of total playing volume 59.59% 83.10% 91.06%
  • 17. Introduction Business models of gaming Business model of gambling Discussion Concentration of slot machine revenues Table: Concentration of German slot machine revenues by number of visits • Frequency of play is only one of three variables of playing volume • Empirical evidence that frequent players also play longer sessions and more intensely  revenues are even more concentrated
  • 18. Introduction Business models of gaming Business model of gambling Discussion • Gambling is characterized by a few players being responsible for a significant proportion of revenues • The Pay2Win business model of gaming is also characterized by a few gamers being responsible for a significant proportion of revenues • One part of the gaming world becomes similar to gambling • Financial losses in gambling are precipitating, that is, an important reason for gambling problems • Hypothesis1: financial losses in gaming are – besides losses in time – an important reason for gaming problems • Hypothesis2: Business models like Pay2Win lead to social costs like gambling and have thus to be eyed by regulators
  • 19. Introduction Business models of gaming Business model of gambling Discussion Thank you for your kind attention! ingo.fiedler@uni-hamburg.de