To get the whole eSports story in context, here is a short background into the niche. For starters, the very first known video game dates back to 1962. Called Spacewar, organizers at Stanford University invited interested players to a challenge in 1972, which makes for the earliest known competitive eSporting challenge. Interestingly, most of the competitors were students where the top prize was a subscription to the Rolling Stone magazine which would last for one year.
In the ‘80s, video game competitions began to make their way into the mainstream. In 1980, Atari SA, an Arcade game company, organized the first serious eSports championship dubbed the Space Invaders Championship. An overwhelming 10,000 strong crowd turned up to take part in making history. The tournament created a momentum which several other events sought to build on. More people developed a particular interest in the video gaming niche after the creation of Twin Galaxies. Later, TV shows took on the momentum where shows like First Class and Starcade became popular. From there on, the video game craze was in full swing.
The solidifying of the internet’s presence in the ‘90s was the defining period for video gaming. Nintendo Entertainment Systems took graphics and gameplay a notch higher. Through the Nintendo World Championships, eSports gaming became ever more popular. In the 21st century, gaming climbed onto another level due to the availability of high powered personal computers. At events like Worldwide Webgames Championship organized by FUN Technologies in 2006, the prize was a whopping $1 million.
The present
Twitch changed the whole concept of online gaming in 2011. Notably, the platform broadcasts games and events surrounding the eSports community to fans across the globe. The coming of Twitch enabled fans the world over to get a piece of huge tournaments like the Defense of the Ancients (Dota 2) and League of Legends (LoL). Through Twitch, many people got to hear about eSports events which led to a growth in the revenue derived from the niche.
The period just after the founding of Twitch saw the revenue generated in the eSports industry grow tremendously. According to Statista, the sector registered a total revenue of $130 million in 2012. Notably, the amount grew each year incrementally until the year 2018 when the market generated $865 million, as shown in the figure below.
Source: Statista
Further numbers by Statista show that the market is set to continue expanding through to 2022. Notably, the industry is growing at 22.3% CAGR. As such, the market will be worth $1.8 billion in terms of revenue in the next three years. In its analysis, Newzoo found out that the revenue generated from the eSports market will top $1 billion in 2019.
To be sure, the analysis established that endemic and non-endemic brand investments will lead the revenue streams. Notably, this segment of the eSports industry will contribute around $897.2 million of the total revenue. In particular, the segment includes such investments as advertising, sponsorship, and media rights.
Interestingly, Newzoo noted that sponsorship is set to generate over $456.7 million in revenues in 2019. As such, this will make the segment the highest grossing of the endemic and non-endemic brand investments sector. However, media rights might soon surpass the sponsorships as the highest grossing revenue stream given the rate at which it is growing.
In its analysis, Statista noted that another defining element of the eSports market is ticket and merchandise sales, tournaments, prize pools, and eSports betting. Already, the world’s largest eSports markets are warming up to these elements. However, sponsorships remain the highest source of revenue in the eSports industry.
To be sure, Newzoo noted that both endemic and non-endemic sponsorship for eSports is growing. In 2017, advertising and sponsorship amounted to 75% of all the revenue that eSports generated. Endemic sponsors were the most visible in sponsorships since the players use computer components and software which the sponsors create.
Shifting market dynamics
Like earlier discussed, the market for eSports and related products is expanding quickly.Currently, the two major markets for eSports in North America and China. In particular, Statista showed that China would claim 19% of the market by the end of 2019. At the same time, North America is estimated to claim a market share of 37% making it the largest by market share.
Further dynamics are present in the viewership of eSports sporting events. According to the latest figures from Newzoo, there were 215 occasional viewers of eSports events. Also, there were an additional 165 million who viewed the games enthusiastically. These are those you can call diehard fans who eat and sleep eSports.
Key trends
Astute investors are never late to recognize and commit to an opportunity to generate more profit. It is already happening in the eSports niche as more people see the potential of the market. Notably, teams are raising vast amounts of funds in Series funding rounds and the amount raised seems to increase regularly. Although Forbes thinks the eSports market is still a Wild West, the potential for colossal revenue generation is undeniable.
Still, Forbes is not shying away from the fact that the market is already on the move. In a recent report, Forbes brought its readers to the realization that there is a lot of money exchanging hands in the eSports niche. To be sure, there is vigorous buying and selling of players and teams to rival in the best leagues that already exist. Further, player training facilities are coming up ferociously to satisfy the need for best and well-trained talent.
In October 2018, Cloud9 became the first eSports franchise to attain a $310 million valuation by Forbes. It was after the company raised Series B funding amounting to $50 million. At the same time, Forbes noted that the value of nine eSports teams put together by the same October amounts to $100 million. These large sums are attracting celebrities and renowned investors into the market. To be sure, Team Liquid welcomed Michael Jordan late last year with the team seeking to benefit from his brand.
Highflying investors like Mark Cuban do not want to miss out from the fun. In particular, Cuban owns minority stakes in many franchises just like the sports mogul Robert Kraft. Before the launch of Overwatch League by Activision Blizzard, Kraft parted with $20 million only to claim a team in the league.
Betting firms make entry into the market
Another observable trend in the market is the activity of betting firms. In 2014, there were only a handful of such firms in the eSports market. Notably, the only major betting firm with operations in the market was Betway. However, it seems the prospect of off-the-charts performance of the market in terms of revenue generation is too good to pass by.
To be sure, Kindred Group jumped into the market through its subsidiaries Unibet and 32 Red. Already, Unibet is working together with Astralis, an outstanding eSports team which has incredible players. However, knowledgeable observers and business people who already have their feet deep in eSports say that the market is tricky to betting companies.
Paul Adkins, the marketing director for Betway, said what brands need is a deep understanding of the eSports market. Further, Adkins noted that firms are finding it hard to establish themselves in the market because, unlike the traditional betting market, the eSports market has an audience that is highly educated. Therefore, such an audience does not easily suffer fools. As such, betting firms need to root their business inauthenticity to earn from the huge market.
Market outlook
The outlook for the eSports market is incredibly positive. Like noted earlier, the market is growing at 22.3% CAGR. The figure above indicates that the market earned $865 million in 2018. Given the CAGR, the anticipated revenue by the end of 2019 will hit $1.1 billion and $1.8 billion by 2022.
Interestingly, Newzoo agreed with this analysis while putting the base revenue scenario for 2022 at $1.8 billion. If the amount overshoots the base revenue, Newzoo expects the total revenue generated in the market by 2022 to hit $3.2 billion while on the lower side, the company anticipates that revenue will be around $1.3 billion. Either way one looks at the analysis, the market will be valued in billions from 2019 henceforth.
Another key statistic in the outlook of the market hinges on the sponsorship sector. Presently, most of the sponsorship deals are short term. However, teams which are doing well like Cloud9 expect the deals to go for longer terms in the future. This, according to Cloud9 management, will come about on the back of a stronger market with a larger than anticipated revenue potential.
