eSports: High Time for Investors to Play


Written by Finalis

Last edited on Sep 11, 2023

6 min read

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The eSports (electronic sports) industry has experienced a rapid surge correlated with cutting-edge advances in technology. eSports is now a very profitable market, thanks to its swiftly expanding consumer base, the growth of competitive gaming and live-streaming, as well as its status as a popular entertainment destination for a massive and rapidly growing audience.

All these factors, along with its solid connections with popular culture, make eSports an unquestionably enticing target for investors and businesses looking for investment opportunities with promising returns.

A Thriving Industry Despite COVID-19

The COVID-19 pandemic caused widespread economic disruptions across the globe and eSports was among the most affected, as the sector relied heavily for substantial revenues on live gaming events, an income source affected by the crisis.

But while the majority of eSports events got postponed or canceled at the height of the pandemic, the industry proved resilient as gamers and live-streamers still generated income and attracted viewers, brands, and investors by streaming their gameplay live online.

From a $1.2B industry in 2020, eSports grew to $1.5B in 2021. By 2028, the market is projected to go over $7B. In 2021, more than 380M people watched eSports events both in person and online.

Main Takeaways

In the United States, monthly eSports viewership in 2022 is projected at 29.6M watchers, an 11.5% spike from 2021.

Among the biggest reasons for eSports' resilience and growth is that the majority of eSports consumers are digital natives. Gamers and organizers can stream live events on Twitch; viewers can play them back on YouTube and talk about it on Discord; fans can share clips via Tiktok, Twitter, and Instagram.

With so much reach and huge potential for engagement, particularly among Gen Z and millennials, it's not surprising that the eSports industry powered through the rough waters of COVID-19 and will remain a growing market in the coming years as the world economy heads towards recovery.

Huge Prizes Drive Gamers’ Desires

Another driving factor in the colossal surge of eSports in recent years is the prize money. A number of eSports events made headlines due to the staggering sums involved.

2021 saw three of the 10 biggest eSports events in terms of prize money (Dot eSports, Statista):

  • The International 10 (DOTA Pro Circuit) - over $40M
  • Honor of Kings World Champion Cup - $7.7M
  • PUBG Global Invitational 2021 - $7.1M

There are currently 10,537 professional eSports players in the world. Given the growing base of eSports enthusiasts, casual gamers, and viewers, along with online gaming's appeal to younger audiences, the number of eSports professionals is expected to grow exponentially in the coming years.

An Attractive Investor's Destination

eSports has grown so much that it provides investors a vast selection of investment options.

  • Competition: Building and maintaining eSports clubs and organizing tournaments can drive big profits for the willing investor.
  • Marketing: eSports’ massive audience attracts investors willing to work with sponsors to generate buzz and traction for their brands both on social networks and traditional media.
  • Communication/Streaming: Investing in specialized gaming/streaming platforms like Twitch or Mixer as well as eSport-specific content creation solutions like Movistar or Neox can bring in big returns.
  • Gamer Training and Development: Training centers are proliferating in search of promising talent.
  • Merchandising: eSports brands collaborate with sponsors and investors to expand into clothing and accessories.
  • Gaming Tech: The rise of competitive gaming has increased the demand for gaming equipment that's on technology's bleeding edge. Investors are also looking for opportunities in tech companies that specialize in the development and production of gaming components and peripherals.

Investor Tailwinds and Headwinds

According to Foley and Lardner 2021 eSports Report, The top 6 major investment drivers (tailwinds) in eSports in 2022 are:

  • Ongoing growth of online streaming platforms (61%) such as Twitch and YouTube Gaming.  In addition, the crossover integration of video gaming with other forms of entertainment further spurs investments.
  • COVID-19 restrictions (47%)  like social distancing, testing requirements, and mask policies will further increase investment in eSports-specific online mediums.
  • Younger generations are more enamored of eSports (47%) than traditional sporting events and this will further drive gaming and eSports consumption.
  • Increased attention and coverage on eSports events by established sports networks (43%) such as Fox Sports and ESPN will spur more investments.
  • Expanded advertising and sponsorship opportunities via in-game ads and live streaming (39%)
  • The shift of big brands to eSports sponsorship (32%) predisposes investors to bet on eSports.

The same report noted the following barriers (headwinds) preventing investors from diving into the eSports industry:

  • Cybersecurity concerns stemming from the increasing number of high-profile DDoS and ransomware incidents and the perceived vulnerability of game publishers to cyberattacks.
  • IP (intellectual property), fraud, and copyright issues that ensue from the increasing popularity of NFTs (non-fungible tokens)
  • The absence of an overarching regulatory entity providing more structure and setting standard rules and regulations.
  • Match-fixing, lack of adequate player protection in contracts, labor and employment concerns, and lack of diversity across the industry are also seen as major investment barriers.

Asian Domination

China is currently dominating the video gaming scene, which also overlaps with the eSport market. This comes despite a gaming ban for players younger than 18 years old. Chinese tech giant Tencent owns some of the most popular video games played in big eSports events, such as PlayerUnknown's Battlegrounds (PUBG), Call of Duty Mobile (CODM), and League of Legends (LOL). In 2021, China's eSports sector raked in $49.3B in revenue.

The United States sits at second place, with familiar names like Microsoft, Valve, and EA Sports contributing to a $30.4B video game revenue. According to a 2021 survey, 80% of American households have at least one gaming console. Popular eSports games published by American companies include Apex Legends, Defense of The Ancients (DoTA), and Counter-Strike: Global Offensive (CS:GO).

Japan comes in at third, accumulating $18.2B in global video gaming revenue. The Asian nation remains a gaming powerhouse with gaming tech companies like Sony, Nintendo, Konami, and Bandai Namco leading the way.

Major M&A Activities in eSports

“Video game and eSports stocks are uniquely positioned for the current market as shelter-in-place orders remain in effect. Across the industry, analysts have noted a sharp increase in video game and eSports engagement, from people playing games to viewership numbers." (NASDAQ)

Given eSport's rising trajectory as a market, it's not surprising we are seeing substantial M&A action in this space.

eSports and gaming coaching platform Metafy has raised $25M in a Series A funding round led by Tiger Global Management and Seven Seven Six ventures, the venture capital company founded by Reddit Co-founder Alexis Ohanian.

Microsoft plans to acquire Activision Blizzard for $68.7B. The acquisition will include ownership of Blizzard's iconic games like  “Warcraft,” “Diablo,” “Overwatch,” “Call of Duty” and “Candy Crush”. The move will also include global eSports activities through Major League Gaming.

ESL Gaming and FACEIT, two of eSports’ largest tournament event organizers, recently announced a merger set to be completed in 2Q22.

Explore Opportunities in eSports with Finalis

The eSports space is on track to see explosive growth in the coming years, despite the economic ravages of the pandemic. 75% of the eSports industry’s $1B global revenue stems from the sale of acquisition rights and sponsorship.

Undeniably, the investment space in eSports has become increasingly competitive. Many investors have sharpened their focus on this market, with opportunities in five different categories: team organizations, developers, event coordinators, media, eSports viewership platforms and advertising, and consumer products.

You need to thoroughly examine opportunities through an investor's lens and carefully assess every valuation consideration. Finalis provides you with insightful perspectives on industry trends to help you navigate the world of eSports, find promising deals, and close some of the most rewarding transactions.

Sources: eSports Insider, NASDAQ, Investment Monitor, Microsoft, Investment Monitor, Foley, Mobile World Capital, Statista, Dot eSport, Insider Intelligence, Globe Newswire

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