The Growing Digital Titan: An Industry Analysis of eSports and its Investing Opportunities

Written by Joseph Kim

Ten years ago, “eSports” was still a niche term only used by enthusiasts and players. In recent years, the industry has gone through explosive growth with increasing revenue and popularity, and this phenomenon has created a lucrative industry. Major companies like Riot Games and Activision Blizzard invested in creating an international gaming company, professional and amateur competitions went through explosive growth. The internet’s expansion offered companies and individuals incentive to sponsor and invest in the industry. This impressive growth and broader adoption beg the question:

What are the financial opportunities that the growing eSports market presents?

A Brief History of eSports

The massive boom in technology accessibility and internet connectivity in the past decade provided the necessary infrastructure to develop the eSports industry, and companies like Riot Games and Valve took advantage of it. They created legendary game titles such as League of Legends (LOL) and Counter-Strike: Global Offensive (CSGO), which established an extremely popular and competitive eSports scene. For example, the LOL 2019 World Championships garnered over 100 million viewers total and a single match in CSGO between Natus Vincere and Team Liquid brought over 600,000 viewers. 

Now, as companies like Riot Games and Bungie continue to develop new games like Valorant and Halo Infinite, the industry is poised to grow even further. 

Financial Analysis and Projections

In 2018, Deloitte found that the number of investments in eSports doubled from 34 in 2017 to 68 in 2018, representing an increase from $490 million (2017) to $4.5 billion in 2018. This constituted a YoY growth rate of 837%, an absurd growth by any standard. These investments were spread across the entirety of the eSports market, including professional organizations, company sponsors, broadcasters, and more. 

In terms of revenue, NewZoo analyzed the industry’s historical performance. In 2018, the YoY average growth rate was 30% while in 2019, the rate dropped to 23.3%. The COVID-19 pandemic put a temporary halt in the industry’s growth, but NewZoo still predicts a compound growth rate of 11.1% in a projection from 2019 to 2024.

Overall, valuations of the eSports industry place a $1 billion current valuation on the industry with a projected valuation of $1.8 billion by 2022. 

Market Structure Analysis

Main revenue streams in the eSports industry are media rights, live event ticket sales, merchandise sales, in-game purchases, sponsorships, and advertising. 

The largest companies that dominate the game creation side of the market include Sony, Tencent (Riot Games), Nintendo, and Microsoft. On the professional organizations’ side, the largest companies include TSM valued at $410 million, Cloud 9 valued at $350 million, and Team Liquid valued at $310 million. 

The most dominant platform that contributes to the majority of advertisement and sponsorship revenue by far is Twitch, which holds around 91.1% of the market share for streaming. Analysis of viewership showed around 26.6 million viewers across all platforms with a growth projection of 11.6%.

Entry and Expansion Opportunities

There are many opportunities to directly and indirectly invest in this growing industry. One method is to purchase stocks of companies related to the eSports industry. Companies that directly influence and are influenced by the performance of the eSports industry include device-producing companies such as Logitech and Corsair or game development companies such as Tencent and Activision Blizzard. Investing in these companies are passive ways to also invest in the eSports industry. 

Individuals or organizations can also create or sponsor professional teams. Teams hold massive potential to generate revenue through tournament winnings, advertisements, merchandise, and streaming. These are why organizations like TSM and Cloud 9 have high valuations and are widely recognized brand names. In addition, companies or individuals can choose to sponsor or host tournaments for games that bring in ticket sales, advertisements, and sponsorships.

For the tech savvy, creating third-party software for eSports communities is also a profitable method of indirect investment. Individual games tend to have third-party organizations or websites that help members of the community come together. Some examples include All-Star, Face-it, and Battlefy. These websites can generate massive profit through advertising revenue and subscription fees while also helping foster a larger community.

With yearly growth in revenue, viewership, and investment, the eSports industry is only set to grow as digital entertainment and competitive eSports become more commonplace. Even universities are starting to sponsor their own eSports teams with institutions such as the University of California-Berkeley and Rutgers University financing eSports teams and creating dedicated eSports lounges for students to practice and compete. 

Ultimately, the history of the industry has been filled with speculation and doubt, but the current state of growth is exciting and its trajectory suggests that the industry has a bright future ahead.