The 5 Factors Defining the Future of Esports

At the start of this year, our estimates for esports revenues amounted to $2.22 per Enthusiast, an important growth KPI allowing a comparison with traditional sports and giving an indication of the potential size of the Esports Economy. For basketball for instance, this metric stands at $14.00 on a global scale and $19.00 when looking only at NBA fans. With our new Q3 2015 estimates from our Global Growth of Esports Report, the average revenue per fan now stands at $2.40. Following a conservative growth scenario, we anticipate this to almost double to $4.63 in 2018.

Drawing from a comparison with traditional sports, we highlight five factors that will determine the pace of growth of the esports economy. However, with the unique characteristics of gaming, and esports at its epicenter, the comparison to traditional sports is only partially feasible. Only time will tell if esports follows a traditional route or carves out a new one toward the multibillion dollar business it unmistakably will become.

1 – Diversity of Game Genres

The vast majority of esports titles are PC games that fall into a few major genres, with MOBAs like League of Legends, Smite, Heroes of the Storm and DotA2 being some of the most popular in terms of participation. However, with their complex game play, MOBA games can be difficult for viewers who don’t play them to understand and for gamers to master. Would more accessible game genres and segments gain a wider audience and player base?

Riding the wave of ESL One, Counter Strike: Global Offensive, Valve’s multiplayer first-person shooter, took over Twitch with the most hours watched for a game in one day, beating out even League of Legends. In August and September of this year, Philippines mobile operator Smart Communications held the Philippine Clash 2015, a Clash of Clans tournament that has set records as the largest prize pool for a mobile gaming competition in the country. US-based Super Evil Megacorp held its first World Invitational tournament in Korea last summer based on its mobile MOBA Vainglory. Last week, Blizzard announced the creation of a new worldwide esports league for the popular console first-person shooter series Call of Duty. A wide variety of game publishers are boosting esports activities for franchises around which competitive gaming already exists in some shape or form, organized by game enthusiasts themselves.

Challenges: There’s a reason MOBAs are currently the respected top dog in esports; many MOBA players see the genre as requiring not only skill, but a higher level of strategy and team play than, say, shooter, sports or mobile games.

2 – Geographic Expansion of Leagues

For esports leagues to tap into bigger advertising budgets, they need to exist on national, regional and global levels as traditional sports does. Few advertisers have a significant global advertising or sponsoring budget, as most marketing money is spent on a local level. Currently, only League of Legends has a structure that resembles this hierarchy, with regional league structures in North-America, Europe, South-East Asia, Oceania and Latin America, and country-based league structures in China, South-Korea and Turkey.

Challenges: Local esport tournaments require support from both local sponsors and sports associations to succeed. While on a global level, esports has received a lot of attention from mainstream media, locally, many tournament organizers still struggle to find parties willing to participate in setting up events. Publishers will have to play a role in connecting local esports activities with the larger regional and global championships.

3 – Regulation of Competitions

Esports has grown beyond the small grass roots venues where small groups of gamers were competing. More and more companies are seeing the potential to make money in esports. Most recently, FanDuel purchased the daily-fantasy startup AlphaDraft, a day after competitor DraftKings announced it was expanding into esports with daily fantasy games for League of Legends. With multimillion dollar prize pools now at stake, and increasing amounts of money being bet on the outcome of these games, new rules and regulations are needed to combat cheating and match fixing.

In an attempt to prevent match fixing, software manipulation and use of performance-enhancing drugs, ESL and some betting companies such as Unikrn have become strong advocates of rules and regulations to prevent and/or detect fixing by tracking all in-game data and betting data and using software to detect any irregularities that indicate dubious activities. Other esports organizations have implemented supportive measures for players themselves.

Wouter Sleijffers, CEO at FNatic, comments from an esports team perspective: “A player's career can involve the pressure of matches and fan expectations, frequent international travel, and in some cases living away from home in another country for long periods of time. An environment like that can place a strain on any person. At Fnatic, our goal is to offer our players the most secure and friendly environment in the industry, with the best supporting organization behind them to help them succeed as teams, grow as individuals, and to develop skills and experience they can use during and after their gaming careers.”

Challenges: Regulatory structures have not always been able to keep up with the explosive growth of esports. An incidence with performance-enhancing drugs was inevitable, but how will organizers handle drug testing going forward? Meanwhile, esports is a nonconformist world that may find it difficult to accept strict regulations and authority.

4 – Ownership of Media Rights

One of the larger regulation voids in esports is the current structure around content rights. As of now, it is uncertain who owns the rights to esports content. Games played during events are owned by publishers or the event organizers, while videos made by fans and streams that contain game content are owned by the fans and streamers themselves. Thus far, content rights have not really been a focus for publishers, as fan-generated content has served as free advertising for their games. As direct esports revenues grow, this may change.

Challenges: Local and global media rights for esports are unclear and limit the entry of competitive gaming into traditional media and the amount of money potentially connected to it. This is in contrast with traditional sports, where the sale of broadcasting and media rights is the biggest source of revenue for most sports organizations, generating the funds to finance major sporting events, refurbish stadiums and the continuing development of sports. Of course, nobody owns a sport like baseball or football. The fact that companies like Riot Games own the game that is played makes esports a more complex ecosystem. In the traditional media space, media rights are sold country-by-country, maximizing local and global revenues. For esports, this structure may not be possible for many reasons.

5 – Alignment of Digital & Traditional Media

While competitive gaming would surely benefit from broadcaster advertising and its budgets, esports and traditional media have not yet aligned. Will the all-digital esports world adapt to the traditional media ecosystem or vice versa? Turner Broadcasting and WME/IMG just announced that they will form a Counter Strike: Global Offensive league that will be aired on TBS on Friday nights for 20 weeks in 2016. TBS isn’t the first cable network to show interest in esports. ESPN has been increasingly recognizing the legitimacy of competitive gaming as a sport, covering more and more esports events, including a collegiate-level Heroes of the Storm competition (“Heroes of the Dorm”), and Valve’s multimillion dollar DotA2 tournament “The International”. Earlier this month, ESPN began its search for an esports editor.

Hollywood media and entertainment veteran Rich Melcombe, CEO at Richmel Media & Entertainment, adds: “I’d argue that brands do not understand the value of games, most game companies do not know how to sell advertising, and game ad tech needs to be re-imagined. Where most ad tech companies fail is that they do not try to make an emotional connection with the players or create an environment conducive to advertisers or brands. Advertising has to work for both games and brands – each has a very different agenda. Games also need to take a more integrated media approach and own and connect the media surrounding their games to increase value.”

Challenges: Many brands are still reluctant to associate themselves with esports, as prejudices against competitive gaming still abound. These prejudices are often related to the esports audience demographic and the definition of “quality content”. In September 2014, ESPN president John Skipper infamously suggested that esports had no place on the network (to which The Game Theorists’ MatPat made a great rebuttal). When ESPN2 televised “Heroes of the Dorm” in April 2015, it generated a lot of backlash from viewers on Twitter, including ESPN’s own employees.

Newzoo’s Global Growth of Esports Report

The Global Growth of Esports Report is a must have for any company with an interest in esports. This report provides the industry with a much needed overview of the Esports Economy and a realistic estimate of its future potential in terms of viewers, participants and revenue streams. The report contains a mixture of data and input from our Global Esports Audience & Revenue Model and key players within the esports space. We are now also publishing quarterly updates to keep our clients and the industry up to date on the latest trends and developments. Find more information and subscribe here.