eSports: The beginning of a new era in gaming?

27 September 2019 12:18 PM | #Business Resources

Video games. A simple yet entertaining diversion or a colossal waste of time? One may be forgiven for missing the rapid emergence of competitive videogaming, also known as eSports. Yes, it is actually a thing, and its popularity is surging. The business world is taking note.

The recent Fortnite World Cup (for those not in the know, Fortnight is an apocalyptic survival videogame), for example, attracted 40mn gamers competing for 150 spots in the finals in which they would compete for $30mn in prize money. The winner, a 16-year-old from Pennsylvania, took home $3mn, with second, third and fourth places earning $1.8mn, $1.2mn and $1.05mn respectively. To give this some context, Wimbledon’s prize pool in 2019 was £38m with the ladies’ and gentlemen’s singles champions taking home £2.35mn each.

Fortnite has some 250mn registered players globally and although it is one of the behemoths of the industry, competitions exist for everything from Street Fighter to League of Legends and StarCraft, amongst many others. Such is the explosive growth of eSports that it  has been considered as a potential addition to the Asian and Olympic Games line-ups, although governing committees have concluded it is premature at this point.

Goldman Sachs estimates that the audience for eSports will grow to 276mn by 2022, up from 167mn in 2018; it is estimated 79% of these viewers are under the age of 35, the coveted millennial and Gen Z demographics. These audiences are already bigger than some established traditional sports leagues such as Major League Baseball and the National Hockey League in North America; an unsurprising fact given more than half of eSports audiences are in the populous Asian markets. Revenue in 2017 was estimated to be $655mn and is expected to grow to $3bn by 2022.

Given the rapid emergence of eSports and continued expected growth in the medium term, investors are piling in, from Amazon’s acquisition of Twitch, a videogame live streaming platform, for almost $1b in 2014, to an acceleration of venture capital directed at backing an expanding ecosystem including:

It is still early days for the sector and there are questions over the accuracy of available market data. As a medium for advertisers, for example, there are challenges related to brand associations with violent videogames (indeed this is one of the factors being considered by the governing bodies of the Asian and Olympic Games) and measurement of viewing figures which pose complications relative to established measurement techniques and metrics used for traditional mediums like television and radio. Broadly, every aspect of the eSports ecosystem still has an existential question mark over the long term viability of individual videogames and their shelf lives, and which might be the blockbuster videogames of the future; this data simply does not yet exist.

So what is next for eSports? Only time will tell. As the industry matures, winners and losers will emerge across the ecosystem. It is still a relatively niche industry, albeit growing, and it remains to be seen whether eSports will be truly launched into the mainstream, a feat ultimately dependent on attracting a global base of non-gaming fans, as with other successful professional sports leagues around the world.

Zafar Kanani

Forbury Investment Network