the abridged version

Journey to the centre of eSports : Part 1

From novice to intermediate

At the beginning of this year Nic and I sat down in the Forward Partners offices and thought about some areas where we’d like to invest in over the coming year(s). This formed part of our proactive sourcing and investment strategy that I talked about in February. That makes it sound a tad dull. It isn’t: it’s one of the most fun, enjoyable, cerebral parts of what we do. It’s also hardly surprising that eSports came to the fore. There are lots of reasons why the industry has been attracting so much attention of late which we’ll go on to explore.

Aside from a bit of Counterstrike here and there, neither of us are experts in the world of eSports and, as investors, that what we’re in the business of becoming at short notice…and so my journey began.

In this series, I’ll be covering:

  • What eSports is
  • Why it’s popular
  • How businesses are approaching the sector
  • How players and fans view the evolution of eSports
  • Where to place your bets

eSports?! What’s that? Electronic Sports?!

Yes, it’s electronic sports, of a sort. Video games have been around for decades and it’s no surprise that people have been creating teams, congregating in arcades, competing and wagering on outcomes all throughout their history. Don’t believe me? Treat yourself to a viewing of King of Kong which documents the history of the King Kong world record score and those determined to break it. It’s an great film and commentary on human nature.

eSports as it’s referred to today concerns the world of online-multiplayer first person and team based games where someone/a team wins and someone/a team loses. The most popular of these games can be seen in the graph below. Quite the power law in action here.

Taken from Mahesh Vellanki’s http://www.mahesh-vc.com/blog/how-many-dollars-are-flowing-into-the-fast-growing-esports-industry which referenced data from NewZoo, eSportsEarnings.com and some of Matthew Wong’s work

The team-based, multiplayer battle arena games League of Legends and DOTA 2 are by far the most popular games out there. Their popularity is reflected in the prize money at stake though there’s far more money to be made by playing DOTA 2 (~$45m in prize money per annum) than any other game (League of Legends comes in at ~$11m).

Taken from http://www.esportsearnings.com/tournaments

As you can see, there’s a lot at stake here. Though before you think that you’ve missed your calling and are about to throw in the towel to become a pro-gamer…eSports is a (very) young (typically) man’s game. The top earning players are typically aged 15–25 and if you’re reading this, you probably aren’t. Beyond those advanced years you simply don’t have the requisite reaction speed to compete at the highest level. You’re fried by that point. Putting that into context, the best Formula 1 drivers can win into their late 30s. Furthermore, eSports players are concentrated in certain geographies. The US, China, South Korea, Northern Europe and the Nordics account for the vast majority of player numbers and earnings.

Ok, but still, why is it so popular?

Well, it’s easy to overstate eSports’ popularity. It’s still pretty niche, in terms of player numbers and main-street awareness.

Source: https://newzoo.com/

Audience growth, while impressive, isn’t gang-busting. With a projected global audience (complete with heavy geographic skew as mentioned above) of 345 million this isn’t by any means a critical mass. Soccer, cricket, hockey and tennis all have fan numbers in the billions, by way of comparison. The slightly ‘underground’ feel to eSports is something that this industry is going to have to overcome if those who are placing big bets are to realise a return. This is corroborated up by a recent survey by PWC where, unprompted and unaided, only 15% of people knew what eSports was.

Revenue growth, however, is ludicrously strong which is probably the reason why you might have heard about it if you’re not a gamer.

It’s exactly this revenue growth — and the potential to exceed even these projections — which has the investment community, game makers, publishers, GAFA, media, and many more fighting for a piece of the upside.

Descriptive statistics are one thing, but I wanted to find out why eSports is growing so fast. Why do people play the games? Why do people pay to watch games? What are the components of this revenue growth?

An important thing to understand about eSports is that the game never ends. Unlike in Pac-Man or Assassin’s Creed, eSports games are continual. You die, you respawn. The real value in the experience is created by the community of players (and watchers) rather than a 1-way consumption of product.

The possibility for endless gameplay, super-high octane action and the well established video meta-trend has been the foundation for the growth of a fanatic, deeply interconnected group of both professional and amateur players and followers. While online competitions provide a strong engine for growth and an obvious focus for business, there are also more constant venues for eSports players and fans to get their fix.

Twitch is the self-styled social-network for gamers (purchased by Amazon for $980m in September 2014). On the platform, players can play and cast their gameplay and webcams for watchers enjoyment. Watchers can interact with each other and the streamer, make donations, sign up for channel subscriptions and purchase mods. The amount of content being streamed regularly places Twitch as the 4th biggest bandwidth user in the USA behind Netflix, Google and Apple. Recorded media is well established too with Google’s YouTube being the main destination. PewDiePie is probably the most well known proponent here with more than 12 billion views of his various vlogs. eSports’ neat fit with both recorded video and live-media is a key strength — not least because it maps neatly onto a consumer base of which 69% are 18–34 but also because it has yielded platform potential for businesses and entrepreneurs.


Next up I’ll be talking through my meetings with the tech community, gaming businesses, eSports players and fans before finishing up with a feature on where you might want to invest some time and money in the industry. I hope that you’ve enjoyed it so far.

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