eSports generally refers to organized tournament-style play of electronic games by multiple players or teams competing for cash and prizes. But that definition barely scratches the surface. In truth, the realm of eSports far transcends gaming to permeate a variety of sectors globally, with a projected 30% growth rate over the next 5 years.
At a time when traditional sports, including football and its flagship league, the NFL, are struggling to grow participant base and retain viewers, both the number of eSports players and the media market for eSports are exploding. As of 2016, the US was the #1 market for eSports, but Asia-Pacific, driven by huge growth in China and South Korea, will claim top spot soon. In 2015, fighting games were the most dominant category of eSports tournaments (Source: FMI eSports).
From a pure revenue standpoint, eSports can be broken down into buckets of opportunity: tournaments (which sell tickets and offer prizes), sponsorship and advertising, eSports betting and fantasy sites, and merchandising. Top console gaming studios (including Activision Blizzard, Rovio, and King Digital) lead the charge, but many mobile games companies and seemingly different industries are looking to eSports as a means to monetize and grow. Here’s some of what’s driving eSports to become a $1.5 Billion industry by 2020.
Tournaments are monetized by a combination of prize pools (the top 5 in 2016 were worth almost $32 million collectively), merchandising, sponsorships (Red Bull is a big player), and the evolving broadcast advertising market, where both traditional networks and digital/social/TV hybrids such as ePlay Digital are making waves.
Technology platforms for tournament organization, hosting, and management include Battlefy and Skillz, which specializes in eSports tournaments for mobile games. Skillz is a good example of just how quickly the industry is evolving — this is a company that’s gone from vapor to $31 million in funding and more than 100 million tournaments hosted in less than 5 years. This category also includes the big console gaming manufacturers, as well as makers of a wide range of peripherals, including controllers, headsets, etc. There’s also the usual array of conferences and industry networking events generating revenue.
eSports have been cutting into viewing time of the NFL, NBA, MLB and other pro sports leagues for years. Recently, traditional franchises have wised up and are now embracing eSports. Several individual teams, including the New England Patriots, are experimenting with partnerships, but it’s the media-savvy NBA that has become the first major sports league in the United States to embrace eSports strategically, as evidenced by its February 2017 announcement of the NBA 2K eLeague. eLeague gamers for each market will be chosen through a recruiting process, attend a virtual combine and be drafted by NBA teams to create the eKnicks or eLakers, for example.
Dedicated eSports arenas are popping up around the globe. One of the largest — Orange County, CA’s Esports Arena – boasts 15,000 square feet of state-of-the-art digital experiences, daily tournaments and affordable fees, making the facility accessible to anyone. In another sector, traditional theaters (such as Cineplex that are scrambling to augment revenues) are investing heavily to upgrade their facilities to be capable of hosting eSports tournaments and provide an immersive companion experience to live-streamed eSports events.
There are already a lot of ways to bet on eSports — some estimates place the 2016 global value of eSports gambling at nearly $650 million. Even the highly regulated world of government-run lotteries is getting into eSports: both France and the UK have official measures afoot to legitimize eSports betting (though not without controversy). Undeterred by these gray-area regulatory environments, oddsmakers including Pinnacle Sports, eGamingbets and even the luminary William Hill brand already offer real money bets on eSports tournaments worldwide.
Perhaps the best indicator of the rise of eSports as an economic powerhouse is the sheer volume and quality of venture capital flooding the industry. Though deal specifics are tough to come by, the list of venture capital firms known to have ties to the eSports industry is certainly eye-opening: 500 Startups, CrossCut, Betaworks, GreyLock and OakVC among them. On the global scene, it’s worth noting that the wealthiest man in Russia recently put $100 million into Virtus.pro, a competitive eSports organization based in Poland.
Lest one think that the potential of eSports is limited to console gaming, consider this: your average 10-year-old far prefers mobile games to anything they can play on their PC or Xbox, according to CNET. The reasons are pretty straightforward: mobility is better than sitting at home, and mobile games are comparatively simpler (and less expensive) to play because there’s no need for any additional equipment (e.g. a controller). This makes mobile games perfectly poised to soon overtake consoles for pole position in the race to monetize.
Mobile games leaders, including Electronic Arts (via its partnership with FIFA), Zynga and South Korea’s Gamevil are sitting pretty, but the proliferation of tournament hosting techs mentioned above mean any mobile game developer, from the basement-dwelling independent to the largest studio, can get into eSports for little expense and with great potential for ROI.
These business evolutions will call for the continued evolution of programmatic ad methods, but more specifically will demand new thinking and cooperation on content, branding, etc. These are just a few of the evolving challenges and opportunities of the extraordinarily explosive eSports industry.
Stay tuned for Part 2 in this series, in which we’ll explore the mobile opportunity in more depth.
