For certain sports fans, the idea of paying $50 or more for a ticket to go sit in a packed arena and watch other people play video games may seem absurd. Of course, 50 years ago, the idea of paying $2,000 to $5,000 for a ticket to the Super Bowl would seem equally absurd.
In recent years, the global video game culture has given birth to a new spectator sport called esports. Instead of paying to watch world-class athletes compete, gamers are paying big bucks to watch and attend gaming competitions between the best video game players in the world.
Americans who aren’t into gaming might think of esports as a small, niche market. However, esports is quickly evolving into a massive business opportunity. In 2016, esports generated roughly $892.8 million in revenue around the globe, according to research firm SuperData. The global esports audience grew 13.8 percent to 214 million last year and is now more than two-thirds the size of the total population of the U.S.
Top-tier professional esports competitors are extremely skilled. Professional gamers have been known to perform in excess of 600 unique actions per minute (APM), or 10 actions every second. Professional esports players also routinely practice their craft just like pro athletes do, putting in eight to 12 hours per day of work preparing to compete for $94.5 million in total prize money per year.
In 2016, professional esports organization Team Liquid earned more than $3.03 million in prize money by competing in 324 tournaments throughout the year. Team Liquid co-CEO Steve Arhancet says esports has tremendous long-term growth potential.
“The businesses that surround and support the esports ecosystem are still very nascent and just beginning to provide enhanced media, consumer products and audience engagement modalities,” Arhancet says.
The esports world has barely scratched the surface of its full market potential. Today, esports is most popular in Asia, but Arhancet says the European and North American markets should prove to be a lucrative growth source in years ahead. These wealthy markets will likely boost spending per fan, as well as sponsorship revenue and advertising sales.
Soccer remains the most popular sport in the world by a wide margin, but esports is already competitive with most other sports on a global scale.
“Esports is already emerging toward the top of the pack in terms of audience size, growth rate and especially fan engagement,” Arhancet says. “Esports is unique in terms of having 24/7 access and an audience with global participation.”
Part of that 24/7 access advantage is made possible by popular online video game streaming services owned and operated by Amazon.com (ticker: AMZN), Facebook (FB) and Alphabet (GOOGL, GOOG). In 2014, Amazon forked over $970 million to buy streaming platform Twitch. Google followed up by launching YouTube Gaming in 2015, and Facebook added live game streaming to Facebook Live just this year.
With such a huge audience and a low barrier to entry, these streaming services have opened the door for the entertainment value of esports to shine.
Competitors don’t have to perform 600 APM or be at the top of the world rankings to generate a large online following and a nice revenue stream from gaming.
Trent Miller never dreamed he would be streaming for a living when he and his girlfriend Emily started the YouTube channel Praise the Sun in 2014. However, in less than three years of streaming “Dark Souls,” “Bloodborne,” “For Honor” and other popular games, Miller has already amassed more than 83,000 subscribers. He also recently decided to make streaming his full-time job.
“Streamers and YouTubers make money off of advertisements that play before their videos or after their streams,” Miller says. “More views on those advertisements translates to more money earned.”
In addition, YouTube viewers can donate money directly to help support their favorite streamers.
Miller and hundreds of other popular streamers started streaming simply for fun but are now beginning to recognize the long-term financial potential of esports.
Miller says the differences between Eastern and Western cultures make it difficult to predict the ceiling for global esports growth, but esports popularity is already exploding in the U.S.
“I’ll only say that more people tune in to watch the League of Legends Grand Finals than the NBA Finals or the World Series,” Miller says. “Whether or not esports will overtake football remains to be seen. But as far as esports overtaking most physical sports, it already seems like it’s happening.”
With this type of major long-term growth potential, it’s understandable that investors would be clamoring to get a piece of the companies behind the esports phenomenon. Unfortunately, Wedbush analyst Michael Pachter says there are limited options out there for most esports investors at the moment.
Streaming video revenue makes up only a tiny piece of the total pie for tech giants Alphabet, Amazon and Facebook. At the same time, professional esports represents a tiny fraction of the total revenue for video game publishers Electronic Arts (EA), Take Two Interactive Software (TTWO) and Activision Blizzard (ATVI) as well.
“There is no pure play esports option that I know of as a public company, and it’s a tiny part of the mix for publishers and for Amazon,” Pachter says. “The furthest along is Activision, but they expect zero net revenue from esports (revenues fully offset by operating expenses) this year, so it’s early.”
Pachter says that without enough cash to buy a professional team like Team Liquid, the average retail investor simply has no good way to take an equity stake in the esports business at this time.
While potential esports investors may be out of luck for now, Pachter says video game publishers make excellent investments for other reasons.
“I love the group long term, and there is a ton of upside,” Pachter says. “They’re making…
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