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The Rise of eSports: An already growing ecosystem now accelerated by current events

The eSports ecosystem and related industries are expected to grow even after the current pandemic we are experiencing passes.

  • Industry insiders and consumers alike are witnessing eSports penetration into mainstream culture and growing audiences alongside investment spend
  • eSports should be an exciting growth industry across the globe as more capital is invested and the youth from the United States, Japan and other countries continue to embrace and support it
  • The eSports ecosystem and related industries such as game publishers, streaming platforms, chip makers, graphic cards producers and others, is expected to grow even after the current pandemic we are experiencing passes.

Electronic sports or eSports has transformed from a niche industry player to a major disruptor to the traditional sports and entertainment industry in the past several years. Industry insiders and consumers alike are witnessing eSports penetration into mainstream culture and growing audiences alongside investment spend. While eSports, organized multiplayer video game competitions, has been around in some form for almost two decades, it only began gaining traction recently as significant improvements in gameplay, interactive gaming and organizational play have emerged.

Many adults dismiss the phenomenon as a generational interest as today’s youth seem infatuated with watching videos of other gamers playing against each other – this concept is more difficult to grasp for older generations. Although eSports has achieved staggering numbers of unique viewership (500mm+ worldwide in 2020E) and successfully filled many stadiums with its events, it hardly received credit for being a “sport” by traditional media outlets. However that narrative is changing as eSports are widely becoming accepted as a “sport” by mainstream media, especially as it continues to operate and broadcast competitions while traditional sports leagues are suspended amid the COVID-19 pandemic.

Indeed, sports starved fans are actively seeking new ways to watch their heroes compete or ways to satisfy their own competitive itch. ESPN began broadcasting live events where celebrity athletes play each other in video games. Sports fans who previously dismissed eSports as just video games are now finding themselves challenging their friends in various eSports competitions.

Is this just a fad? Exactly how big the eSports industry and what is the growth rate?

  • In short, no. Imagine being introduced to professional basketball or football in their early days, except that eSports already has an audience of 500+ million viewers (growing at a 14% CAGR) and generates annual revenue in excess of $1.5 billion (growing at a 34% CAGR), expected to reach $2.2 billion in 2023E. In eSports events, consumers pay to watch professionals play video games, similar to traditional professional sports.
  • In fact, the International Olympic Committee has recognized eSports as a sport, and it will be a medal event at the 2022 Asian Games, which will further boost its acceptance and popularity.
  • Major professional sports leagues have begun to incorporate eSports into their portfolios. For example, the NBA has launched the NBA2K league with 21 teams representing their NBA counterparts competing this past season. While viewership is similar to some professional sports and is closing the gap with others (NFL), its revenue is lower due to the relatively early-stage, evolving platform.
  • The increasing popularity of eSports has been attracting sponsors and larger viewership, which, in turn, has resulted in prize pools surging over the years.
  • In the US, over 20 universities have announced plans to begin offering undergraduate courses in eSports. Ohio State, for example, is creating an undergraduate degree program offering a Bachelor of Science program in game studies and eSports. These universities are focused on preparing their students to enter what is considered to be a rapidly growing job market.
  • The US, China, and India are the largest eSports markets, while others are rapidly catching up.
The eSports opportunity, however, is under-monetized relative to its peer sports leagues

What are the demographics of eSports fans?

  • For now, eSports fans are predominantly male (but growing towards a more equal split), relatively wealthy, and interested in technology. Of the 500+ million viewers, it is roughly an even split between eSports enthusiasts and recreational viewers. In terms of geography, Asia Pacific generated ~53% of total revenue in 2018 (EU – 18%; North America – 14%; Rest of the world – 15%).
  • ~70% of eSports fans are male with an average age of 26 (ranging from 13 to 40). However, gender diversity ranges depending on the game.

How do eSports companies and gamers make money?

  • The eSports ecosystem is similar to traditional sports in some aspects – spectatorship, teams, media rights, advertisers, and events sponsors and organizers. Publishers own the game licenses while Twitch and YouTube are preferred media channels (compared to TV for live sports). eSports leagues pit teams against each other in single events as well as a regular season, playoffs, and championships, building fan excitement throughout.
  • Sponsorships drive a substantial portion of revenue (~40%). Other revenue drivers include advertisements, media rights, game publisher fees, and merchandise. Live events are also held for which fans can buy tickets and attend.
  • eSports teams make money through sponsorships as well as selling products and apparel. There are also massive prize pools for eSports tournaments.
  • Individual gamers can also make money when they are not formally competing by streaming their gameplay via platforms such as Twitch. Twitch is an Amazon-owned video platform and community for gamers. It provides live and on-demand video content for viewers, allowing gamers to broadcast, watch, and discuss video games.

What are the highest earning games?

Top 10 eSports Games by Total Prize Pool (2019)

Indeed, the eSports ecosystem and related industries such as game publishers, streaming platforms, chip makers, graphic cards producers and others, is expected to grow even after the current pandemic we are experiencing passes. We expect an increase in partnerships between the entertainment industry and eSports as media companies will look to monetize the increasing viewership in eSports.

The current COVID-19 crisis may even lead to a more permanent role for eSports in many people’s lives as it continues to develop more structure and incentives for participation. Media companies and brands have certainly taken notice of this highly engaged audience and consumers. eSports should be an exciting growth industry across the globe as more capital is invested and the youth from the United States, Japan and other countries continue to embrace and support it.

Source: Edelweiss Research, PriceWaterhouse Cooper, Newzoo, Marketwatch, Roundhill Investments Blog, esportsoberver, Forbes

Contributors

  • Sohail Khalid

    Digital Asset Strategy

  • Gaurav Verma

    Investment Banking

  • Zachary Marcus

    Investment Banking

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