finance

China Leading Esports Boom

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China Leading Esports Boom

More than a quarter of Internet users in China watch esports at least once per month, a new report finds, more than double the rate of audiences in the U.S. and Western Europe.

China is leading the fast-growing market for Esports, where professional video game players compete in front of a live online audience. A report published Monday by research group Ampere Analysis finds that 26 percent of Chinese Internet users watch esports at least once per month, more than double the rate of audiences in the U.S. and Western Europe. One single esports tournament, The League of Legends 2018 World Championship, drew a concurrent audience of 203 million in China, Ampere found, compared with just 2 million for the rest of the world.

Among western countries, the Scandinavian nations lead the pack, with 9 percent of Danish Internet users and 8 percent of those in Sweden reporting watching esports on a monthly basis. Ampere points to investment by Sweden’s Modern Times Group, which owns several esports competitions and leagues, including ESL and DreamHack, as a prime reason for their popularity in the Nordic region.

Chinese Internet giants have also doubled down on esports. Tencent subsidiary Riot Games, for example, specifically built its Pro View streaming service to carry League of Legends tournaments. In China, esports events also benefit from their apolitical nature. Unlike imported films or TV series, esports streams are unlikely to be censored by Beijing.

Twitch remains the principal esports platform in the West, with some 65 percent of esports viewers in North America and western Europe using the platform every month, according to Ampere. YouTube is a distant second, with around 35 percent of Esport fans reporting using the Google-owned video platform over the past month.

The rise of esports viewing on a global scale presents a potentially lucrative opportunity for new and existing players,” says Ampere analyst Hazel Ford. “Platforms such as Twitch and YouTube are currently market leaders but face growing competition from a number of newcomers, including the developers themselves. As with the traditional sports world, exclusive rights deals will become crucial for platforms looking to control high growth esports audiences.

 

 

Mall of Georgia Esports Retail Experiences

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Is a New Mega Esports Venue Proof Experience Destinations Can Save Malls?

Major athletic players have made significant investments in the burgeoning esports industry over the past two years, and now, a prominent U.S. mall is banking on the buzz of gaming. Simon and Allied Esports said The Village section of the Mall of Georgia will soon house a two-level, 13,000-square-foot dedicated esports facility. (The mall is in Buford, a roughly 40-minute drive from Atlanta.) The venue will feature amateur and professional gaming tournaments, PCs and consoles for daily use, food and drinks, a retail component and more.

Construction is scheduled for Q2 with an expected open date in the second half of 2020. There are more than 200 stores in the mall, including several footwear retailers including Champs Sports, JD Sports, Journeys and more.

“We’ve long felt that the gaming and esports communities in the Southeast, especially the greater Atlanta metropolitan area, are vibrant and growing and believe we have a location at Mall of Georgia that will serve as a dynamic hub for esports experiences in the region,” Allied Esports CEO Jud Hannigan explained in a statement.

Although the addition of an esports facility is a first for Allied Esports, adding destinations that aren’t necessarily shopping focused isn’t new for malls. With the number of malls diminishing in the U.S. over the past decade — and an estimated 25% more closing by 2022, according to a 2017 Credit Suisse report — some are adding entertainment options to complement shopping.

The NPD Group senior sports industry adviser Matt Powell said bringing entertainment destinations to malls could be a major traffic driver as the idea of shopping in them becomes less desirable. “The ultimate goal of any of these entertainment venues that we’re seeing pop up in malls now is to bring more traffic, to bring younger traffic than they might have been getting,” Powell said. “It’s not unlike putting in a Dave & Busters or a chain like we have in the Northeast called Round 1 that has an arcade and pool tables. The idea is to make the mall more of an entertainment destination than just a commerce one.”

More malls are starting to adopt this principal, most recently the $5 billion megamall American Dream in East Rutherford , N.J., which features a rollercoaster and a water park, among several other activity-based destinations. (The complex, which features 3.3 million square feet of retail, will celebrate its grand opening in March.) Although the impact Allied Esports will have on traffic in the Mall of Georgia won’t be realized until the latter part of the year, a local real estate expert is looking forward to what the facility could do for the area.

Sarah Williams, SVP and national director of retail brokerage for JLL, said the Mall of Georgia traffic is strong, and historically has been, with millions of Northeast Atlanta customers visiting throughout the year. Williams did say, however, that the addition of Allied Esports will ensure customers keep coming. “The addition of Allied Esports will be a powerful addition to the mall, sure to bring even more new customers onto the property who might otherwise not be shopping at the mall,” Williams said. “It should absolutely boost expenditures, especially with food and beverage offerings on property.”

Although Allied Esports will be the hot new addition in 2020, Williams noted other recent non-shopping destinations that have made visiting the Mall of Georgia more desirable such as Billy Beez and Paranoia Quest: Escape the Room.

 

 

New York Subliners Investing in eSports

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Andbox co-founder on New York Subliners branding, investing in esports

The Call of Duty League is the latest major league to emerge in esports. Ran by Activision Blizzard, which launched sister competition Overwatch League in 2017, there was a reported buy-in of $25 million (£19 million) for each of the 12 slots in the league.

One of the owners in the Call of Duty League is Andbox, the company also behind Overwatch League franchise New York Excelsior and the forward-facing brand owned by venture capital fund Sterling.VC. We caught up with Rohit Gupta, Co-founder & General Manager of Andbox to discuss the company’s entrance into the CDL with New York Subliners, franchising, and investing in esports.

Esports Insider: What is it about esports that Sterling.VC found that made it think it’s worth investing in in such a big way?

Rohit Gupta: When we launched our fund, we saw gaming and esports as being a particular interesting segment for us to get involved in, partly because it was trending towards the sports angle which we have a deep relationship with. Investors in our fund are the principal owners of the New York Mets.

With this localisation happening and despite New York being the largest media market, no one was building esports here. When Overwatch League – and then later Call of Duty League – was being franchised with localisation in mind, we saw an opportunity to bring gaming and esports to New York.

ESI: Why did you decide to invest into Call of Duty League?

RG: We were already partnered with Activision Blizzard on the Overwatch League, we care deeply about the New York market and what’s great is that it’s one of the larger markets for Call of Duty fans and players. The Call of Duty World League was somewhat born out of New York with Mike Sepso and Sundance DiGiovanni, right?

All the events were done in other cities though so we felt incredibly excited to not only enter a new title but to finally bring competitive teams to New York. We’re incredibly excited to do that.

ESI: Was there ever an opportunity or a possibility that New York wouldn’t be the location that you represented in the league?

RG: We would not have been interested in any other city. Our mission is building up the community in New York and we know New York really well. We’re the only organisation based here and represent New York on the global stage with two franchises.

ESI: Call of Duty as a franchise is more violent and targeted towards adults than Overwatch. Was this an off-putting factor when deciding whether to invest into the league or otherwise?

RG: I think it opens a different audience. Also, from a sponsorship perspective, a different type of sponsor is looking to get involved. Not to take away from Overwatch – it’s a brand new game that’s very uplifting – but Call of Duty has a longstanding history and is very culturally relevant. The game publisher releases a new game every year and it’s pure entertainment. We look at it as a totally new and independent exciting opportunity for us.

ESI: Do you think franchising, with localised events and solidified teams, will be what takes Call of Duty into the top-tier of esports?

RG: These are the major cities for Call of Duty, right? There was never an opportunity to bring people in New York to experience Call of Duty so we look at it as an opportunity rather than saying the competitive scene was small. It’s our purpose to help this grow and show people why those who play the game should care about the competitive side. Anyone who goes to event and experiences it are like, “Wow, this is amazing. How did I never experienced that before?”

That’s why we’re actually very excited about New York specifically because this was never done. As time goes on, it’s on all of us – the league, who’s investing a lot of dollars – to building an experience, the media, and the player profiles, rather than these one-off events that used to happen in the past. Those were core to the community and we deeply respect that but we’re excited about where the future of this goes.

ESI: The Subliners branding leaked prior to the official announcement and there was a mixed reaction to both the name and logo. How did you take that response?

RG: Honestly it was hilarious because I love how engaged the community is enough to find a name, it gets us excited that the community cares this much – it shows that we’re onto something. We were always excited about the launch of our brand and, yes, it is different to what exists in the market.

When we launched New York Excelsior, the reaction was somewhat similar but it became one of the most beloved brands in the Overwatch League. We’re excited for that to happen in the Call of Duty League too.

ESI: Can you provide some insight into the branding process? How did you decide upon the name and logo for New York Subliners?

RG: The name Subliners is born from the grit and chaos of the underground. Like our city, our team is built from the ground up to be a movement that challenges the status quo.

In short, when you think about Call of Duty and what it represents, we’re trying to mimic SEAL Team Six coming out of the water with their guns lined up with lasers, coming from the underground with a line of sight, right?

It’s not too dissimilar to how the trains work in the city, the subway system. That’s one of the inspirations that we got Subliners from. New Yorkers have where they need to go, what they need accomplish for the day, and they take the trains or the subways to go to accomplish that.

The branding is inspired by the dazzle camouflage on warships and our logo draws from bold contrasting colours and lines that intersect each other – being visually loud draws more attention than it deflects. But at high speeds, like when you play in the game, it disorients opponents and distorts their perception. We look at our logo as a provocation.

ESI: Why have you decided to partner with Esports Engine for your home series events in 2020?

RG: Adam Apicella is probably the only person in the world who’s ran events at the scale that he has for as long as he’s done it. He knows this community in and out and he knows how to run esports events in and out. So staying true to how CWL existed, we felt comfortable – especially for a city like New York – we want to host the biggest and best events in the world. Adam and Esports Engine running it puts everyone in comfort in making sure that we accomplish that.

ESI: Will you support like the amateur Call of Duty in the upcoming season?

RG: We were the first franchise to host an online tournament and that had a pretty significant price pool. I don’t have many details to provide right now but we look forward to continuing to support the path to pro and the amateur community at our future events.

ESI: Do you see a world in which Andbox competes in titles aren’t franchised or is its future solely tied into these exclusive franchised leagues?

RG: NYXL represents the New York Overwatch League team and NYSL represents the New York Call of Duty League team. Andbox is a representation of everything that we’re doing in New York, from an apparel line as well as other game titles we might enter. So yes, we see Andbox as being the gaming brand for New York going forward.

Franchising has its place and we think it’s one of the paths to be successful in esports – if not the most confident path to be successful in esports – but not every game or publisher will want to franchise. There are opportunities that we see in front of us that are good for us to enter and we will.

ESI: What do you think of the organisation valuations published by Forbes?

RG: We’re not obviously in the know of every single organisation. I think Forbes does a good job to try to get ballpark area of valuations and there are probably misses in a lot of them. Regardless, I think it shows there’s a general interest in esports from major investors and name brand investors. This will only continue to rise because esports is a growing industry where the audience is highly attractive to brands. We see many of the numbers that are of growth actually being conservative so we’re excited and I’m glad that platforms like Forbes covers it.

eSports Organiser GESC Over Unpaid

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Valve sues Singapore-based esports organiser GESC over unpaid prize money and wages

Another day, another storm brewing on the corporate side of esports.

This time, the issue stems from Singapore-based tournament organiser GESC, who previously held two Dota 2 Minor events in Thailand and Indonesia in 2018. That’s all well and good, except for the fact that GESC has still not paid out the prize money and wages to the respective parties!

In response, Valve has since proceeded to sue GESC over the US$750,000 (S$1.02 million) that they reportedly owe the participating agencies and players, after a series of late payment invoices and reminders were not acted upon promptly by GESC nor its representative, a certain Mr Feng.

According to Valve’s VP of Marketing Doug Lombardi, the lawsuit was filed earlier this year on April 8, 2019, in the High Court of the Republic of Singapore, and the US gaming giant has since discontinued any existing agreements with GESC.

All things considered, the legal action was probably motivated in part by an open letter published by the affected parties last October, warning against further esports collaboration with the defendant until the previously unpaid debts had been settled.

Although the participating esports teams still received their respective qualification points for Dota 2’s The International 2018, that is hardly the point of concern. On our part, we feel for the affected parties – everyone likes to be paid for their work on time, regardless of what occupation they’re in.

Additionally, with Singapore rapidly rising as a hub for esports in the region, it is even more important that we hold ourselves to the highest professional standards, be it in esports or otherwise.

Essentially, it doesn’t matter if it’s a small tournament or an international one – professionalism should always remain the utmost priority for the organiser, in order to ensure the event is pleasant, fair and enjoyable for everyone involved.

How To Invest In eSports

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How to Invest in Esports – 10 Esports Stocks to Know

By Will Hershey, Roundhill Investments

For most people, the concept of esports may be foreign. It seems strange that people would rather watch someone playing a game than play themselves. However, for the current generation of children and young adults, spectating video games has become a notably popular activity, one that could conquer the landscape of traditional live media, sports, and entertainment. Over the past few years, esports and game streaming have rapidly moved from the fringe to the mainstream, and viewership is challenging that of traditional sports.

On a global basis, Newzoo estimates that there are 173 million frequent viewers of esports and an additional 222 million occasional viewers today. By 2022, Newzoo expects the esports total audience to reach 645 million, roughly double the entire population of the United States. These figures may suggest esports has already become a mainstream form of entertainment, though the industry is still seeking more effective audience monetization channels. Uncovering these monetization channels is likely a key factor in industry revenue and profitability going forward.

While many opportunities to invest in esports are private, we designed the Roundhill BITKRAFT Esports Index to provide exposure to esports via public companies. We identified four primary types of public companies that provide exposure to the esports ecosystem — games, media, hardware, and broad-based. In our analysis below, we highlight each type of company and provide examples of holdings from our Index.

Games – Publishers / Developers

Games companies are primarily involved in the business of developing and distributing gaming software. In several cases, these companies own and operate competitive esports leagues.

  • Game publishers benefit from ownership in the underlying intellectual property, and unlike traditional sports, these companies control the ecosystem surrounding that IP.
  • Historically, game publisher revenues have been hit-driven and dependent on one-time title sales. As the industry moves to a “games-as-a-service” model, publishers are increasingly able to monetize existing IP over longer time horizons.
  • As it relates to esports and game streaming, not all publishers are created equal. Certain game publishers are positioned for esports growth, with a lineup of competitive game titles, while others focus on casual gameplay.
Activision Blizzard (ATVI)

Market Capitalization: $45.0 billion

Activision Blizzard is a globally-leading developer and publisher of interactive entertainment software. The company operates three primary business segments: Activision (console-focused), Blizzard (PC-focused) and King Digital (mobile-focused). The company’s most popular esports franchises include Call of Duty, World of Warcraft, Overwatch, StarCraft, and Hearthstone. Activision Blizzard acquired King Digital, the company behind popular mobile franchise Candy Crush, and esports platform, Major League Gaming, in 2016.

Overwatch League: Activision’s Overwatch League was the first professional esports league to adopt a city-based, franchise model – a model very similar to that of traditional sports. For the 2019 season, the Overwatch League supported an ecosystem of 20 teams, including 13 in North America, 5 in Asia, and 2 in Europe, highlighting the brand’s global reach. According to various reports, Blizzard sold franchise slots for $25 million in year 1, and increased to more than $30 million for year 2. The Overwatch League also reportedly signed a two-year, $90 million deal with Twitch for exclusive media rights beginning in 2017.

Call of Duty League: Call of Duty is the best-selling first-person shooter franchise in video game history. Beginning in 2020, the professional Call of Duty League will adopt the city-based, franchise model first implemented in Overwatch. The inaugural season will feature 12 teams, including 10 based in North America, and 2 in Europe. Once again, franchise slots were reportedly sold for $25 million each.

Electronic Arts (EA)

Market Capitalization: $31.9 billion

Electronic Arts is one of the largest video game software companies in the world, currently ranked number two throughout Europe and North America in terms of revenue and market capitalization. EA publishes and distributes games, content and services on a variety of platforms, including consoles, PCs, mobile phones and tablets. Notable intellectual property includes established brands such as FIFA, Madden NFL, The Sims, and Battlefield, and newer releases Apex Legends and Anthem.

EA Sports

EA is the largest video game licensor of IP from traditional sports leagues, and as a result, is best-known for its sports simulation franchises, which include FIFA and Madden. FIFA is the 6th best-selling franchise in the history of gaming, having sold a reported 260 million copies as of 2018. Meanwhile, interest in competitive FIFA continues to grow. According to EA, the title’s 2019 eWorld Cup Grand Final viewership increased 60% percent versus 2018, setting a new record for the title.

Apex Legends

Apex Legends is a free-to-play battle royale game developed by Respawn Entertainment and published by EA. Following a “surprise launch”, the title amassed 25 million registered players in its first week, and 50 million in its first month. As early as three months following its launch, esports organizations began to field teams in Apex. The title has since been featured as part of the ESPN’s EXP program and Apex Legends has already distributed more than $2 million in prize money, including $500,000 at the inaugural Apex Legends Preseason Invitational held in Krakow, Poland. Viewership for the title has struggled to keep pace with its initial success, which was driven by a streamer-focused marketing campaign.

Media – Streaming Platforms, Live Events, Esports Teams

Esports media companies operate livestreaming platforms, entertainment properties, and / or esports events. These companies may also own or operate esports teams.

  • Esports media companies offer a derivative form of entertainment to the underlying games, allowing for increased engagement and monetization.
  • Unlike publishers, media companies are typically game agnostic, and their business models can adapt to the industry as new titles and genres gain in popularity.
  • The business models employed by esports media companies can vary significantly.

Huya (HUYA) & Douyu (DOYU)

Combined Market Capitalization: $6.3 billion

Tencent-backed Huya and sister company Douyu are two of the largest livestreaming platforms in China. Both companies operate as platforms for watching and interacting with live streamed content — focused on gaming and esports. As of their most recent filings, Huya and Douyu collectively accounted for 310 million monthly active users.

Huya

Huya currently derives more than 95% of its revenues from virtual gifting on its platforms, including core Huya and its subsidiary Nimo TV, a livestreaming platform focused on mobile in Southeast Asia and Latin America. In addition to its core business, Huya owns Royal Never Give Up (League of Legends Team) and the Chengu Hunters (Overwatch Team). Huya also recently announced a JV with ESL to expand its esports competitions into China.

Douyu

Compared to Huya, Douyu’s focus has been on content creators. Douyu employs an “exclusive contract model” whereby it signs streamers to 3-5 year contracts in exchange for salaries and a cut of virtual gifting revenues. For the first quarter 2019, Douyu derived more than 60% of revenues from exclusive streamers. In esports, Douyu has exclusive streaming rights to 29 major tournaments in China, including League of LegendsPUBG, and Dota 2.

Modern Times Group (MTGB SS)

Market Capitalization: $774 million

Modern Times Group (MTG) is a Sweden-based holding company focused on esports and gaming entertainment. MTG portfolio companies include strong global brands in the industry, including stakes in ESL (an esports league and events operator), Dreamhack (the world’s largest gaming and esports festival), Innogames, and Kongregate (online gaming companies). In 2019, the company completed a spin-off of Nordic Entertainment Group to become a pure-play on esports and gaming.

Turtle Entertainment (ESL)

ESL, formerly known as ‘Electronic Sports League’, is the world’s largest esports-dedicated company, offering services in gaming technology, event management, advertising, and media production. Each year, ESL runs 13 mega esports events with thousands of attendees and millions of viewers online. Most recently, ESL One hosted the Intel Extreme Masters Major in Katowice, Poland. The event saw attendance of 174,000 alongside 230 million viewers online.

Dreamhack

DreamHack is a Swedish production company specialized in organizing esports tournaments and conventions worldwide. DreamHack helped to pioneer esports and currently holds the Guinness World Record for the world’s largest LAN (Local Area Network) party. By the end of 2019, Dreamhack will have hosted 15 events in 8 countries on 4 continents.

Enthusiast Gaming (EGLX CN)

Market Capitalization: $86 million

Enthusiast Gaming is a vertically integrated gaming media, esports and live events company. The company’s media segment owns and operates 100+ gaming websites, with more than 150 million unique monthly visitors. The company’s esports division is Luminosity Gaming, which owns / manages 7 esports teams including the Vancouver Titans (Overwatch) and the Seattle Surge (Call of Duty). Enthusiast also owns and operates the largest gaming expo in Canada, EGLX.

Luminosity Gaming

Luminosity Gaming, Enthusiast Gaming’s esports vertical, is Canada’s largest esports organization, consisting of 7 esports teams under ownership and management. The company’s roster includes 50+ influencers and content creators. Notably, popular streamer Ninja last competed for Luminosity before striking out on his own. Luminosity derives revenues from a combination of sponsorships, merchandise sales, prize revenues, management revenues, and league sharing revenues. They currently field teams and content creators in Overwatch, Fortnite, Rainbow Six Siege, Apex Legends, Madden, Smite, and Call of Duty.

Media Assets

Enthusiast Gaming’s digital media network of websites and YouTube channels is verified as the largest online gaming information network in the United States and the United Kingdom. The company’s notable properties include Destructoid, Escapist, and The Sims Resource, whereby it monetizes via a combination of digital advertising and subscription services.

Hardware

Gaming hardware companies produce peripherals (e.g. headsets, keyboards), gaming devices and processing units. These companies may act as endemic sponsors for popular streamers and esports organizations. As gaming becomes more competitive and increasingly popular, the hardware sector may benefit from increased demand.

  • As with media companies, gaming hardware manufacturers can provide game-agnostic exposure to the esports industry.
  • Gaming hardware companies generally produce products that appeal to a wide array of gamers, including casual players and esports professionals.
  • Hardware can be seen as the “picks and shovels” of the gaming industry.

Razer (1337.HK)

Market Capitalization: $1.4 billion

Razer is a leading gaming lifestyle brand, sporting the tagline “for gamers, by gamers”. Razer is best known for its hardware segment, which includes high-performance gaming peripherals and Razer Blade gaming laptops. Razer’s software vertical includes Razer Synapse (an Internet of Things platform), Razer Chroma (a proprietary RGB lighting technology system), and Razer Cortex (a game optimizer and launcher). Razer’s services business consists of Razer zGold and Razer Pay, an e-wallet targeting Gen Z.

Gaming Peripherals & Hardware

Razer is a global leader in gaming peripherals and hardware. The company’s Razer Huntsman Elite is the best-selling gaming keyboard in the US, while its Razer Blade is the best-selling high-end gaming laptop.

Team Razer

Razer is known as an endemic sponsor in esports, acting as the hardware partner for many of the top esports teams, including Immortals, Gen.G and Evil Geniuses. In total, they sponsor 18 organizations.

Turtle Beach (HEAR)

Market Capitalization: $127 million

Turtle Beach was founded in 1975 as Octave Electronics, a company focused on music and audio-related products, including analog music synthesizers and PC sound cards. Over time, the company leveraged its audio expertise and evolved into one of the world’s premier gaming headset brands. Turtle Beach is credited with creating the first ever console gaming headset and is the leader in the North American console headset market.

Turtle Beach

Turtle Beach is the North American leader in gaming headsets, providing peripherals to everyone from casual gamers to esports professionals. Turtle Beach’s product line includes 21 console gaming headsets and 5 PC gaming headsets. In 2018, Turtle Beach posted a record year as a result of the “Fortnite Effect”. Fortnite, a battle royale title where 100 players compete in a single map, emphasized the importance of high-quality audio for casual gamers. In esports and streaming, Turtle Beach acts as an endemic sponsor. Notable partners include the Houston Outlaws (Overwatch), Astralis (CS:GO), and Dr. Disrespect (popular streamer).

Roccat

In May 2019, Turtle Beach acquired Roccat, a Hamburg and Taipei-based provider of PC mice, keyboards, headsets, and software. Roccat offers a complete line of gaming mice (9), keyboards (8), and headsets (5). The company is built on German engineering, offering unique innovations targeting PC gamers. The acquisition of Roccat represents expansion into a new vertical (PC gaming) and new markets (Europe and Asia).

Broad-Based

Broad-based companies are stakeholders in various segments in the esports value chain.

Sea Limited (SE)

Market Capitalization: $17.6 billion

Sea Limited is the leading digital entertainment and e-commerce company in Greater Southeast Asia (“GSEA”), which consists of the combined region of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore. Formerly known as Garena, Sea was founded in Singapore in 2009. Sea’s business consists of three distinct verticals: Garena (digital entertainment), Shopee (e-commerce), and AirPay (digital payments).

Free Fire

Free Fire, Garena’s self-developed mobile battle royale, is one of the world’s most popular mobile games. As of August 2019, the game had more than 450 million registered users — for reference, Fortnite last reported 250 million registered users. The title is especially popular in Latin America and Southeast Asia, generating in excess of $1 billion cumulative revenues. Free Fire has a burgeoning esports scene as well — the Free Fire World Series 2019 achieved over 100 million cumulative views, with more than 1 million concurrent viewers for the Brazilian qualifiers.

Garena +

Garena+ is an online gaming platform. Through Garena+, the company publishes and distributes game software to Southeast Asia and Taiwan including Call of Duty: Mobile, Arena of Valor, and FIFA Online. Greater Southeast Asia is the world’s fastest-growing gaming and esports market.

Tencent (700 HK)

Market Capitalization: $441.2 billion

In terms of revenue, Tencent is the largest gaming company in the world. In 2018, it earned more than $19 billion in gaming software sales, representing 18.4% of the global market. The Chinese company owns stakes in several notable game publishers, game developers, and livestreaming platforms.

Tencent’s ownership in game developers includes:

  • Riot Games 100%
  • Epic Games 48.4%
  • Bluehole 11.5%
  • Ubisoft 5%
  • Activision Blizzard 5%
  • Grinding Gear Games 80%
  • Supercell 84.3%
  • Frontier Developments 9%
  • Kakao 13.5%
  • Paradox Interactive 5%
  • Fatshark 36%
  • Funcom 29%
  • Sharkmob 100%

Tencent also owns Huya, Douyu, bilibili, and Discord.

Riot Games

Riot Games, a wholly-owned subsidiary of Tencent, is an American game developer, publisher and esports tournament operator. The company’s flagship product is League of Legends, a multiplayer online battle arena game. League of Legends is one of the world’s leading esports, and was the highest-grossing PC esport globally in 2018 at $1.9 billion in revenues, according to Niko PartnersLeague is one of the oldest esports, having recently celebrated its 10-year anniversary by announcing 8 million daily active players. It is also amongst the most developed in terms of infrastructure and scale, with parent company Riot Games overseeing franchised leagues on 3 continents. In 2019, Evil Geniuses acquired a slot in the North American LCS for a reported $30.25 million. In addition to League of Legends, Riot released Teamfight Tactics in 2019, and announced plans to release a series of additional titles in the coming years.

Epic Games

Epic is a video game and software development company. Epic is best-known for publishing Fortnite, the world’s most popular battle royale game. In terms of esports, Fortnite will award the largest dollar figure in prize money of any esport in 2019, highlighted by the $30 million Fortnite World Cup. According to Niko PartnersFortnite generated $1.25 billion in 2018 on PC, with an additional $455 million from mobile (iOS only). In 2019, Epic Games purchased Psynoix, the developer of popular esport Rocket League. Epic Games’ additional properties include the Epic Games Store, and its Unreal Engine, one of the most successful game engines in the world. As of 2018, Epic Games was valued at an estimated $15 billion.

Summary

As highlighted above, there are various publicly-traded stocks that provide exposure to the esports ecosystem. Below is a summary of the ten companies we highlighted.

Selected Esports Stocks

eSports Investments Sponsorships and Deals

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This year in esports: Investments, sponsorships and deals in 2019

2019 is all but over and you’d be mistaken to think that it wasn’t another big year in the esports industry. With some of the biggest non-endemic brands getting involved and astronomically-valued investment rounds being closed, it’s sometimes helpful to take a step back to truly appreciate what’s occurred.

With that in mind, we’ve picked what we deem to be the biggest, or most important, story from each month in 2019 to look back over the monumental year that esports has had.

January

Team Liquid adds Honda as official automotive sponsor

In January, Team Liquid announced Honda as its official vehicle and official automotive sponsor.

The organisation’s LCS team jersey featured Honda’s logo and the roster had a fleet of branded Honda Civics to drive to and from training. The automotive giant also produced a six-part video series titled ‘Level Up’ which followed the organisation’s rosters in League of Legends, Dota 2, and Fortnite.

February

Nike and TJ Sports sign four-year partnership deal for LPL

Nike China and the Chinese League of Legends Pro League (LPL) announced a four-year partnership and later launched team kits for each side.

All of the jerseys had a similar design, with the Nike logo on the right side and a team logo on the chest, but each has its own unique elements. Invictus Gaming, for example, has a gold star above its logo to represent its victory at the World Championship in 2018.

March

Complexity Gaming announces GameStop Performance Center

North American organisation Complexity Gaming unveiled the GameStop Performance Center, its 11,000-square-foot headquarters in Frisco, Texas.

The facility has an innovation lab sponsored by Herman Miller, a mind gym in partnership with HyperX and Mamba Soorts Academy, a player lounge sponsored by MillerCoors, and plenty of features for both its professional players and the general public.

April

Will Smith invests as Gen.G announce $46m funding round

Gen.G esports received a round of funding that saw it raise $46 million (£35 million) from the likes of Will Smith and Japanese soccer player  bac Dreamers Fund.

This was undeniably one of the biggest raises in esports to date and saw major figures from entertainment and traditional sports stake their claim in the industry. While we didn’t see much from Smith about his involvement in Gen.G, his presence alone was enough to open eyes and signal the current state of development that esports is in.

May

Turner “Tfue” Tenney files lawsuit against FaZe Clan

Professional esports player and personality Turner “Tfue” Tenney filed a lawsuit against his organisation at the time, FaZe Clan – one of the biggest names in gaming and esports – due to what was claimed to be violations of the Californian law and the Talent Agency Act.

The narrative from this case reverberated across the entire esports industry and seeped into the larger entertainment sector, signalling that a change was to come. With organisations big and small looking to get the most from players and personalities, a push for such individuals to enforce fair and mutually-beneficial contracts happened throughout the rest of 2019.

June

Immortals officially acquires Infinite Esports & Entertainment

Immortals Gaming Club acquired Infinite Esports & Entertainment, the parent company of OpTic Gaming, OpTic League of Legends, and Houston Outlaws.

Significantly, this was a large-scale move that saw a major ownership group in esports acquire what was one of the most popular organisations in the entirety of the industry. With Infinite Esports & Entertainment also owning franchises in two different leagues, this was a unique transaction and marked the end of OpTic Gaming as fans knew it.

July

The International 2019 raises largest prize pool in esports history

Valve reclaimed the title of running the event with largest prize pool in esports once again with The International 2019, raising a total of $34,330,068 (£25,733,475.67).

While it’s no surprise that TI9 continued the trend of the series topping the previous year’s prize pool, it’s worth noting as Epic Games sprung into the race in 2019. The Fortnite World Cup, the groundbreaking title’s flagship event, boasted a $30 million (£22,487,700) prize pool.

August

Riot Games confirms exit of Echo Fox from LCS

Rick Fox’s separation from Echo Fox was widely publicised and was something most esports fans hadn’t witnessed before: a major figure had encountered struggles with his ownership group partners.

What followed certainly was’t expected earlier in the year: Echo Fox ceased operations, but only after it was revealed that a shareholder used racist remarks. As the organisation failed to oust the shareholder in the allotted 60 days given by Riot Games, the developer sold its spot to Evil Geniuses – indicating that it will indeed part with business partners if needed. This was a major eye-opening incident.

September

Louis Vuitton partners with League of Legends World Championship

French fashion house and luxury retail company Louis Vuitton collaborated with Riot Games for this year’s League of Legends World Championship.

Not only did the partnership result in a luxurious trophy case, Louis Vuitton designed a high-range clothing collection based on the popular MOBA and a series of in-game skins for select champions. This is the first case of a major fashion brand integrating into the scene in such a big way and potentially signalled a more highbrow segment of the industry being formed.

October

MLG co-founders launch esports infrastructure platform Vindex

Esports infrastructure platform Vindex was launched with $60 million (£46.6 million) in funding following its Series A round, incorporating production company Next Generation Esports and turnkey operations company Esports Engine.

This was a significant announcement in the world of esports as it marks the reunion of MLG’s founding figures and original employees under a new brand. Seemingly picking up where MLG left off, and then some, we fully anticipate that Vindex and Esports Engine will be some of the biggest names in the events space from 2020 onwards.

November

Houston Outlaws acquired by Beasley Media Group

Following from the sale of Infinite Esports & Entertainment to Immortals Gaming Club, Beasley Media Group acquired Overwatch League franchise Houston Outlaws.

This was a significant acquisition as it marks the entrance of a new major ownership group into the industry, and is the first instance of an Overwatch League franchise changing ownership since the competition’s inception. With homestand events coming in 2020, the Outlaws will be located in Houston and needs all the support it can get to put on solid events for Overwatch fans and the local Houston market.

December

Bilibili reportedly acquires Chinese broadcast rights for LoL Worlds

Live streaming platform Bilibili acquired the exclusive Chinese broadcast rights for the League of Legends World Championship.

Bilibili obtained the rights for three years following a fierce bidding war with competitors DouYu, Huya, and Kuaishou. Reportedly, the deal cost the streaming platform 800 million yuan (£87.2 million) and ushers a new era in esports where platforms are actively auctioning for such rights with titanic amounts of money.

Esports New Growth

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Esports new growth point of China’s gaming industry

Esports games have given new momentum to China’s gaming industry and are becoming a fresh growth point, said a report on China’s gaming industry in 2019.

Esports games created a sales revenue of 94.7 billion yuan (13.5 billion U.S. dollars) in 2019, up 13.5 percent year on year, according to the report released Thursday by China Audio-video and Digital Publishing Association.

The number of the game users have increased for five consecutive years to 440 million this year, doubling that in 2015, said the report.

The report foresees strengthened talent cultivation and an improved employment system in the esports industry with the support of relevant policies.

Emerging games such as augmented reality games and virtual reality (VR) games are burgeoning. According to the report, the actual sales revenue of China’s VR games in 2019 reached 2.67 billion yuan (381 million U.S. dollars), registering a sharp growth of 49.3 percent from a year earlier.

China has 640 million game users in 2019 and the actual sales revenue of the country’s gaming industry totaled nearly 231 billion yuan, said the report.

Untapped Opportunity of eSports

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The untapped opportunity of esports in Mena

Think of a current successful athlete from the Middle East and North Africa (Mena) region. Chances are you’ll come up with a footballer, like Mohamed Salah or Riyad Mahrez.

But beyond mainstream sports, there is one discipline that is slowly creating some of the Arab world’s most promising athletes – athletes that the majority of the Mena population has never even heard of.

They are a new genre of sportspeople – esports “athletes” – from a discipline that is one of the fastest growing in the world. And industry executives agree that it is high time the Middle East paid attention to the massive opportunities it offers.

Esports, short for electronic sports, is an organised sporting competition for multi-player video games. They are streamed to live audiences online and sometimes in stadiums to millions of fans, who tune in to watch these athletes play.

As an industry, it is wildly popular in the US, China and South Korea, and now the Middle East, known for having the world’s most active 300 million-strong gaming community, is looking to grow its own esports market.

The Rise of Esports

The amount of investment in esports and government backing has increased over the past year. UAE-based W Ventures recently announced that it will be investing $50 million, through its independent brand engagement partner RedPeg Middle East, to develop an online and offline gaming platform in the region to support the local esports ecosystem.

“We see an opportunity to offer gamers in the region a completely unique and authentic experience, by providing them with the tools and infrastructure to be discovered and flourish in this growing global phenomenon,” says Habib Wehbi, chairman of W Ventures.

Meanwhile Bahrain’s government has promised to accelerate the growth of esports in the Gulf state by partnering with the BLAST Pro Series CS: Go final under a special public-private-partnership (PPP) framework to enable greater collaboration between the state and private entertainment franchises. The two-day esports tournament held earlier this month brought some of the world’s best players to Manama to play the first-person shooter video game in the largest esports event in the region.

“Publishers are starting to take notice of the region by localising games and having physical presence,” says Luciano Rahal, a gaming industry professional. “This is truly a first step into developing the market. For esports, teams like Nasr Esports and Yalla Esports have started to make an impact internationally, which has led to more interest to our region. We also have top publishers facilitating servers for our community to play on equal ground with the rest of the world.”

In figures shared by Vincent Wang, general manager of global publishing at China-based Tencent Games, the worldwide video games industry will make $148.8 billion in revenue in 2019, up 7.2 per cent year-on-year. In the Middle East and Africa (MEA), games revenue will reach $4.8 billion this year (an increase of 10.8 per cent year-on-year) and is estimated to reach $6 billion by 2021. Mobile gaming is the most popular, driven by the high smartphone penetration rate, counting for 47 per cent of total revenue (approximately $2.24 billion).

Earlier this year Tencent Games opened its regional headquarters in Dubai to better tap into the Middle East market.

“The UAE’s high mobile and internet penetration is an extremely encouraging indicator for tech firms across the world, and is especially relevant to the global games industry,” says Wang.  “We look forward to creating a platform that invests in and improves the regional games market, while encouraging local games enthusiasts and developers to push the boundaries of creativity and innovation.”

The gaming ecosystem consists of subcategories such as developers, publishers, and distributers. Esports is almost an ecosystem of its own within the ecosystem, comprising events (leagues, competitions), content (influencers, user-generated content), and media (official broadcasts and live streams), among others.

“It is important to differentiate between gaming and esports,” says Rahal. “Gamers in our region play video games as an escape from reality. Esports, on the other hand, is an international phenomenon that is taking the world by storm with prize money that reaches up to $30 million.”

Rising Stars

In terms of prize money, the top earning countries are the United States with $132,506,253 in prize money followed by China ($106,145,898) and South Korea ($88,141,766). Some esports events in these territories attract more viewers than traditional sports tournaments.

Twelve Mena countries are included in the top 100 earning countries in terms of prize money; the highest-ranking being Jordan, at number 23, with total earnings of $6,219,602. The others in the top 100 are Lebanon (number 27), Saudi Arabia (46), the United Arab Emirates (66), Morocco (79), Iraq (82), Bahrain (83), Tunisia (84), Kuwait (85), Algeria (86), Egypt (87) and Palestine (98).

Notable esports athletes from the region include top earner, Amer ‘Miracle’ Al-Barkawi, 22, who has made $4,692,418 in prize money from 51 tournaments. Lebanon’s Maroun ‘GH’ Merhej, 24, has won an estimated $4,086,426 from 38 tournaments.

Narrowing it down to the GCC, the UAE’s top two in terms of prize money are Adel ‘Big Bird’ Anouche ($44,024), and Amjad ‘Angry Bird’ Alshalabi ($23,325), while in Saudi Arabia, they are Mosaad ‘MSdossary’ Al-Dossary ($527,865) and Cuyler ‘Huke’ Garland ($277,977).

International business players are taking notice. This past October, Roc Nation Sports, founded by Shawn ‘Jay-Z’ Carter, made its first esports signing, taking on Al-Dossary to represent him internationally.

The region will soon see an all-women esports team for the Girlgamer World Finals tournament in Dubai next year, an initiative put together by government entity 10X Media, Dubai Ladies Club, Grow uP eSports and Galaxy Racer. The five-member team is set to compete at regional and international events in League of Legends tournaments throughout the year.

“Brands are more than ready to invest in the region,” Edouard Griveaud, vice-president of gaming esports at Webedia told the audience at recent Dubai industry event, ON.DXB. “Compared to a year ago, you don’t need to [explain esports as much] as we used to. But we need to take baby steps; we can’t overpromise and scare them off.

“Today, the region is not ready for these 10,000-20,000-capacity events that we see in Asia, Europe or the US. You won’t get the attendance.”

Enabling Growth

Event companies have been quick to take note of the popularity of gaming, incorporating an element of esports into their offerings.

For example, this year’s Middle East Games Con in Abu Dhabi hosted the region’s first-ever Brawlhalla tournament, while Dubai’s Middle East Film and Comic Con (MEFCC) hosts an esports arena every year. Several government-led bodies have also emerged throughout the region to establish new events and help grow the sector. The Saudi Arabian Federation for Electronics and Intellectual Sports (SAFEIS) and the Arab Esports Federation are leading the construction of several esports venues and academies to create an environment to encourage and nurture talent.

“The Middle East is the fastest growing gaming market in the world, yet unlike saturated Western markets, the region is still completely untapped,” says James Magee, co-founder and chief executive officer at UAE-based Global Event Management (GEM) which manages Insomnia in the GCC. “We have a huge opportunity in both the UAE and Saudi Arabia to give consumers something they really want.”

Magee believes it is a “duty” to play a pivotal role in nurturing local talent.

“We’re running student-specific tournaments with Go Gamers. School and university students can compete in our online championships with the aim of giving them guidance and support to go into a profession in the gaming industry. One of the tournaments will be creating a scholarship programme specifically for this reason,” he said. “[This] shows gamers in the region that we are serious about esports, and it gives them a great platform with a strong network and community to support and nurture their development.”

Changing Perceptions

Despite the rate of growth, esports still only attracts a niche audience.

“What we’re lacking is support and recognition. Things are changing, but very slowly here in the Middle East. There are hardly any teens or adults who are interested in going pro because it doesn’t seem realistic for them, nor is it stable enough to be worth the time and effort,” says Anouche. “Maybe in the future, things will change, but as of now, it’s just brushed off as ‘gaming’ and not something serious.”

Educating the wider public is essential, says Klaus Kajetski, founder and chief executive officer of Yalla Esports, a UAE-based startup managing an esports team that recently secured a six-figure seed funding round.

“[The biggest misconception about esports] is that it is a waste of time, or that gaming is harmful. There’s a big lack of education for parents [who need to know about] positives of gaming for their kids. Mena players are mostly semi-pro who work or study on the side.”

Therefore, investment starts with the players – before the events.

“It’s important to make sure that the money we get from these brands is properly distributed within the ecosystem,” says Griveaud. “The players are the key component of this ecosystem, but they are the last in the food chain when it comes to getting money. It [creates] this ‘chicken and egg’ discussion: For a player to be interesting for a brand to invest in, they need to have exposure and be able to create content about themselves.

“But creating content costs money. So what do they start with? Do they start with creating content in the hope that they will catch sponsors? Or do they participate in more tournaments to get more exposure? And this is where our world is essential, to make sure this redistribution of money happens properly.”

Anouche echoes Griveaud’s sentiments.

“Professional gamers can make an income from multiple sources – a salary from a sponsor or team; creating content for YouTube, or streaming daily on Twitch. None of those are easy and require a lot of commitment, which brings us back to [my original point] – people here have to believe it’s worth their time and effort.”

For now, it seems that the region’s governments do think it is worth the time and effort as more partnerships, more events and more facilities open but it remains to be seen whether it will enable the talent and content creation that it requires. 

ONE Esports Dota 2

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ONE Esports Dota 2 World Pro Invitational Singapore Preview

The end of the year is in sight but there’s still plenty more pro Dota 2 to enjoy, as the ONE Esports Dota 2 World Pro Invitational Singapore is set to begin next week. The tournament will pit 12 top Dota 2 teams against each other from December 17 until Sunday, December 22, with the winner walking a $200,000 share of the $500,000 prize pool.

Besides being the first major LAN to be played on the 7.23 patch series, this event will be the first Dota tournament organized by ONE Esports, a subsidiary of ONE Championship, a Singapore-based MMA promotion. ONE is looking to develop the Southeast Asian esports scene and will hold a second tournament in Jakarta, Indonesia, in April next year.

Following a similar format to Dota Pro Circuit Majors, the World Pro Invitational will consist of a round-robin group stage, with the two lowest-scoring teams eliminated from a pair of groups. An eight-team double-elimination playoff will follow, with the Grand Final pitting the winner of the upper and lower brackets against each other.

The event, organized in collaboration Romanian events and production company PGL, boasts a host of top casting talents. These include host Jorien “Sheever” van der Heijden, commentators Owen “ODPixel” Davies, and Ioannis “Fogged” Loucas, and analysts Trent “TrentPax” MacKenzie, and Austin “Capitalist” Walsh.

But beyond this, the Singapore invitational is an incredibly stacked event, with a fantastic array of teams in attendance. While non-DPC events can suffer from a lack of big-name orgs, there’s not one among these dozen that seems out of place. Although that said, some might be punching a little bit harder than their opponents.

ONE ESPORTS SINGAPORE: THE FAVORITES

One team that’s certain to make waves at this tournament is TNC Predator. The Philippino organization has dominated in the last two major tournaments, picking up first place at ESL One Hamburg 2019 in October, and last month securing the first win of the DPC season at the MDL Chengdu Major. However, the team looked uncharacteristically shaky in the recent DreamLeague Season 13 Closed Qualifiers, dropping to third place in the face of stiff competition from regional rivals Fnatic, and exciting newcomers Reality Rift. This tournament will be a chance for TNC to reassert its dominance in the first Major tournament of the post 7.23 patch world.

Virtus.pro is another instant favorite. Despite having sat out the first two events of the DPC season, the Russian Dota powerhouse doesn’t look like it’s missed a beat. With new carry Egor “epileptick1d” Grigorenko doing some heavy lifting in the DreamLeague Season 13 CIS qualifiers, we’ve had a taste of what this latest iteration of Virtus.pro is capable of. In Singapore, we’ll find out whether that early online success can turn into offline LAN victories.

Vici Gaming is another team on a hot streak. In a region that’s seemingly missed a step in recent tournaments, Vici Gaming, along with rivals Invictus Gaming, has stayed strong. The team is hungry for revenge against TNC, who defeated them in the finals of MDL Chengdu. This is a team that always seems to find a podium spot, but with Dota having changed dramatically since 7.23, it will be fascinating to see whether VG can maintain its dominance.

THE MIDDLE OF THE PACK

Not everyone can be an instant favorite to win it all. There are a dozen high-caliber teams at this event, but most haven’t had the consistency to grab a win at a big tournament so far. Squads like Alliance, Team Liquid, Natus Vincere, Evil Geniuses, and Gambit have shown in the past few months that they’re capable of winning small events and online tournaments. But faced with the VGs and TNCs of this world, all have failed to meet the mark.

More worryingly, all these teams seem to struggle in the mid-stages of a tournament. Often Alliance or TL will make it into an upper bracket, only to stumble at the first hurdle, and then have to claw its way out of the hole it dug for itself. This can prove disastrous, especially when much of these teams play-style revolves around feeding everything they can to single carry. It’s rare, for example, to see Alliance win in a game where Nikolay “Nikobaby” Nikolov gets shut down or finds himself in a bad matchup.

On the other hand, there are a few unknowns at this tournament. Team Secret has been absent from play since The International 2019. Unlike fellow absentee Virtus.pro, Team Secret looked unsure of itself during its recent online matches. With role swaps, stand-ins, and lack tournament experience this season, Secret could find itself a distinctly middle of the pack squad.

Similarly, PSG.LGD has missed out on many of the early season events. The squad crashed out of the DreamLeague Season 13 China Open Qualifier, leaving it out of the second Major and Minor of the DPC season. As a result, this will be LGD’s first outing against top teams in a major tournament since TI9. It’s unclear whether they’ll be able to perform to a high standard.

THE REST OF THE GROUP

Based on past results alone, there are a few teams headed to Singapore just to pick up a quick payday before Christmas. J.Storm have had a tumultuous season so far. Seemingly cursed by the bracket gods, they always seem to run into either the eventual winner of the tournament, or a least a podium finisher, every time they play. The fact they’ve still not settled on a roster three months into their 2019-2020 campaign doesn’t help things either. This squad will have to pull out all the stops if it hopes to advance very deep in this tournament, and will need a miracle to win it all.

Like J.Storm, Team Aster isn’t exactly expected to finish highly at this tournament. Part of the “second-tier” of Chinese teams, Aster occupies a space very similar to CDEC Gaming, and surprisingly, Newbee and EHOME, both former championship-winning organizations who’ve waned as of late. Aster, however, has done far better in recent online tournaments and home region leagues. But even with these performances, the team isn’t entirely on the level of its opponents in Singapore, although it could surprise an unprepared squad.

ONE Esports Dota 2 World Pro Invitational Singapore will kick off at 10 am local time (SGT), with three Group A matches. You can catch all the action from the tournament on ONE Esports’ series of Twitch channels, covering all three of the games simultaneously. And if you’re in Singapore, tickets are still available for the event and can be purchased from ONE Esports’ official site.

All Megatrends ESports

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The Alpha Of All Megatrends: ESports

eSports is quickly becoming a dominant force across the world entertainment industry.

With growth set to continue, monetization will follow to around an easy $10 billion.

The industry is young, and so is the target audience. Decades of profits are ahead.

I don’t use the word ‘megatrend’ lightly. It is a precarious word, full of hype and unrealistic expectations. People often think that they can invest in any one of the companies exposed to one of these trends and make bank. Such strategies have lost many people a lot of money over the decades. Think of railroads, airlines, and solar, all boasted as megatrends. Sweeping cemeteries could be filled with the remains of companies that had remarkably short lifespans, their megatrend status notwithstanding. That’s not to say that some companies haven’t ridden those waves to tremendous profitability. There are some. But it takes time, the maturing of the industry, one or more shake-outs to scrub the losers, and finally stability. Good luck picking the winners.

Most recently, the aging of America and the swelling senior population has been often cited as a megatrend. Yet, the situation is stuffed with nuance, which I wrote in detail about herehere, and here.

I mention all this to underscore the fact when I use the word megatrend, it is not some loose label or click-bait. When it comes to eSports, or the competitive video gaming industry, there is plenty of data indicating how huge the rise has been and will yet be. That isn’t to say that there is no nuance here and you can just grab an eSports ETF and have your retirement secured. No, granularity and wisdom are always mandatory for true investing. Nonetheless, of all the megatrend waves to try and catch, I think this one is the easiest.

A Little History

Esports goes farther back than you might think. Ever heard of Spacewar!? It was developed in 1962 and features two spaceships dog-fighting around a gravity pulling star. This was the game featured in the first documented instance of an eSports tournament, hosted by Stanford University in 1972. Competitors played for a year-long subscription to Rolling Stone magazine.

Fast-forward to 1980 and we find the first large scale tournament, with 10,000 competitors showing up to clash in Atari’s Space Invaders. Then in 1983, the U.S. National Video Game Team was formed and took a bus tour around the country challenging arcade gamers to bouts and even tried organizing contests with other countries.

As the sport grew, so did the number of tournaments. From the Evolution Championship Series (“EVO”) to the Nintendo World Championships (OTCPK:NTDOY), both players and spectators started flocking. EVO is of particular mention. Since its inception in 1996, it has occurred every year since 2000, with each year showing considerable growth in a variety of metrics. Featuring only fighting games such as Street Fighter, Smash Brothers, and the like, EVO has garnered a tremendous popular following. EVO 2019, held at the Mandalay Bay for three days in Las Vegas, had 9,000 participants and was streamed to millions of others via various streaming sites. Viewed hours totaled 5.73 million.

The internet has revolutionized the gaming industry. Consoles gave way to personal computers. The prevalence of computers naturally rose to a prevalence of computer gaming, with players able to compete, alone or on teams, against opponents thousands of miles away.

Esports has become so popular that an arena was constructed at The Luxor in Las Vegas to host gaming events:

The 30,000-square-foot, multilevel HyperX Esports Arena is designed to host every form of competitive gaming, from daily play to high-stakes esports tournaments, and features a competition stage, 50-foot LED video wall, telescopic seating, PC and console gaming stations, and a network TV-quality production studio.

A new $50 million dollar facility is under construction in Philadelphia. This is in addition to dedicated eSports facilities in Honolulu HI, Arlington TX, and Burbank CA. Other facilities are outfitting themselves to host eSports events occasionally like Boardwalk Hall in Atlantic City. The worldwide architectural firm HOK, with 24 offices on three continents, is dedicating ever more personnel and resources to the field, imagining high tech and interactive eSports stadiums. HOK was in fact involved in the renovations to Boardwalk Hall mentioned above, as explained in a New York Times article:

HOK, a sports-focused architecture firm with a growing e-sports practice, which helped reconfigure the stage, change the lighting and set up a broadcast studio for live streaming, said Rashed Singaby, a firm senior associate whose previous work includes the Mercedes-Benz Stadium, home of the Atlanta Falcons.

HOK, based in Kansas City, is funneling more resources into the growing field. Two years ago, it had no designers working on e-sports; today, it has 15, said Mr. Singaby, who added he has had commissions for five e-sports projects in the past year.

Developers are now knocking on HOK’s door, including owners of empty big-box stores hoping to repurpose them, Mr. Singaby said.

“The numbers don’t lie,” he added. “The commitment to this ecosystem has been gigantic in the last 10 years. We don’t think this is going away.”

The parallels to professional physical sports are apparent. Interestingly, eSports has attracted the attention of professional athletes. Back in 2016 previous NBA star Shaquille O’Neal and MLB players Alex Rodriquez and Jimmy Rollins invested in NRG eSports, a professional group that plays League of Legends and Counter-Strike:

I am not suggesting that we use professional athletes as a gauge for whether or not an investment should be made. Rather, my point is that eSports is getting noticed. It is huge and growing. What was once a corner for people to point and laugh it is becoming mainstream, credible, competitive, and scalable.

Massive institutions are in on the action. eSports sponsors include Intel, Toyota, Coca-Cola, Comcast, Red Bull, Mountain Dew, T-Mobile, Audi, and Airbus. eSports events have occurred in London, Madrid, Hong Kong, Paris, and many others.

A Word On League of Legends

This particular game has become so important it deserves a section all its own. League of Legends, currently the most popular game in the world, is one I have personally had considerable experience with as a player and as a spectator. As most who have played will attest, it is addicting. Launched in 2009 by Riot Games [acquired in 2015 by Tencent (OTCPK:TCTZF) (OTCPK:TCEHY)], League of Legends has 80 million monthly users and 27 million daily users across 145 countries. From 2011, that is a CAGR of 36% and 33% between monthly and daily users, respectively. The 2018 League of Legends world championship had more viewers than the NFL Superbowl from that same year. The LoL Esports page on YouTube has 3.2 million subscribers. The video of the 2019 World Championships on that same page has had 5.1 million views. While it is free to play, the game relies on micro-transactions to earn revenue. For example, people can pay to get different “skins”, outfits if you will, for the characters they play. Riot brought in $1.4 billion of revenue in 2018. As they and other platforms continue working on monetizing their products, hefty profits will follow. A dedicated eSports facility, complete with dining area and gift shops, sits adjacent to Riot’s headquarters in Los Angeles.

So it’s popular. But is it profitable?

This is the question that investors want answers. While there is plenty of money involved in eSports, where and when it flows is tricky. An April 2018 article from gameanalytics explains it well:

eSports has come far in 20 years, but while it might be rivaling professional sports leagues in terms of viewership, the financials are a different story. The NFL was expected to generate $14 billion in revenue in 2017, with the NBA hitting $7.4 billion. At its most optimistic level, Newzoo forecasts that global eSports revenue could reach $2.4 billion in 2020.

Video games can be hard to monetize, especially those offered online. The list is long of free to play titles: League of Legends, Fortnite, World of Tanks, Apex Legends, and Hearthstone among many others. These games require people to spend money on extras, which is not necessarily a given or consistent.

That being said, higher education is catching on to the trend, indicating that the space has moved from hobby to profession, as told by a Forbes article:

Ohio State will debut an 80-seat facility in the fall (of 2019) around the time it debuts what it calls “a first-of-its-kind comprehensive esports program” that will include “undergraduate and graduate degrees; an elective course in esports content production; online certification programs for specialized credentials; and a gaming speaker series.”

Smaller schools such as the University of North Texas have been engaged in esports for even longer. UNT opened a $200,000 esports facility in 2017, open to any student or faculty member but designed specifically for competition training.

And the 40-year-old private Full Sail University is building a significant portion of its campus life and work opportunities around a new esports arena, team and club, said the school’s esports strategist Bennett Newsome.

What the Future Holds

We have established that eSports is ridiculously popular and will very likely continue to grow. We have also established that the monetization of video games has been elusive, and currently sits at a pretty low level. But if the popularity can be coupled with profitable monetization, you have a true megatrend. That was the topic of a fascinating article from venturebeat that is worth reading in entirety, but I will quote and summarize. The article was based on a webinar wherein industry experts held a panel discussion to address the issue of monetization. Some main points:

– Like professional sports, eSports can earn money from media distribution rights, live events, advertising, sponsorship, merchandising, and prize winnings. Unlike professional sports, however, the games themselves are owned, which introduces another avenue of monetization. No one owns football. No one owns basketball. They are without copyright. This is in stark contrast to video games, which are intellectual property and which are owned. Robb Chiarini, director of eSports at Ubisoft, spoke to this in some detail:

If you’ve ever heard me talk about these things, I talk about how traditional sports have to sell media rights. They have to have sponsors. They have to have advertisers. They have to have all this influx of money, because they don’t have anything, at the end of the day. They don’t own the ball. You and I could start up a new football league tomorrow if we wanted to and no one can stop us from using that sport as a vehicle for a program. We’d get our own sponsors, do our own things, and we could do anything we wanted. Nobody owns the IP of the football.

With video games, we’re in a very different place, in that we can look at things differently if we choose to. As many esports start up, they look at it going, hey, this is a marketing a vehicle, a messaging vehicle, an engagement vehicle, a community retention and engagement vehicle, rather than a P&L against a thing to provide an entertainment that creates profit. For us, owning the game gives us the opportunity that every activity we do, every dollar we spend on an esport, is actually a way for us to engage with our existing communities, create viewership, create playership, create opportunities for monetization within the game and on the game itself.

All of that is super interesting. I believe esports has the biggest leg up against traditional sports in that way. Adding to that-I agree with your list, merch and media rights and things. There are some other things that are interesting. Gambling is out there in the space, not that I’m a proponent or otherwise, but that’s a revenue stream that’s out there in the world. Fantasy leagues, gambling sites, things like that. Another thing we do in esports, or in gaming in general, is interactive money. When you look at things like Twitch Bits and things of that nature that allow people to purchase around the game, that’s different from the traditional sports. That’s another revenue opportunity within the ecosystem, and for all of gaming.

Revenue for eSports was $906 million in 2018, broken down as follows:

Jonathan Singer, industry strategist at the content delivery network, cybersecurity, and cloud service provider Akamai mentioned the following to elaborate on that above graph:

I have a little bit of a bomb to throw, which I feel is a good way to start off a panel. That is, we talk about where the revenue is growing to. I think it’s supposed to be $904 million this year and then a billion soon enough, with 380 million global viewers. That’s a nice size of audience. But when you do the division there, you’re talking about $2.60 a user… Is that enough money to go around? It’s not a lot of money yet. I know we’re growing as an industry, but when we’re talking about revenue models, you have to talk about how we’re getting there and how we get-everyone’s fighting for a slice of that pie.

While today that sounds bad, it also underscores the opportunity, as Kent Wakeford, chief operating officer at eSports organization Gen.G pointed out:

I think what you just framed up is one of the most exciting opportunities in esports. Goldman Sachs had a report recently where they showed that the average esports consumer monetized to about $3.94. Whereas the average consumer in traditional sports is monetizing to about $54. That means there’s a 10X opportunity within the esports market to grow and build those connections with fans, to bring them things they’re willing to pay for, for their excitement and their fandom and their engagement with teams and players. I view that as an opportunity.

When I look at the revenue growth drivers in esports, I think they’re all way under what the reality is going to be. We see it in the viewership. We see what’s happening on a global basis with stadiums being built all around the world – in the U.S., in China, in Korea. We see brand sponsors coming in. We see bigger media rights deals happening. We see merchandise. We just saw the announcement with the Overwatch League and Fnatic doing merchandise. It’s moving at a much faster speed than a lot of the industry reports have been putting out. That’s the opportunity. That’s why you see so much capital coming into esports.

The Silver Screen

Another avenue for profitability is turning video games into full-length movies. This has already been happening to some success with the titles “Pokemon: Detective Pikacho”, “Rampage”, and “Angry Birds 2”, “Tomb Raider”, and “Prince of Persia”. I imagine the trajectory here being similar to how sports have become inexorably tied to cinema. What with hugely popular movies like “Field of Dreams”, “Hoosiers”, “Miracle”, “Rocky”, “Rudy”, “Remember the Titans”, “Radio” and others, don’t be surprised to see movies based on video games taking their place among the most popular movies. The difference with video games is that, as was mentioned before, no one owns the rights to football or basketball. I could make a sports movie today and not have to pay a dime of royalties. However, if I tried to make a movie about one of the champions from League of Legends without getting the rights and paying a handsome fee, I could be sued. This could be a vast source of revenue and growth.

See, League of Legends has considerable lore surrounding each of the 146 characters you can play as. Their stories are distinct, yet many are tied to one another. The structure is already in place to make full length features films derived from this lore. In fact, the folks at Riot have already put some stories to cinematics. Feel free to conduct a YouTube search of your own, but this clip tells the story of one Lucian seeking to free the soul of his deepest friend, Senna, who was killed by Thresh, a soul collector:

As the popularity of League of Legends continues to grow, expect big-name studios to start launching themselves into these gamer worlds.

Even the mighty Amazon (AMZN) is getting heavily involved. They purchased the video gamer streaming service Twitch in 2014. Twitch has 15 million daily active users.

Asia

In all my talk of megatrends, I have to mention Asia here. Everyone has talked about Asia, and China in particular, as the next big growth markets. Successful investing in these regions has been challenging as the situation is filled with complications. As it relates to video games, it is valuable to understand the cultural role technology and video games have there. Traditional sports, as we would term them, don’t have a huge place in Asian culture. Children are encouraged to study rather than exercise. In contrast, video games are massive in the region. eSports professionals are celebrities. Regarded as the best League of Legends player in history, “Faker” of South Korea is paid $2.5 million dollars a year to play for the eSports squad SK Telecom T1. He dropped out of high school to get on the team.

China alone makes up 57% of the global eSports audience. Ann Hand, CEO of Super League (SLGG), an eSports community and content platform said, “The first place you should go if you care about gamers is Asia, and specifically Greater China, as fast as possible.”

If Asia is the next big growth market, video gaming is the industry that will be among those to lead the way there.

Where Traditional Sports and eSports collide

Never ones to look down their nose at potential profits, the world of traditional sports is hitching their wagon to eSports. Nike recently disclosed a four-year sponsorship of the League of Legends Pro League (“LPL”) in China. They are to provide shoes and apparel to 16 teams in the region. Of the deal Nike said:

Since its inception, Nike has always believed that in all sports, a strong body and will make athletes better. As China becomes a new e-sports cultural center, Nike is pleased to support the next generation of athletes and establish a long-term cooperative relationship with e-sports to contribute to the future development of sports ecology.”

This isn’t all. Adidas has signed agreements with the French team Vitality. Puma has linked up with North American team Cloud9 to create signature apparel for gamers. While not necessarily inevitable or to happen soon, eSports may even become part of the Olympic games. A forum was held by the International Olympic Committee and the International Sports Federation last July to discuss the matter. They are steering clear of involvement for now, but the fact that the discussion was had at all is revealing. The proverbial ball is rolling.

Brief Exploration and Conclusion

The final point to make is that the audience for eSports is young. The average video gamer is between 20 and 25 years of age. There are many decades of monetization ahead as these fans age and bring up their own children in the video gaming culture. This is in contrast to traditional sports, where recent data has shown considerable waning interest. The average NFL viewer is 50 years old. MLB is 57 years old. MBA and NHL is 49. This is amid a backdrop of plummeting viewership and emptier stadiums. eSports is young. It is growing. Money is flowing into it. But the best part is that the ship has not set sail yet, as it were. Remember the stats from above where the average eSports consumer monetized to about $3.94 vs. the $54 for traditional sports? Recall also that people are watching eSports more than they are watching the Superbowl. As eSports monetization closes the gap on traditional sports, lucrative might be an understatement. As firms figure out how to monetize eSports, and they are, it is going to be fantastically profitable.

The opportunity exists because profitability has lagged popularity, for now. A quick look at some of the top names in the space shows that market participants are concerned about growth. Tencent currently trades at $43, well off the all-time high of $60 back in the first part of 2018. Activision Blizzard (ATVI) is trading around $55, while back in mid-2018 they were above $80. The breather is an opportunity to buy while monetization takes shape.

As it relates to valuations, value investing purists might shy away from the high P/E ratios of Tencent at 32 or Activision at 25. I prefer to consider these ratios in context, and for both companies, their respective P/E ratios are well off their five year average P/Es of 43 and 51. In that respect, they are cheap. In fact, all the other traditional valuation measures (P/S, P/FCF, etc.) for Tencent are below 5-year averages. Activision is more of a mixed bag. If value is your thing, Tencent may be the better choice. Activision Blizzard owns Call of Duty, Overwatch, and Candy Crush. Tencent owns League of Legends and has a 40% interest in Fortnite. It terms of the most popular games and in demand content, these two are the winners. That should be a good starting point for individuals to conduct their own due diligence.

For exposure to a more pure eSports model, Super League Gaming is interesting in that it doesn’t own any games but rather operations in the content delivery and interactive platform space. It connects players through its cloud. They specifically market themselves to the sub-pro audience. The CEO is aiming to create a “Little-League” for eSports. This niche player might be interesting to explore. They had their IPO earlier this year at $8.50 but currently trade at $2.74.

In light of that brief overview, in my upcoming articles, I am going to start jumping into this sector head first. I will begin by exploring several eSports and video-gaming ETFs (NERD) (ESPO) (VIDG) and then move on to individual companies such as Activision Blizzard, Tencent, and Super League Gaming. I hope you join me. For now, the best way to play the trend is to either A) buy one of the above mentioned ETFs or B) buy the stock of the companies who own the more popular titles in the eSports and gaming world.