Chances are if you’ve tuned into BNN or other similarly focused programs over the past year you’ve heard individuals discuss esports, or competitive gaming. Esports basically refers to a form of competition using video games in the form of organized, multiplayer video game competitions between professional players and teams, not unlike any other sport. Video games have come a long way since the likes of Pong and Tetris and as they have grown and developed so too has the industry around them. With investors always seeking new opportunities for growth and diversification the industry has attracted significant attention, and for good reason. In this article we aim to explore the rising popularity of competing in these games and what that means for investors and the rest of the world.
First we can define exactly what esports are. There are video games across a plethora of different genres that promote competition and playing with and against other individuals of similar skill in either online or offline environments. These range from First Person Shooters, real time strategy games, Multiplayer Online Battle Arenas (or MOBAS as they are often referred to) to electronic versions of card games and traditional sports such as Hockey, Basketball and Football.
Much like with traditional sports some esports are team based and some are individual. The most popular titles currently include games such as League of Legends, DOTA2, Overwatch, Fortnite, Counter Strike: Global Offensive, Call of Duty, Hearthstone, the StreetFighter series and sports games. They can be played on gaming consoles, such as Xbox (owned by Microsoft) and Playstation (owned by Sony), or regular computers.
Watching esports has become incredibly popular as a form of entertainment and increasingly lucrative for those directly involved. Occasional viewers and enthusiasts of this genre have seen their numbers increase by 25 million people per year, now totaling over 200 million and 150 million respectively. This growth trajectory is projected to remain more or less consistent until at least 2021.
The industry has also seen its revenue grow at an alarmingly fast rate totaling north of $600 million in 2017, $900 million in 2018 and it is expected to surpass $1 billion dollars this year. There are a multitude of factors for this revenue growth but they can essentially be boiled down to the astronomical viewing numbers and the potential for marketing to these viewers.
Multiple major tournaments or events have now surpassed over 10 million hours of content viewed. The largest last year was the League of Legends World Championship which accumulated a staggering total of 74.3 million hours viewed across multiple channels. These include places such as YouTube and Twitch, the company Amazon acquired for $970 million in 2014, but more on them later.
To make a comparison to traditional sports, the League of Legends Mid Season Invitational saw well over 120 million unique viewers tune in through various points of the event. That is more viewers than the Super Bowl that same year which only reached around 110 million people tuning in. Numbers like that bring significant consideration from marketing teams and the demographics associated with these numbers make them even more attractive.
80% of the esports audience is comprised of mostly young people under the age of 35 who are difficult to reach through traditional marketing mediums. Furthermore this base tends to be well educated and of higher income when compared to the general population.
Esports fans are 34% more likely to have received a higher education and be currently holding a full time job. As a result they boast a 32% higher income compared to the general population and are 23% more likely to spend over $600 on technological hardware at some point in time. One fact that may surprise people unfamiliar with the space is that they are also highly social, as 62% are more likely to participate in team sports.
The audience base is approximately 70% male but is diverse and representative of local populations in regards to ethnicity, race and religion. Esports appeal to people from all number of backgrounds. There are over 1.5 billion people now aware of this space which is more than a third of the roughly 4 billion people worldwide who have access to the internet.
Access to these otherwise difficult to reach youngsters is what is driving marketing and sponsorship in the space and that money has trickled down to the competitors themselves. Total prize pools increased 40% from 2017 to 2018 making it a more viable career path for individuals each and every year. The largest prize pool last year was available at the DOTA2 International, with over $40 million being available to the competitors to take home.
It isn’t just technology companies and endemic brands that are spending on advertising to this market. Major multinational corporations such as Gillette, RedBull, Audi, Nike, Coca-Cola, McDonalds, StateFarm and others have recognized the valuable demographics that are accessible through this channel and have moved to enter the space through the sponsorship of various players, teams, organizations and events. This list is quickly growing every year as more and more companies realize the opportunity that esports presents.
With the numbers becoming so large the industry has seen a recent influx of traditional sports moguls and major investors to help provide the necessary capital for building out the required infrastructure. The NBA, NFL and FIFA all work with their respective esports titles to promote the leagues and engage with fans, while major investors such as Marc Cuban and Robert Kraft have worked to begin bridging the gap between the two worlds. Many in the sports world feel that esports will rival, and perhaps even surpass traditional sports in the near future.
Esports does have a unique difference when compared to traditional sports however, and that is the potential for fan engagement, specifically through streaming platforms like Twitch. Fans aren’t limited to watching their favorite players compete at events; they can also view them practicing their skills at home. This is what is referred to as Streaming and is largely responsible for the monumental success of individuals such as Tyler “Ninja” Blevins, who reportedly made over $80 million last year by attracting thousands of viewers to watch him play the game Fortnite from home. He has since been able to turn those viewers into lucrative sponsorship deals with companies such as Samsung, who want to partner with him, and has also appeared on popular programs such as The Ellen Show. Fans can also type directly into a chat on these websites allowing broadcasters to interact with them directly, live during the actual broadcast. Twitch was the first major streaming website and while there are now multiple competitors, it is still the largest of its kind.
The industry has become increasingly complex, so much so that is almost impossible to explain it all in one quick report, however we do hope this overview has provided you with enough information to begin understanding this rapidly evolving phenomena. In a similar fashion to the evolution of Netflix and Spotify who brought the television and music worlds to the internet respectively, esports is doing the same for video games, and websites like Twitch are some of the major catalysts for doing so.
If this report has peaked your interest and you’d like to do further research on your own, www.newzoo.com is the leader for esports industry research and analysis as they have a tremendous amount of statistics and information available for free on the industry. As investors we continue to monitor and invest in this space as it is one of the few areas of growth for years to come.
The Summerhill Team