ESPORTS DISCUSSION An update on the esports market July 2021 INTRODUCTION Esports Update • This report will give an update on the esports Finally, the report will extend the analysis to The esports market is market from our previous report in 2019. 2020 recent developments with esports organisations expected to reach $1.5bn was an unprecedented year, in which most and what makes them attractive to investors. Like by 2023 (Newzoo) industries were affected in some way as a result of most industries, the dominant players are seeing COVID-19. new entrants that threaten their position. • The Asia Pacific region Focusing on the success in professional esports is The esports industry saw several developments not enough to guarantee financial success. represents more than during 2020. As lockdowns were implemented Successful teams will need to find the right balance 50% of the esports and around the world, most forms of in-person between being both an esports company and gaming audience (Juniper entertainment were cancelled overnight. The entertainment company. To find the right balance research) esports industry had a unique advantage over and to manage multiple revenue streams and traditional sports, and there was an evident cross- monetise their audiences, esports organisations over between the two sectors. will become better organised and adopt a more • Latin America may also professional approach to managing their become a key region for The report will also give an overview of the businesses. growth. It is projected to different investors that are involved in the esports produce over 130 million ecosystem and the reasoning for investing. The esports industry has historically attracted esports and game attention from high net worth investors. We are streaming viewers by now seeing an uptick in in the number of 2025 (Juniper Research) institutional funds who wish to gain exposure to the esports industry. With the increase in capital • allocated to esports, it is a matter of time before Emerging regions and an esports team reaches unicorn status. markets are projected to maintain double-digit growth beginning 2021. This will be driven by the popularity of mobile gaming in Latin America, Asia, the Middle East, and Africa (Newzoo) 2 MARKET UPDATE Global Gamers (billion) 2021 esport Audience 4 3 Total viewers Occasional esports 2 Viewers Enthusiasts 49 51 240m 474 234m 1 million Global Gamers (bn) 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 Figure 1 - Source newzoo Figure 2 - Source newzoo esports industry demonstrates its resilience • Since our last esports report, the market has Although in 2020 the global esports audience was esports enthusiasts are continued to go from strength to strength. 2020 close to 500 million according to research by classified as watching was a year that no one could have predicted, and Newzoo and is expected to grow to 1 billion by professional esports it had far-reaching impact on most industries. 2025, the gaming market is considerably larger content more than once a Overnight, in-person entertainment stood still due with the number of global gamers in 2020 month to lockdowns implemented across the world. The estimated to be 2.78 billion (growing to 3.19 esports gaming market however saw a positive billion in 2023), a huge market for traditional impact due to the online nature of the industry. sports, fashion, music and other entertainment • Occasional viewers are However, initially professional tournaments were genres to tap into. classified as watching suspended as contestants could no longer travel professional esports to tournaments and compete with the same Traditional sports and sports personalities getting connectivity. The industry did however show its involved in some way with gaming is not a new content less than once a resilience and by adapting to the changing phenomenon. Our last report touched on FaZe month landscape. Blizzard Entertainment, one of the Clan signing up Juju Smith-Schuster, a wide world's biggest game publishers, worked on plans receiver from The Pittsburgh Steelers. What has • In 2019, over 15% of to allow some of their leagues to go ahead online changed due to COVID is the increase in sports millennials watched and to make sure there was no delay for stars getting involved which is a natural participants as well as observers and progression as many sports stars have grown up esports on a monthly commentators. As the nature of esports is digital, with gaming as a part of their lives. They now see basis (Newzoo) most of the infrastructure was already cloud- it as a way of communicating with their fans by based. creating their own streaming profiles where fans can watch or even play alongside them. This • Another development during COVID was that theme will likely continue and grow long after In 2020, 33% of millennials traditional sports leagues such as the NBA and COVID lockdowns. watched esports on a Formula 1 used gaming to connect with their monthly basis (Newzoo) audiences. Traditional sports teams have More recently, to show how far the esports historically shown interest in esports with several industry has come, FaZe Clan was featured on the • By 2025, the number of NBA teams having invested in League of Legends cover of Sports Illustrated. There is no denying teams. However, during COVID, traditional sports that companies like FaZe Clan are defying the old esports viewers will reach leagues turned to virtual competitions to keep pop culture stereotypes of gamers. 1 billion (Juniper fans, media and sponsors engaged in order to Research) supplement lost revenue. 3 ESPORTS INVESTORS Fundraising in esports $1,200 70 $1,000 60 50 $800 40 $600 30 $400 20 $200 10 Transactions of Number Value of Transactions (m) Transactions Value of $0 0 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 Value of Transactions (m) Number of Transaction Figure 3 - Source: Quantum Proprietary Research Broadening investor interest The esports market is fragmented. Many There has also been increased interest from the • The estimated value of investments in esports over the years have owners of traditional sports teams. Jeff Vinik, the global esports been made from the fear of missing out rather owner of the Tampa Bay Lightning, Peter Guber, industry in 2020 was than than by informed investment decisions. co-owner of the Golden State Warriors, and Ted $947.1 million (Newzoo) This theme has been changing in recent years, Leonsis, owner of NHL’s Washington Capitals, with leading consultancy firms engaging with formed Axiomatic. Axiomatic is an esports- investment companies to understand the focused investment company. Axiomatic holds a • In 2021, global esports esports ecosystem. In 2020 esports companies controlling stake in Team Liquid, which was revenues are expected to raised $2.3 billion over 200 transactions, up recently valued as the third most valuable esports reach $1,084 million, 116% in value from $957 million in 123 deals in organisation in 2020 at $310 million by Forbes. representing a year-on 2019. Jeff Vinik told Sporttechie, “We think bringing our experience from traditional sports and year growth of 14.5% It is helpful to map out who the principal entertainment worlds to the esports industry is (Newzoo) backers are of esports and their reasoning for very applicable.” Esports organisations leverage getting involved in this market. their “on the field” esports performance with • The global esports market gaming and lifestyle content to communicate with The first broad category is traditional sports their fans through social media in order to be combined with streaming teams. For example, Sporting Lisbon, FC successful, with the majority of revenues coming is expected to be worth Schalke, Wolfsburg, and Manchester City have from publishing through social media channels, $2.1 billion in 2021 and all got involved in esports to a varying degree. brand deals, content and product licencing and more than $3.5 billion by The main reason is for these clubs to engage in merchandising. Traditional sports teams rely 2025. This represents a esports is to try and reach a wider audience of primarily on TV rights, ticket sales and football fans. Traditional sports teams are merchandising to be successful. Although there is 70% growth in the next getting involved in completely unrelated some overlap, combining teams from each four years (Juniper esports titles. The Golden State Warriors, the industry should provide synergies; esports Research) Houston Rockets and the Sacramento Kings attracting online fans and revenues and traditional have invested in League of Legends teams sports bringing investment, management expertise seeing this as a way to reach out to esports and legitimacy. fans and diversify their audience. 4 ESPORTS INVESTORS Broadening investor interest (cont.) One of the more interesting partnerships was Other notable celebrity backers include Drake and According to Foley & the US Air Force’s sponsorship of Cloud9’s Will Smith, who have invested in 100 Thieves and Lardner: Counter-Strike team. According to Major Ross Gen.G, respectively. Both of these teams have McKnight, head of the national events branch at been ranked in the Top 10 most valuable esports • 73% of stakeholders the Air Force recruiting service, the Cloud9’s companies by Forbes. Counter-Strike team had the ”same level of believe the pandemic will discipline, rigor, and achievement” that they The last broad category of investors includes generate more value in members of the Air Force. More venture capital and private equity firms. Given the investment and deal recently, FTX Exchange, a cryptocurrency firm, traction the esports ecosystem has seen in the activity in esports announced signing a naming rights deal with US previous few years, venture capital and private professional esports organisation TSM for $210 equity companies have for the most part stayed million.