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For those of us old enough to remember “Arcade Culture”, the phenomenon of esports might conjure the image of teenagers flocking around a talented Pac-Man player at the local shopping mall. But contrary to its early roots, the esports industry has recently exploded into a multi-billion-dollar economy legitimized by hundreds of millions of fans worldwide.
61% of Canadians identify themselves as “gamers”, and in 2017 the gaming industry contributed an estimated $3.7 billion to the Canadian economy[1]. Right here in Toronto, the esteemed Roy Thomson Hall has recently been named the venue for all of the “Toronto Defiant” Overwatch team’s home matches during the 2020 season.
Not only do fans pay admission to watch matches live, but they can also stream the events on a number of digital platforms; in many ways similar to a UFC match. Twitch, the most popular platform, was acquired by Amazon back in 2014 for $1.1 billion[2], a deal that many feel acted as the industry’s seal of approval from big business.
Non-endemic investors have begun eyeing the industry, with some believing that esports could become the next “Cannabis” industry– a counter-culture phenomenon that gains swift momentum in the mainstream and delivers an impressive ROI. But similar to the earlier story of the cannabis industry, esports markets are taking off faster than experts can accurately address valuation standards, leading some investors to remain wary about entering the esports game.
5 trends to watch in esports
At Zeifmans, our progressive ethos means that we follow emerging industries, and seek to gain knowledge that we can pass on to our clients. Though the esports industry is still in the early stages, we have 5 predictions for the future that are worth considering when contemplating an investment.
1) Support infrastructure
As we saw in the early days of the Canadian cannabis industry, nascent business sectors can run into challenges with securing banking resources and support services like wealth management.
Evan Kubes, President and Co-Founder of esports law firm MKM Group, is of the opinion that an increase in support services is very much necessary. “From a non-endemic perspective, the industry is a rocketship quickly becoming an eminent player in the entertainment and sports industries. But it’s still very much in its infancy, with many still viewing the space as the wild-west,” he says. “This is mainly because the growth and adoption of professional services (e.g., lawyers and accountants) that aim to support the industry ecosystem at the foundational level are not keeping pace with this hyper-growth.”
2) Tech boom
As the industry expands, technology will naturally evolve along with it. Esports was a topic of discussion at this year’s World Artificial Intelligence Conference in Shanghai, as Tencent’s CEO boasted his support of the city becoming a “global esports city”[3]. AI is a natural alignment for the industry, and we predict that other forms of technology, including streaming platforms, will continue to grow and expand as well.
“One of the key differentiating factors between esports and traditional sports, is that the former is stationed in technological discourse,” says Kubes. “As a result, it’s much easier for the industry to create novel forms of revenue streams that may not be applicable or as easily to its traditional sports counterpart.”
3) Structure and commercial development
As it stands, individual game creators own the rights to their games. Several different leagues operate parallel tournaments on various platforms. Since there isn’t a central governing body to dictate the rules of esports, the industry remains somewhat divided. In order to reach optimal commercial performance in the marketplace, we predict that the industry will require a unified foundation to support the various leagues and establish industry-wide best practices. As these changes take place, we anticipate that the trend[4] of both building new and appropriating existing physical venues for professional tournaments and amateur participation will continue to flourish.
4) M&A activity
Over the last 3 years, M&A activity has accounted for 15-20% of transactions by deal count, and 8-27% of transactions by deal size in the esports industry[5].Over the next 5 years, we expect to continue to see deal counts increase, a continued shift from early to late stage investments and an overall increase in greater M&A activity. Alignments with professional sports teams and leagues, private equity and venture capital firms, and media groups are likely to gain heavy involvement in this regard.
Ben Feferman, CEO of Amuka Esports says that the obvious next stage of growth and M&A activity for esports will be franchising opportunities for sports leagues. “The elephant in the room for the esports industry is whether or not the franchise model will work. Since most of these companies are private, we just don’t know. But as the next batch of franchises hit the public markets, we’ll be able to look under the hood and really see if these teams can be profitable.”
5) Advertising and sponsorship
Esports fans happen to sit firmly within a demographic that is the hardest to reach for conventional advertisers. They are digital natives, cord-cutters, and those most likely to block digital ads. The industry represents an enormous opportunity to reach this group, and we predict that brands will begin taking better advantage through sponsorship in the coming years.
Another facet of the industry that’s worth noting is the potential for gambling-related activity, should it be legalized in the future. A thriving underground economy currently exists for esports betting; an economy that will only continue to grow in the coming years.
Feferman believes that as the industry progresses, it will also expand to offer more opportunity for the average player. “The size of the professional esports market is very saturated and the market size is largely overstated. How many more teams can we keep adding? The next big segment in the industry is going to be the casual or amateur gamer and companies that properly monetize that demographic.”
Though it’s difficult to accurately forecast industry trends, as tech business experts with decades of experience supporting cutting-edge start-ups, the team at Zeifmans is well-positioned to interpret such projections. To learn more about how esports might align with your future activities, contact one of our experts today.
[1] Miller Thomson, “Esports: The Next Billion Dollar Industry”, https://www.millerthomson.com/wp-content/uploads/2019/09/Esports-The-Next-Billion-Dollar-Industry.pdf?utm_source=linkedin2019&utm_medium=linkedin&utm_campaign=esports-article-2019-september-3
[2] Investment Bank, “Esports- VC and M&A Trends, Valuations, and Investments”, https://investmentbank.com/esports-mergers-acquisitions-investments/
[3] ESports Observer, “Tencent CEO Highlights Shanghai Esports at the World Artificial Intelligence Conference”, https://esportsobserver.com/tencent-shanghai-esports-waic/
[4] JLL, “How the Growth of Esports is Driving Development”, https://www.us.jll.com/en/trends-and-insights/cities/how-the-growth-of-esports-is-driving-stadium-development
[5] Investment Bank, “Esports- VC and M&A Trends, Valuations, and Investments”, https://investmentbank.com/esports-mergers-acquisitions-investments/
