Esports Part 1 – Growing Pains

The professional competitive play of video games, known as Esports, is an industry still in its infancy. Infancy, however, is a relative term. Worldwide revenue in 2017 is expected to be nearly $600 million, reaching $1B by 2020. Like traditional sports, Esports consist of either individuals or teams competing against one another, only, the racquet is replaced with a mouse and keyboard. Most people are still unaware of the growing fanfare behind Esports, but this ignorance will not last long. With Universities offering Esports scholarships, global business giants investing tens of millions of dollars into players’ careers, stadiums selling out in seconds and professional players easily earning into 6 figures, the industry is on the precipice of bursting out of niche status and into popular culture. The following is a discussion of the strengths and weaknesses of the Esports industry as it stands, and a few predictions for the near future.

Marketing

Esports is a marketer’s dream. The passive advertisement seen on television, or on billboards, is both expensive and relatively ineffective. Esports advertisement works very differently. Unlike traditional sports, pro-gamers often stream online while practicing for upcoming competitions. Streamers build a personal relationship with their viewers by replying to fans in live chats, and organising community games. They can ask their viewers to watch a few ads to help support their career. In this way, a notably positive relationship is built between viewer, streamer, and brand. Streamers can also choose exactly when they want to play, allowing them to reach a wider audience than regimented advertisement contracts for televised sports. Furthermore, the 21-35-year-old age bracket has been notoriously difficult to reach in recent times for marketers, and the Esports industry is almost entirely populated by this demographic.

Household companies such as Intel and Alibaba have already been supporting Esports for many years. Intel provides high performance chips for competitions, and even hosts one of the longest running competitive events, the Intel Extreme Masters. The International Esports Federation recently closed a new deal with Alibaba for $150 million in backing. Now, while these numbers still pale in comparison with big traditional sports, the annual growth is what’s really impressing pundits. Unlike most sports (except football <3) which tend to be relatively segregated by continent, Esports is becoming popular globally, because it is borne from the internet. This generates growth and revenue potential for investors, and is enough to excite anybody wishing for Esports to explode in popularity.

In 2013, The Staples Centre sold out in seconds when tickets floated for the League of Legends World Championship Final. In hindsight, this was definitely a watershed moment for the industry. It was noteworthy enough for the LA Times to cover the event like it would a regular sport, and it showed to sceptics that the popularity of Esports had expanded beyond South Korea. The soft power of video games is difficult to quantify, but the ease of access to content through existing free streaming outlets and low barriers to entry makes Esports available to more spectators than televised sports ever could.

Organisation

Every established professional sport has its annual calendar events regulated by a governing body. Golf has the majors run by the PGA, tennis has grand slams run by the ATP, European football has the champions league run by UEFA (and of course the FIFA World Cup), and even table tennis has annual championships held in recurring locations organised by respective bodies. A structured calendar maintained under the auspices of a strong governing body provides a backbone around which a professional sport can grow, and allows major sponsors to embed themselves within the culture of the game. Where would the Australian Open be without Kia? Where would the Premier League be without Barclays? When you think of your favourite sport, a major sponsor usually comes to mind. But this is not yet the case with Esports. The major events in Esports aren’t organised by an independent governing body, they’re usually run by companies looking to promote their own games by hosting competitive events. These events are mainly publicity stunts and companies have openly discussed the financial losses made on these tournaments. This is not to say that some haven’t become relatively concrete in the annual calendar, but a cohesive and consistent calendar is necessary for roots to take hold in Esports.

Some of the major players in this area include Activision Blizzard, which runs and owns MLG.tv, Riot who run the LoL Championship Series, and German based Electronic Sports League. It’s clear that the primary issue with the current Esports structure is that no company has an incentive to run a professional gaming event for any games other than their own, because they’re likely to make a loss on the event. An international unified governing body is required to oversee the implementation of domestic and well-regulated competitive leagues before any long term roots can take hold. As it currently stands, in rough descending order, the Esports revenue stream is sponsorship, advertisement, game publisher fees, media rights, tickets and merchandise.

Fanfare

Another key aspect to growth in Esport will be the public notoriety of major players in each video game. Sports fans don’t really follow the sport itself, they follow the teams, and individual players. Famous teams and players create a lucrative and marketable brand, which presents opportunities for explosions in merchandising revenue and player cameos in advertisement. The most difficult step is getting Esports fans to become economically involved in the spectatorship. On average, Esports fans spend 80% less money annually on viewership than NBA fans. This is unsurprising given its youth in America, but gives a very clear indication into just one avenue of its growth potential. More structured monetisation will be central to increasing financial integration into fans’ lives, as well as the regulation of content. Streaming services such as Twitch allow the masses to watch many high-level gaming competitions for free, so many of the streamers still rely on donations from loyal fans. Many of them are also reluctant to implement a ‘pay to watch’ model due to the risk of losing their entire viewership to competitors.  Youtube also has underdeveloped (to say the least) rules on Esports content distribution and live streaming. This is not necessarily a bad thing for such a young industry, but it is unsustainable long term if the sport is to become economically sustainable.

Asia-Pacific still accounts for about half the global Esports viewership, but North America already leads investment into the industry with an estimated $257 million in sponsorship in 2017 alone. Big money raises the stakes for competitive players, and produces more entertaining gameplay across the board. A snowball effect is already underway, with large competition payouts drawing the best players from around the world, which further incentivises private investment into the industry. It is also worth noting that the popularity of any game in Esports will always have a trickledown effect on the game’s developer. The increasing success of Esports is likely to have a positive impact on gaming for everybody, as development companies will have more money to spend on producing quality content for the gaming community as a whole. Even if you’re not interested in watching professional gaming, their contribution and representation of the game in a public setting will have long term benefits for anybody playing the game privately.

Esports is at a very exciting stage in its life. It has been wildly popular in some parts of the world for a long time, but its penetration into the global market has a long way to go. Mainstream coverage, structured competitions and financially involved fanfare are all necessary for sustainable growth, but like anything, it just needs time.

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