Why The Drop In eSports Investment Is Good | THE NEXT LEVEL 036

Next Level Take: I truly believe that timing is one of the most important things in life. Not to get all Super Soul Sunday on you but I think it’s a key factor for success.

I was going to publish this article yesterday but decided to focus on E LEAGUE. Yesterday an announcement was made that could not have been more perfectly timed for what I’m about to analyze. China’s Alibaba group — otherwise known as Yahoo’s life preserver — announced a $150M investment into the IeSF, the International eSports Federation.

I’m not even going to begin to get into how ludicrous that is but for perspective, here’s what $150M could have funded COMBINED:

It’s not hard to publish a press release. Now, let’s get to the reality.

I wrote in THE NEXT LEVEL 034 about the state of eSports revenues today — publishers are making most of the money and the rest is being subsidized by sponsors. With the current state of the market, the near term expectations have been reduced as evidenced by SuperData’s recent eSports market report.

If you’ve been reading THE NEXT LEVEL over the past few weeks, you can hopefully see my consistent thread:

There will be a slow down in activity across the eSports landscape.

This week CB Insights released a look at the eSports investment landscape with the headline “E-Sports Startup Investment Is On Pace For Record Funding High”. I’m a huge fan of CB Insights and you should subscribe to their newsletter but that headline caught my attention.

Here’s the investment in eSports over the last few years:

(Photo: CB Insights)

Looking at the chart it would be safe to assume that eSports funding in 2016 is on pace to beat 2015’s record year by a wide margin.

However if you remove two big 2016 investments in DouyuTV ($100M) and Discord ($20M) the picture is drastically different:

(Graphic: The Next Level)

Not only is that a pretty severe reduction in overall investment but you can see the peak post Amazon acquisition of Twitch. Now what does that mean?

  • Will there be another $1B exit in the US like Twitch? I’m not so certain.
  • Will there be an opportunity to invest at a 30X return? Not sure about that either.
  • Is there a space for small, lean players to capture market share? Absolutely.

Here’s your TL/DR for something that’s not TL:

The eSport space has experienced a bit of irrational exuberance and a correction is coming. But once the bad money leaves, there will be plenty of opportunity for those willing to continue to build the infrastructure.

BRANDS

GILLETTE

(Photo: E LEAGUE)

Next Level Take: Watching E LEAGUE this past week, I noticed that Gillette was now one of their Brand sponsors. Gillette is the exact type of brand needed to help propel eSports forward. I’ve been meaning to look at the CPG space and it’s great to see a huge global Brand like Procter & Gamble support eSports. Nice work Turner Ad team.

This isn’t Gillette’s first foray into eSports this year. Gillette recently sponsored a Pro Evolution Soccer tournament via Gfinity:

(Photo: Gfinity)

Again, it’s great to see support from a major Non-endemic brand and Soccer makes complete sense as Gillette used to be former FIFA sponsor. But you have to be careful that the content association doesn’t overshadow the actual audience potential:

(Photo: Twitch)

I checked the tournament periodically and didn’t see viewership past the hundreds. It’s not that Soccer/PES/FIFA can’t work, it just needs to be built up properly.


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