August 31, 2021
Esports has been an unexpected and rapid success in the digital world. With the rise in popularity of online video games perhaps it was inevitable that successful players would find a new career opportunity, and a very lucrative one at that. With annual revenue doubling from $655 million in 2017 to $1.3 bn in 2019, it’s not hard to see why investment in this sector is continuing to rise. In a world of more than 7.8bn people an estimated 2.5bn are gamers, a truly vast market. So how could this expanding market be worth another $1bn in just 3 years?
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Sponsorship
Similarly to traditional sports, Esports thrives off of generous sponsorships, from well-known companies such as Red Bull, Disney and even the US Airforce. It is estimated that as much as 58% of all revenue in the industry is generated through sponsorship.
There are countless entrepreneurs, business people and even former athletes around the world actively identifying the value in Esports. In 2018, Michael Jordan invested a considerable sum of money in Team Liquid’s parent company aXiomatic, contributing to an impressive $26 million round of funding. Then, in 2019, musician Drake announced a co-ownership venture and investment in 100 Thieves, one of the most prolific teams on the Esports scene.
"Probably no other franchise has the championship pedigree as we do with now Michael and with Magic," says Ted Leonsis, founder and CEO of Monumental Sports & Entertainment. "I think you'll see sports team owners and venue operators looking at Esports as viable tenants, or Esport owners one day saying, hey we need our own building. I think you'll see a wave of investment and partnerships and building over the next decade. That's going to be a very, very hot new area."
Prize Pools
Prize pools have been on the rise for some time as viewership and investment continues to rise. The League of Legends prize pool encompassed $2.2m in 2019, by 2020 it had already risen to $2.5m. These are large numbers but can be on the low end for popular games with some paying out over $20m in prize money. In 2013 the prize pool for A DOTA 2 contest known as The International was $2.8m, already a generous sum, but by 2019 just six years later this number surged to over $34m.
The total prize pool for Esports is expected to grow at a Compound Annual Growth Rate (CAGR) of around 25% for the next four years, so it is hardly a stretch to forecast much greater numbers in the future. Esports may well begin to equal the level of cultural and financial investment we see with traditional sport pastimes.
Broadcasting Rights
Broadcasting rights are a huge source of revenue for any popular sport. Major league sports are gold for television networks, some would even say a lifeline, with the rise of smart TVs and digital services such as Netflix. According to Statista, the NFL will collect $54.6 billion from TV contracts with FOX (runs from 2014-2022), CBS (2014-2022), NBC (2014-2022), ESPN (2014-2021) and DirecTV (2015-2022). Annually, this figure translates to more than 50% of the sports revenue. Esports broadcasting rights are not standardised in the same way, paywalls and subscription barriers not priced uniformly across the industry for example. As a result broadcasting rights net the industry about $253m a year, just 23% of total revenue in 2019 or about half of what the NFL makes for a percentage versus percentage comparison.
A Massive Opportunity
With investment continuing to rise it’s easy to see that this burgeoning industry will overachieve on growth predictions, the real question is which companies will stake their claim first in this exciting new form of sports entertainment.
As the market continues to grow there will be a myriad of opportunities available to eager professionals. Now is the time to buy in, whether it be developer, marketing or sales side this industry has room for thousands of full term careers, and a need for top tier talent to fuel it.
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