Esports: An Insight into the Competitive Gaming Industry Part I

Prologue

Entertainment is a form of activity that aims to capture and retain the interest of an audience, usually giving pleasure or delight. It is an inherent element of human life that has evolved over time, particularly due to its subjective nature. This is evident from the modern day society’s perception of activities that were very popular in ancient times, such as a gladiator fight to the death, shifting to being generally not acceptable today. In our lifetimes alone we have seen drastic changes and a proliferation of activities within the entertainment industry as a consequence of increased globalisation and digitalisation.

According to PwC, the market value of the entertainment industry reached $1.8 trillion in 2016 and is forecasted to reach $2.2 trillion in 2021. This gaming industry is one that has grown into a multi-billion dollar industry over a few decades, becoming the largest entertainment vertical in the world (larger than the music and film industries combined!)

From this colossal gaming industry, we have seen the emergence of a new type of spectator sport that is currently breaking down geographical barriers in a way that traditional sports have often struggled with. This emerging sport is known as electronic sports or esports. Esports has grown from humble beginnings where prize pools were a few hundred dollars, to an industry that now generates millions of dollars and is forecasted to generate billions.

Esports is not only growing exponentially as a new independent business, industry and sport, but also accelerating the convergence of various established industries. It is essentially a start up industry, with a increasing amount of start ups within it. The industry provides millennial's with the opportunity to capitalise on their of their favourite past times: playing videos games and watching video game content. With an increasingly wide array of games and the emergence of streaming videos, esports is well on its way to becoming a billion dollar industry.

Despite the industries relative infancy, we strongly believe that electronic sports have the potential to surpass traditional sports in the not too distant future, in terms of both size and revenue. However, for this to occur, there would need to be radical changes that utilise the nuances of the industry as a strength whilst also mitigating the obstacles hindering esports from reaching its potential.

So, What are ‘Esports’?

Esports or electronic sports are a form of competition that is facilitated by electronic systems, particularly ‘video gaming’. The term esports is now associated with competitive electronic gaming on a broad level. A specific electronic game played competitive would be an esport (singular).

Most commonly, esports takes the form of organised, multiplayer electronic game competitions, particularly between professional players. It typically involves team-based gaming as a spectator sport with ranked matches. It has many similarities to traditional real-life sports in their nature, however are generally engaged online.

The History of Esports

The earliest video game competition took place on 1972 at Stanford University for the game Spacewar (“Intergalactic Spacewar Olympics”). The first large scale video game competition was the Space Invaders Championship held by Atari in 1980, attracting more than 10,000 participants across the US, establishing competitive gaming as a mainstream hobby.

Over the last few decades, many games have benefited from increased internet connectivity which in turn benefited competitive gaming tremendously. Although large esports tournaments were founded before the 21st century, the number and scope of tournaments have increased significantly. This proliferation of tournaments includes experimentation with competitions outside traditional esports genres.

We have seen shifts in popularity of genres, from fighting games in the early 90s to Battle Royale games presently. Multiplayer Online Battle Arena (MOBA) games came in to the scene around a decade ago, pitting two teams of five players against each other, blending strategy and RPG elements together. These MOBA games became a real hit. Two of the most popular MOBA games, League of Legends (launched in 2009) and Dota 2 (2011 — though its final finished version arrived in 2013), gained enormous followings. Today League of Legends has around 100m players. In these games, each player typically controls a single character; who can level up, buy new items to get stronger and work with teammates to defeat the enemy team and destroy their base.

The popularity and emergence of online streaming services have also helped the growth of the industry, and are the most common method of watching tournaments. Twitch, an online streaming platform launched in 2011, routinely streams popular eSports competitions. In 2013, viewers of the platform watched 12 billion minutes of video on the service. A year later, Twitch was bought by Amazon for $1 billion!

There are now a diverse number of games and genres that can be played competitively, from racing games to first person shooters. Due to the differing nature in these games, the esports market is heavily fragmented.

Viewership & The Market

Due to its globalised and online nature, viewership for esports is significant, making it comparable to traditional sports. In 2013, League of Legends brought in the 2nd highest amount of views for last years Championship final (27 million viewers), beating every sporting event except for the Super Bowl.

Nearly every big esports tournament is streamed for free on Twitch TV. Twitch allows people to watch their favourite team or individual players while chatting with other spectators. Some watch for pure entertainment, others watch to learn from the best and apply that knowledge to their own games. As of 2016, Twitch has over 100 million viewers per month. Additionally, the viewership is increasing as time goes on, not diminishing. It is suggested that esports will have more viewers than NFL Football by 2020. The industry has been described as an ‘advertising goldmine’.

Tech & Media Companies are paying attention to esports due to the desirable demographics of the audience:

  • 75% are millennials aged 18–34
  • 82% are men

In 2015, a Swedish Company (MTG) purchased a 74% stake in the oldest esports company, Turtle Entertainment (the holding company for ESL), for $87 Million. Canadian motion picture exhibitor Cineplex spent $15 million at a similar time to acquire an esports company and create a new gaming league that will take place in its theaters. Although esports might not match or surpass traditional sports any time soon, its potential business value is clearly too significant to ignore.

Not only tech and media companies are wanting to dip their toes into the exciting waters of the esports industry. A vast number of traditional sports clubs, such as Manchester City and Philadelphia 76ers, have recenty entered the esports space. Football clubs are signing FIFA stars who are players of the virtual game, rather than the real thing. Other clubs, such as Paris Saint-Germain (PSG), have signed up a whole squad of players in a number of different eSports, including League of Legends.

The thinking is simple for traditional sports clubs: digital gaming is where the next generation of fans will come from. Often, a young person’s first interaction with a professional football club is through the FIFA game, and so esports are a vast reservoir of future income. Additionally, esports will allows clubs to raise their global profile and increase brand exposure. It will allow clubs to generate new fans of the brand in locations that would otherwise be extremely difficult to tap into, such as US and Asian markets.

The Esports Economy

The 2017 Global esports Market Report (NewZoo) provided an in-depth look at the esports economy and a realistic estimate of its future potential in terms of trends, viewers, participants, and revenue streams.

This report indicated that 2017 saw the global esports revenue grow to $696 Million, a year on year growth of 41.3%. Brands are expected to spend $517 million, broken down into $155 million on advertising, $266 million on sponsorship, and a further $95 million on media rights. Consumer spending this year on tickets and merchandise will amount to $64 million. Another $116 million is invested by game publishers into the esports industry through partnership deals with white-label organizers. Brand investment will double by 2020, pushing the total market to over $1.5 billion.

In traditional sports, total revenue per fan is a key indicator of how well a sport is “monetised”. It encompasses revenue streams such as media rights, sponsorships, and consumer spending. Based on the audience and revenue expectations for esports in 2017, the average revenue per fan this year will amount to $3.64. As the esports industry matures and incorporates an increasing number of local events, leagues, and media rights deals, the average revenue per fan is anticipated to grow to $5.20 by 2020. This is still a factor three lower than a popular sport such as basketball and a factor twelve lower than the most commercial league in the world, the NFL.

North America is the largest esports market, with revenues of $257 million in 2017. This will reach $607 million by 2020. Most of these revenues come from sponsorships, which will total $113 million in 2017. This is partly due to North American teams that have welcomed a lot of new non-endemic sponsorships and the region hosting several of the world’s largest leagues and tournaments that generate a high amount of sponsorship money. The 25 million Enthusiasts in North America generate twice as much revenue per year than in any other region. The $10.36 per fan per year, highlights the lead that American media companies and brands have taken in successfully monetising the industry.

Classification as a Sport

Labelling video games as sports is a controversial point of debate. Much like professional athletes, gamers spend large amounts of time developing new skills that will help them compete in their games. Often the core rules of the game do not change often, but the dynamics change as new characters and environments are added. Players constantly go through strategies to combat the different scenarios that they may encounter in a game. Gamers also need to have very fast reaction times and the capability to keep up with the pace of the action.

Esports can be considered a “real sport” by definition, much in the same way as chess or poker can be. There are many parallels between traditional athletic sports and esports. However, the virtual environment and lack of physical activity call into question whether we can truly define esports as “real sports” rather than a “mind sport”. Like poker and chess, esports are mind-based sports with limited physical activity. Some definitions use words like ‘usually’ and ‘or’ when talking about the physical activity involved. This further makes the case for the fact that sports need not always be physical athletic activity. The physical exertion and outdoor playing areas are not required by all traditional or non-traditional ‘sports’

According to the US Federal Government, esport players are considered professional athletes. In 2013, a Canadian League of Legends became the first pro gamer to receive a United States P-1A visa, a category designated for ‘Internationally Recognised Athletes’ allowing a stay of up to 5 years. In 2016, the French Government started working on a project to regulate and recognise esports. Recently, they passed legislation which regulates professional esport player contracts within their country.

Although many argue that popularity of esports should justify competitive gaming as a sport, I believe it is the careful planning, precise timing and skillful execution that should support the activity’s classification as a sport.

Future of Esports

It may be a career many kids and teenagers dream of, but as of now, it is clearly not a profitable one (apart from players who literally dominate in their game). Although top League of Legend players have contracts with quite promising salaries, we all know they do not get to stay on the top forever. Either way, it is extremely difficult to make a name and succeed in esports. I believe that the requirements to succeed in esports are not only hours of practice and absolute dedication, but also pure talent.

The industry is definitely booming and will gain global traction over the coming years. The future is bright and exponential. Teams are managed and ran like any other sports teams. In the future there will be well established career paths in the industry, whereas in the past, being a competitive gamer was not even considered a career. Currently, however, it is not a profitable career for gamers unless one literally dominates their chosen game to compete in.

The future of esports looks like it will be made even more interesting with immersive technology such as VR Goggles. As these immersive technology evolve, esports will become much more advanced and the industry will flourish. Furthermore, other innovative technology like blockchain, will enable greater innovation within the infant industry.

In conclusion, esports does have an extremely bright future thanks to the copious amount of both casual and competitive players worldwide, although aspiring to be a professional gamer is very risky and insecure. At some point in the near future, it is highly likely that esports industry will be professionalised and recognised as a true sport.

Thanks for reading!

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