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About BITKRAFT Esports 101 A Deep Dive Into the World of Competitive Video Games Produced by BITKRAFT Esports Ventures About BITKRAFT BITKRAFT is an early stage investor and company builder focused entirely on the Esports sector. We found, support, and scale Esports startups along with the industry’s most influential companies. Founded in 2015, we are active in both Berlin and Los Angeles, the epicenters of the western Esports world. BITKRAFT is home to a diverse range of entrepreneurs, operators, and investors who are building businesses, creating and expanding opportunities and developing new technologies that benefit Esports players, fans, and stakeholders around the globe. Esports 101 A Deep Dive Into the World of Competitive Video Games TLDR ` Esports is the transformation of gaming into a spectator sport - an interest skyrocketing among millennials. ` Driven by advertising and sponsorship, global revenue for Esports worldwide totaled over $800M last year, and is expected to reach $1.23 billion by 2019.1 ` Esports viewership surpassed 200 million last year, and is expected to grow to over 300 million by 2019.2 ` Esports events have already exceeded viewership of many traditional sports leagues events including those of the NBA and MLB. ` Esports fans are young, employed, and diverse. ` Both endemic gaming brands and non-endemic brands are embracing Esports in order to reach the coveted millennial audience. ` Traditional sports teams are moving quick to enter the Esports scene. 1 https://www.superdataresearch.com/market-data/esports-market-brief/ 2 http://venturebeat.com/2016/07/20/superdata-esports-is-now-a-892-million-market-but-growth-is- slowing 2 Esports 101 A Deep Dive Into the World of Competitive Video Games What is Esports? Esports is the global rise of young people playing and watching competitive video games. Already cutting into traditional sports viewing,3 Esports offer adeeply engaging experience tailored to the preferences of a digital demographic. Esports exhibit three main characteristics: ` They are highly competitive and always against other players; ` They are fast-paced and exhibit less off-times than traditional sports; ` They are highly audience driven and move quickly to optimize the viewing experience. The global Esports market continues to grow rapidly as its key demographic expands and ages: more and more kids love gaming and continue to be fans as they age. Esport titles are mainly monetised through in-game micro transactions, while Esport tournaments and leagues offer effective advertising and marketing opportunities. According to Jens Hilgers,4 Esports is dominated by four top games that draw media attention, prize pools, and sponsors. League of Legends (LoL), a 5v5 strategy game, is the top title and watched by a large portion of its 70 million player base. Dota is a very similar game which attracts a fraction of the players (12 million) but continues to have the biggest tournament in terms of prize pools, with The International offering $20.7 million in 2016. While LoL and Dota are third-person strategy games,CS:GO is a first-person shooter and continues to attract many European fans. Lastly,Hearthstone is a digital card game and the only one-on-one title in the top tier. 3 http://www.espn.com/esports/story/_/id/17779612/esports-cuts-nfl-nba-mlb-viewing 4 http://esportsobserver.com/esports-games-tiers/ 3 Esports 101 A Deep Dive Into the World of Competitive Video Games Esports by the Numbers Esports viewership and revenue continues to skyrocket year over year. The growth can be attributed to the rise of gaming in general, the overwhelming adoption of technology among millennials, and Esports’ winning combination of competitive sport and Hollywood style entertainment. Esports Global Viewership Growth 303M 275M 239M 214M 188M * DATA PROVIDED BY SUPERDATA 2015 2016E 2017E 2018E 2019E In July of 2016, research firm SuperData predicted that global revenue for Esports would total$892.8M in 2016, and is expected to reach $1.23 billion by 2019.5 Esports viewership was expected to hit 214 million in 2016 and grow to over 303 million by 2019.6 Esports Global Revenue Growth $1.23B $1.11B $1.01B $0.89B $0.75B 2015 2016E 2017E 2018E 2019E 5 https://www.superdataresearch.com/market-data/esports-market-brief/ 6 http://venturebeat.com/2016/07/20/superdata-esports-is-now-a-892-million-market-but-growth-is-slowing 4 Esports 101 A Deep Dive Into the World of Competitive Video Games According to Superdata, the majority of Esports viewing revenues (76%) is generated through sponsorships and advertisements, establishing Esports as part of the entertainment industry. The remaining 24% are direct revenues with prize pools accounting for 9%, betting and fantasy at 7%, ticket and merchandise sales at 6%, and micro-tournaments clocking in at 4%. Esports games are monetized very differently, as they are entirely free-to-play. However, titles like League of Legends offer in-game microtransactions, selling purely cosmetic items for the digital world. This approach brought Riot games $1.6 billion in revenue in 2016.7 7 https://dotesports.com/league-of-legends/league-of-legends-2015-revenue-2839 5 Esports 101 A Deep Dive Into the World of Competitive Video Games Demographics Contrary to popular belief, Esports fans are not unemployed men living and gaming in Mom’s basement.8 In fact, 61% of Esport fans are under the age of 25, and earn an average of $45,000 a year. Another study, produced by Mindshare North America, found that 43% of Esports enthusiasts have an annual household income of $75,000 per year or higher—and nearly one third (31%) have a household income of $90,000 or higher, proving that Esports fans have significant buying power.9 In terms of Esports viewership and gender, there are many conflicting reports. According to Newzoo, 38% of global Esports viewers are women, whereas, Superdata reports only 15% of US Esports fans are female. Lastly, the majority of Esports fans are millennials—the most brand loyal and most technologically engaged generation. 90% of millennials actively use two to three devices a day and over 50% say they are extremely or quite loyal to their favorite brands, making the group a marketer’s dream.10 Esports Demographics 4% 15% 45+ 13-17 12% 35-44 23% 46% 25-34 18-24 8 http://www.inc.com/geoff-smith/millennials-becoming-more-loyal-in-era-of-consumer-choice.html 9 http://www.mindshareintheloop.com/home/2016/6/14/game-on-what-marketers-should-know-about-esports-fans 10 http://www.inc.com/geoff-smith/millennials-becoming-more-loyal-in-era-of-consumer-choice.html 6 Esports 101 A Deep Dive Into the World of Competitive Video Games Esports vs. Traditional Sports Popularity of Sports in the US By Number of Fans 40M American 30M Football Basketball 20M Baseball Ice Hockey 10M Esports 0M 10-20 21-35 36-50 51-65 Age of Fans Esports is competing with traditional sports at every turn as teenagers today grow up playing and watching both. Many Esports companies and investors are betting that millennials will continue to engage with video games throughout their life while quitting regular sports with age and injury. 76% of Esports enthusiasts state that their Esports viewership is taking away hours they used to spend watching traditional sports.11 The latest Newzoo study finds that among US male millennials (age 21 to 35), Esports is now just as popular as baseball or hockey with 22% watching it. For some, Esports is the only type of sport that holds their interest; there are six million Esports fans (of twenty million in total) in the US that do not watch baseball, hockey, basketball, or American football at all.12 11 http://www.gamesindustry.biz/articles/2016-10-12-esports-taking-viewership-away-from-real-sports-newzoo 12 http://www.gamesindustry.biz/articles/2016-10-12-esports-taking-viewership-away-from-real-sports-newzoo 7 Esports 101 A Deep Dive Into the World of Competitive Video Games Recently, dozens of traditional sports teams and pros have shown interest and consequently gotten involved in Esports. Prime examples include the Miami HEAT investing in Misfits,13 the 76ers acquiring two Esports teams14 and the Milwaukee Bucks co-owner launching the Esports brand FlyQuest.15 Similarly, Magic Johnson, Rick Fox, Shaquille O’Neal, and Jonas Jerebko have become part of specific Esports organizations trying to capitalise on the growing trend. Lastly, the Big Ten Network announced its collaboration with Riot Games to produce a full season of collegiate League of Legends competitions between twelve of the Big Ten’s fourteen schools.16 These developments are in line with venture capital flowing into the scene as investors hope to acquire part of a future media giant. However, traditional sports teams tend to make better partners as they are also adding significant value by professionalising management and player relations. 13 http://www.espn.com/esports/story/_/id/18444193/miami-heat-invest-esports-misfits 14 http://www.espn.com/esports/story/_/id/17637299/76ers-acquire-esports-teams-dignitas-apex 15 http://www.espn.com/esports/story/_/id/18405409/sources-milwaukee-bucks-co-owner-launches-esports-brand- flyquest 16 http://chicagoinno.streetwise.co/2017/01/19/the-big-ten-is-going-all-in-on-esports/ 8 Esports 101 A Deep Dive Into the World of Competitive Video Games Brands and Esports Both endemic gaming brands and non-endemic brands are embracing Esports to reach the coveted millennial audience. From sponsoring tournaments, to collaborating on influencer campaigns with top streamers, or working directly with players and teams, advertisers have come to realize the full potential of the Esports demographic. As TV viewership among millennials drastically decreases, streaming via platforms like Amazon-owned Twitch continues to grow.
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