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/
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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
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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
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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
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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/
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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. The amount of television viewing by millennials has dropped 32% in the last five years.17 By comparison, an average Twitch user watches 106 minutes of live gaming per day.18
In the first month of 2017 Adidas, Visa, Lionsgate, 5 Hour Energy, and Audi have joined brands including Coca-Cola, Red Bull, Pizza Hut, and American Express as Esports sponsors and partners, and that roster will continue to grow.
Brands Investing in Esports in January 2017
17 http://blogs.wsj.com/cmo/2015/07/24/this-chart-shows-why-comcast-would-be-interested-in-vice-media-and- buzzfeed/ 18 http://www.fool.com/investing/2016/07/18/instant-analysis-disneys-espn-starts-airing-e-spor.aspx
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Global Esports Hubs
Global Esports Hubs
19% 25% NA EU
12% 44% Rest of World APAC
Last year, Asia accounted for 44% of the global Esports audience, followed by Europe (25%) and North America (19%). In terms of revenue, Asia also leads. In 2015, Asia saw $328M in Esports revenue, followed by North America ($275M) and Europe ($269M).19
When it comes to Esports international business hubs, Seoul, Los Angeles and Berlin are on the rise. While L.A. continues to attract Esports entrepreneurs due to its entertainment sector, Berlin is home to dozens of Esports startups, Riot Games’ European League Championship Series studio, Esports media including The Esports Observer, and now BITKRAFT, the world’s first Esport specific venture capital fund.
19 https://www.superdataresearch.com/market-data/esports-market-brief/
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The Future
Esports expects massive growth as its audience matures and video games become even more popular. Esports is finally shedding its former stigma and being adopted by a more mainstream audience. Further, the lack of strict regulations enables organizers, teams and companies to experiment freely in understanding the fans’ preferences. This has been, and will continue to be, a large driver for great viewing experiences, high engagement and effective monetization.
However, for Esports to truly fulfill the expectations of investors and marketing executives alike, there is a lot of work to be done. Key players tends to agree20 that league and game stability is crucial for increasing sponsorship and marketing revenues as well as giving teams the opportunity to build meaningful brands and fan communities. This should fuel massive growth as annual fan expenditure would increase and fall more closely in line with that of traditional sports like basketball ($2.83 to $15 last year, respectively).
Whether you are part of the movement or not, Esports is the future of competitive entertainment and here to stay.
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20 http://venturebeat.com/2016/11/18/how-the-growth-of-esports-compares-to-the-trends-in-traditional-sports/view-all/
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FAQs
1. I watched my son’s League of Legend tournament and I just don’t get it. Is Esports really worth this hype?
Yes! If you’ve never played the game, it’s likely you won’t understand or appreciate what’s going on. Many young people grew up with these games and can truly acknowledge the quick reactions and strategic depth inherent to esports.
2. Why is Esports the right vertical to reach millennials?
While millennials are interested in many kinds of entertainment, Esports is especially effective at reaching them. Most millennials use Adblock and consequently become difficult to target through traditional web advertising. However, Esports tournaments and influencers evade getting blocked by integrating sponsors and advertisements into the content itself.
3. How can I understand this market better?
There are a couple of great documentaries out there, which may help you understand Esports a little better while also diving into the games themselves. We recommend either the E-Sports Superstars: gamers earning millions by the Economist or Free To Play, which chronicles the first tournament with over a one million dollar prize pool.
4. If this market is so big, why haven’t I seen Esports before?
While globally a large scene, Esports isn’t marketed via billboards or newspapers but finds its audience among gaming millennials.
5. Where can I catch the action?
There are always packed channels on Twitch where you can see tomorrow’s superstars stream their games. Tournaments are usually hosted on weekends and tend to be more enjoyable for first-time fans. Check out this tournament calendar for more information and dates.
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6. Why would I go to a stadium to watch something virtual?
Tournaments offer an incredibly exciting experience as the best teams of the world sit across from each other battling it out for millions of dollars. The fans, of course, are another spectacle as they chant and cheer - invigorated by ceaseless action. Usually tournaments are sold out within hours so make sure to be ready if you want to catch one yourself.
7. Why would I want to watch someone else play a video game?
Watching Esports is not unlike watching traditional sports, much of the fun comes from loyally supporting a team, meeting up with friends, and following the strategic development in the game. Surprisingly, Esports tend to be a more emotional experience, as Twitch creates close connections between players and fans. Further, the games are more complex allowing for more discussion and engagement.
8. Isn’t Esports more of a phenomenon in Asia?
While fans in Asia have traditionally been early adopters of Esports, we are seeing staggering growth in Europe and North America, which currently accounts for 44% of global Esports fans.
9. How can I stay in touch and receive future White Papers?
You can sign up to receive more BITKRAFT Esports White Papers here.
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