ESPORTS | Esports: exciting, but difficult to value and still small in the global sports context
Tracking the money with sufficient accuracy to make an informed decision about where to invest or where esports is headed is notoriously hard. The sector has a complex structure that will be unfamiliar to outsiders. And data on everything from viewer numbers to prize money is hard to verify, with sources frequently conflicting. As yet no company, analyst, federation or individual esports expert appears to have a complete grasp of the money flowing through the sector.
Even the two most quoted specialist esports analytics companies diverge radically on its overall value. Newzoo calculates global esports revenues will be $464m in 2016 (up 43 per cent year-on-year), and predicts them to top $1bn by 2019. On the other hand, SuperData Research is already calling a total worldwide market of $892.8m this year, representing a 19-per-cent rise on 2015.
A January 2016 study by Deloitte, which incorporated SuperData and NewZoo research, reckoned total industry revenues would reach $500m this year, up 25 per cent on 2015. Another consultant, Futuresource Consulting, also puts a $500m value on esports worldwide.
“When we look at revenues of a sports team, we understand their accounts are filed somewhere and we can trace who paid what to who and what the team salaries were, for example,” says Duncan Stewart, director of technology, media and telecommunications research at Deloitte. “None of this occurs in esports. Huge chunks, frankly, are conjecture.”
SuperData and Newzoo defend their figures, claiming the lack of clarity is a function of the nascent and opaque structure of the sector.
Newzoo’s chief executive Peter Warman says: “It is pretty early to model this [sector] but we are confident we are on the correct end of things with $464m.”
Newzoo’s methodology consists of primary consumer research in 26 countries, tracking company revenues, live event audience figures, prize money, and video content viewer data. It uses predictive modelling, combining financial analysis, demographic and economic census data. It validates results through additional research and by checking numbers with stakeholders including game publishers, event organisers and streaming companies.
“The way we define the market is probably a little broader than anyone else,” says Joost van Dreunen, chief executive and co-founder of SuperData. “We’ve based much of our work on discussions with brands and agencies and we know how much they are sinking into this. We also track merchandise and do in-depth consumer insight such as how much viewers spend on Twitch. We overlay that with what the ad agencies are spending and we come up with $892m.”
Esports has hit mainstream media and is now a regular part of sports business and media technology news beats, but it would pay to question the perception that it is huge and growing rapidly.
“If we follow the money in terms of merger and acquisition activity rather than news flow, we see that virtually all investments have been relatively low amounts, and those investments have actually got smaller in the past year,” says Deloitte’s Stewart.
Significant recent investments include the 74 per cent stake, worth $78m, acquired in esports competition organiser ESL by Swedish media group Modern Times Group in July 2015, and most significant of all the near-$1bn purchase by Amazon of Twitch in August 2014.
According to Stewart, these two transactions sparked a lot of interest. “The figures were so high that people started expecting many more large deals, worth more than $100m.”
Since then however the deal size has not kept rising, or even held steady. “Those two transactions were almost a high-water mark, and subsequent deals that have been made public have been smaller, in some cases much smaller.”
Examples include the acquisition of Major League Gaming for $46m by Activision Blizzard; UK games retailer GAME paying $30m for Multiplay; and Canadian cinema chain Cineplex Entertainment buying WorldGaming for $10m. All three acquired companies are online platforms that host competitions and communities of gamers.
“Private equity and venture capital investors that I talk to are not even thinking about making $100m investments into esports leagues or companies,” says Stewart. “They are instead looking at putting in a million here, or a million there – dipping their toes in the water rather than jumping in with both feet.
“Even if esports’ revenues were to triple between 2016 and 2020 (to $1.5bn), they would only be 1 per cent of global sports revenues of over $150bn,” he adds.
Newzoo agrees. It takes its total industry annual value figure ($464m) and divides it by the number of fans it estimates are involved in watching or playing esports to produce a figure of $3.50 a year per consumer. In contrast, baseball delivers $15 per consumer, the NBA $20, and the NFL a whopping $60. “Compared to the most monetised sports – generated from consumers and brands – then esport is not monetised well at the moment,” Warman says. “Esport is dwarfed by sports revenues but there are reasons for excitement around this space even if revenue is relatively limited today.”
Image from Newzoo
Pinning down the audience
Global audience sizes are hard to pin down mainly because there is no settled definition of what the audience comprises. Is it players? Viewers? Does it cover both frequent and occasional players/viewers? Newzoo pegs the core audience at 148m, Deloitte goes for 150m, and Superdata suggests 214m on track to reach 303m by 2019. Whichever the figure, it is clear that at these numbers esports has great potential for business.
“Esports reaches tens of millions of people on a regular basis and as such it is comparable to many traditional sports that have large audiences, big sponsors and interesting demographics,” says Stewart.
The question is now whether it can monetise at the same level as other sports properties.
“Our view is that the audience size is growing and, on top of that, as traditional media comes in, more sponsors will take esports seriously, and individual revenue per fan will rise,” says Warman. “The involvement of traditional media like [US cable-television company] Turner will not only bring in direct money but will put big sponsors at ease that they are entering an arena they know. Only since Turner and other broadcasters experimented with esports have big sponsors like Mastercard dared to enter. That is where the big money is.” Turner and entertainment marketing agency IMG jointly launched the Eleague competition in the US this year.
“To become a multi-billion-dollar business, esports has to copy some of the structure of existing sports,” says Warman. For example, there’s an absence of legally agreed and collectively bargained revenue-sharing between, on one hand, the organisers and game publishers that run competitions and, on the other hand, the teams that compete in them.
Newzoo uses another metric as a sign of global growth. It states that the number of consumers worldwide that are aware of esports will pass 1bn this year, up 36 per cent compared to last year.
Stewart, however, strikes a cautionary note on this tale of rapid growth. “A growth rate of 25-30 per cent a year is faster than console/PC gaming and faster than traditional media but it is not phenomenal, nor do I see it growing faster than this. I believe this decent but not spectacular growth rate demonstrates that esports appeals to a small, dedicated group of gamers whom traditional media are having trouble reaching, but there are real questions over whether it will grow beyond this.”
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