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Is Esports A Bubble?

By Kevin ManshipMarket OverviewFeb 20, 2020 12:22PM ET
Is Esports A Bubble?
By Kevin Manship   |  Feb 20, 2020 12:22PM ET
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Over the last few years, esports has evolved from a niche interest of hardcore gamers into a global passion for audiences of all backgrounds. Not everyone is convinced the movement is here to stay, though.

Kotaku’s Cecilia D’Anastasio ran a critical article about the future of esports in mid-2019, claiming her sources within the industry disagreed with the optimism in esports circles. Corsair sponsorship manager Frank Fields expressed deep skepticism, calling the industry outlook “optimistic and best and fraudulent at worst.”

According to Kotaku, 17 experts interviewed share similar concerns about the difference between the enthusiasm around esports and its actual returns for investors. One insider claimed many esports teams operate at a deficit of more than a million dollars per year. Player salaries play a major role in the struggle for profitability, which Fields calls “completely unsustainable.”

Others share similar concerns. Esports Bets cautions would-be investors against anticipating immediate returns, warning that the future of esports — not its present — holds all the money. If as many teams operate at a loss as Kotaku reports, that argument makes sense.

Calling esports a bubble assumes that bubble will pop, though, and despite the growing pains, the esports world has a solid foundation upon which to build. Whether the esports industry will suffer a predictable fall or fulfill its promise of explosive growth depends on who’s talking.

Roman Kosolapov/123RF
Roman Kosolapov/123RF

The Numbers For Esports Investing

Esports has grown at an impressive clip since 2015. After building momentum on platforms like Twitch, which Amazon (NASDAQ:AMZN) purchased for nearly $1 billion in 2016, esports finally began to get real attention from investors. Now, events like the Fortnite World Series offer an impressive $30 million prize pool to teams of hungry gamers ready to prove their skills.

Those prize pools and player salaries have to come from somewhere. Newzoo’s massive esports report found that sponsorships ($359.4 million) contributed the biggest chunk of change to esports revenue in 2018, more than doubling advertising spend at $173.8 million. Under $900 million in 2018, esports revenues should get close to $3 billion by 2022, a number that assumes sponsors and advertisers will continue to bet on the future of gaming as a competitive entertainment industry.

“Entertainment” is the key word. People have played video games for personal entertainment for decades. The esports industry is betting on a future where people watch professionals play video games the same way people watch athletes play football, basketball, soccer, and other sports today. If the audience remains hungry for the content, esports will flourish the way optimists believe it will. Some esports companies will flounder along the way, as is the case in any young industry, but the companies with solid value propositions and sustainable growth strategies will make it through.

Roman Kosolapov/123RF
Roman Kosolapov/123RF

Can The Esports Audience Sustain The Growth?

Advertisers and sponsors invest in esports teams and companies to influence fans. Without those viewers, the model falls apart. The success of esports will depend on the tenacity of its audience, and all signs point to an audience that is growing more rabid for esports content.

Newzoo’s report predicts that the esports audience of active, engaged fans will grow to 307 million members by 2021. Young people make up the bulk of esports fans, with 32% of people aged 16 to 24 and 30% of people aged 25 to 34 claiming they had recently watched an esports tournament in one study. Those numbers drop to 19% of people aged 35-44 and 10% of people aged 45-54, indicating the future of esports rests with the young.

Youth shouldn’t scare investors away from the esports landscape, though. Gen Z owns an impressive $143 billion in buying power in the United States, and 75% of Gen Zers spend more than half of their available cash every month. The oldest of Gen Z have just begun to graduate from college and enter the workforce. As they earn their first real paychecks, they will maintain the interests they have had all their lives — esports included. An entire generation of gaming fanatics is about to start carrying some serious cash.

Viewership numbers support the theory that esports will continue to thrive. Activate predicts that esports will surpass every major American sports league except the NFL in viewership by 2021. Kotaku and others point out that gamers don’t sell out stadiums like NFL players, but in the increasingly digital future, they won’t need to. NFL attendance is in decline anyway. With the slow death of cable and the increase in watch-anywhere streaming options, esports are not only a perfect fit for the content preferences of today’s audiences, but also those audience’s preferences on how to watch.

Esports houses several micro-industries within itself, and a few of those niches will inevitably fail to manifest their dreams. The same thing happens in every young market. Investors would be unwise to let their uncertainty lock them out of a growing industry, however. Esports will continue to push through its struggles, and when the smoke clears, those who invested early will be pleased with the results.

Is Esports A Bubble?

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Is Esports A Bubble?

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