Investing in eSports
Investing in eSports feels like ‘the right thing to do’, with its ‘If-I-get-in-early’ potential that doesn’t come around often in the sports industry. But the question remains: how does it fulfil that promise and become a transformative investment? George Payne, CEO of Bruin Sports Capital, a leading global sports investment firm shares his views.
If you’re over 60, eSports sounds like a trick a guy does on a skateboard. If you’re under 30, you don’t even bother explaining what it is. You’re too busy playing.
With so many fantastic headlines and eye-popping numbers, eSports has become an exhilarating playground for gamers, sponsors, and investors, including ourselves.
Investing in eSports feels like ‘the right thing to do’, with its ‘If-I-get-in-early’ potential that doesn’t come around often in the sports industry. But like so many potential blockbuster opportunities, the question remains – how does it fulfil that promise and become a transformative investment?
It is early days for eSports, and in that context, many of the numbers are impressive. For example, for its inaugural season, Activision Blizzard charged a franchise fee of $20 million to own a team in the Overwatch League. And Newzoo predicts that by 2020, eSports will be a $1.4-billion industry. Comparatively speaking, though, the Houston Rockets and Carolina Panthers were both sold to new owners for $2.2 billion. Also, in 2017, NFL revenue eclipsed $14 billion. The gap is wide right now, but representative of the potential for eSports.
They certainly haven’t had trouble attracting a fanbase and elite players. Today, hundreds of millions of people are playing and consuming eSports. Competitions are selling out across the globe including last weekend's Overwatch League Grand Finals that filled the Barclays Center in New York to capacity. Importantly, total prize money is creeping up to some of the most prestigious ‘traditional’ sports events and majors.
ESports’ audience demographics are so impressive that the most competitive sports leagues such as the NBA, NHL and MLS are teaming up with publishers to form their own eSports leagues, rather than fight the competition. In fact, NBA commissioner Adam Silver describes its 2K League as the NBA’s fourth league, on a par with the NBA, Women's NBA and development G-League.
With its engaging and exclusive content, community development, and digital/social interaction, eSports thrives at the convergence of media and technology, the zenith at which some of the world’s most valuable companies live, and others only hope to aspire to. It has benefited tremendously from the proliferation of broadband access that caused a fundamental evolution in the gaming business from a constricted console-driven to a mobile juggernaut where a significant percentage of overall revenues are derived from in-app experiences. In fact, in-game purchases are expected to account for a majority of publishers’ revenue by 2020, according to Goldman Sachs.
From an affinity standpoint, eSports is not entirely an anomaly. They share an important commonality with the most successful sports leagues – a feeder system rooted in the powerful connection of the shared experience. Just as a little leaguer feels a connection to Aaron Judge, a League of Legends competitor feels a connection to Faker.
With ongoing advancements in data analytics, graphics, mobile technologies and virtual reality, the games will only become even more sophisticated and more potent as an entertainment vehicle. And unlike other leagues where video gamification is an extension of their core competency, the video game, and live event experience, is seamlessly and inextricably intertwined through eSports, leaving the medium uniquely positioned for growth among an audience of digital natives who still crave unique, physical experiences.
This is the key. Accelerating growth and achieving the full potential of eSports as an investment property will be realised by building the structures that manifest in the rapid proliferation of new live events and experiences worldwide.
In these early days, it is easy to become distracted by the seemingly limitless opportunities to expand the business and demonstrate its breakthrough potential. A strategic priority for publishers and their parent companies must be creating the right foundational pillars such as a unified set of guardrails and codified operating structures that will attract partners to participate in and promote the industry’s growth. Failing to do so will slow the growth process and potentially stunt more significant opportunities, and thus eSports will continue to be viewed as a nice playground for experimentation as opposed to a transcendent value creator.
These event and marketer-driven live events and experiences demonstrably impact the value of a business. A recent Group XP report reveals that brands which invest the “experience capital” behind their business have outperformed the S&P 500 by 166 per cent.
Therefore, the rate at which the industry can set the appropriate frameworks will determine when and if it can achieve elite status as an investment on a par with the more traditional sports powerhouses. Here again, it appears to be on its way. Next year it is reported that expansion teams in that Overwatch League could go as high as $60 million. Quite a hefty growth if the numbers are realised.
A terrific example is the recently-announced, first-ever Melbourne ESports Open, with backing from the Victorian government’s Major Events Fund and Visit Victoria. The city is anticipating attracting 10,000 people to the competitions at venues like the Rod Laver Arena and the Margaret Court Arena. It also predicts a benefit of $25 million to the local economy over the next five years, and while a pittance compared to what an event like the Super Bowl or Olympics can bring in, it’s a start.
In forecasting where this could go, we can look to a potentially radical development in international soccer. Fifa president Gianni Infantino is considering a 36-team club world tournament, backed by Softbank and others with $25 billion. While it has yet to receive the go-ahead, and there is a debate about its feasibility, you can see its limitless opportunities for marketers, media companies, and municipalities to participate in creating a perpetual cycle of revenue growth and shareholder value through this event.
Publishers are in the enviable position of controlling the IP and hold the key. With every game published, lies an opportunity to write their own rules and create a new experience-driven ecosystem. It represents a massive opportunity for bold, events-based ideas and vision.
Disney began with a mouse. Apple with a keyboard. Perhaps the next great entertainment company – and investment property – is just a game away.