The biggest industry no one is talking about

The biggest industry no one is talking about

Two weeks ago, Fnatic announced a 19M Series B. A couple of days later, Immortals announced an acquisition and a 30 million Series C.

If you don’t know who Fnatic is, then you are in for a ride my friend. Fnatic is the Esports equivalent to football's FC Barcelona.

Here’s the thing...

Everyone’s losing their minds about blockchain and AI, but the biggest industry no one is talking about is Esports.

In today’s edition we are going to explain Esports, understand why it’s growing and unwrap why this won’t stop any time soon.

Not convinced? This chart comparing Esports audience size versus traditional sports sure will.

Source: ESPN

Told ya 🤷‍♂️

Esports 101

Esports is a form of competition using video games. Most commonly, esports takes the form of organized, multiplayer video game competitions, particularly between professional players, individually or as teams. Although competitions have long been a part of game culture (this is a must watch), participation by professional gamers and spectatorship in these events saw a large surge in popularity thanks to live streaming.

By 2010, Esports was a significant factor in the video game industry, with many game developers actively designing towards professional esports.

Like any other sport, there are dozens of clubs competing for prize money in tournaments, which are streamed via platforms (like Twitch, YouTube or Facebook Live) and TV networks (like ESPN).

Each club (or team) has multiple rosters, typically one for each major game, participating in multiple tournaments throughout the year.

Just as FC Barcelona has a football team, a hockey team, and a beach football team among many others, Fnatic has twelve teams, including League of Legends, CS:GO and Fortnite, to compete in different tournaments.

Players train full-time, get paid a nice salary plus a percentage of the prize pool, and teams make money with sponsorship deals, tournament prizes, viewership rights and merchandising.

Source: Nielsen

An enormous market with impressive growth

The global Esports audience will grow to 453.8 million worldwide in 2019, a YoY growth of 15%.

Consulting firm Activate projects that by 2021, US Esports will have more viewers than every professional sports league except the NFL – 84 million Esports viewers versus 63 million NBA viewers.

Source: Statista

But growth is not only happening in viewership numbers, the audience is insanely engaged as well.

The 2019 global audience will consist of 253 million occasional viewers, but most importantly, 201.2 million Esports Enthusiasts (that’s a 16.3% YoY growth).

On top of that, the average number of minutes watched per viewer is increasing. Here’s a quick formula to keep in mind when thinking about Esports:

Viewers * Time watched = Hours watched

In 2012, the average viewer watched 9.7 hours of esports every week. In 2018, that number jumped to 16.7 hours, a 60% jump on a per viewer basis.

In 2019, young gamers worldwide will spend an average of 3 hours and 25 minutes each week watching other people play video games online.

"Just look at overnight sensation Fortnite, with YouTube reporting a record-high livestream viewership at 1.1 million simultaneous viewers." -  Dan Carney, Limelight Senior Vice President of Operations

In startup lingo, it means there’s almost zero churn and engagement is through the roof.

An engaged audience = money

Let’s go back to the formula. If the number of viewers AND average number of minutes watched per viewer grow, and the total number of hours watched increases.

This means that overall exposure to Esports increases as well.

As a result of growing exposure, teams and players rise in popularity. If they do, they can raise more money, land bigger deals, and pay more to players (which incentivises new ones to play).

On the platform side, it means that you can command bigger viewership deals and advertising rates because you literally have more inventory tomorrow than what you had yesterday.

This year, Esports total revenues will reach an impressive $1.1 billion, a year-on-year growth of 26.7% and it won't stop anytime soon:

"On its current trajectory, we estimate the esports market will reach $1.8 billion by 2022. If any of these factors accelerate, a more optimistic scenario places revenues at $3.2 billion." - Newzoo

On top of cold hard cash, we can see big brands gravitating towards Esports.

Ninja, the top Fortnite player, teamed up with Red Bull to launch a branded headband that’s sold exclusively on Walmart. Jian “Uzi” Zihao, a League of Legends player for Royal Never Give Up, signed an endorsement deal with Nike. Blizzard finalized a broadcasting deal with Disney Entertainment in July, resulting in the Overwatch League playoffs being aired on Disney XD, ESPN, and ABC.

Not bad.

The Esports growth loop

Loops are closed systems where the inputs through some process generated more of an output that can be reinvested in the input. Here's the Esports version:

  1. Viewership grows
  2. Platforms make more money because ad inventory is up
  3. Teams command higher deals, platforms are happy to pay (remember: Esports doesn't need TV, TV needs Esports)
  4. Teams can pay more to players, players expect more because supply and demand.
  5. Financial incentive plus the possibility of fame drive more and better players...and back to step 1.
Source: Me

Europe is an untapped market

China will generate revenues of $210.3 million in 2019, overtaking Western Europe as the second-largest region in terms of revenues.

The country is notable for the growing popularity of mobile esports, including casual titles. Yet, the recent slowdown of game licenses in China will affect Chinese gamers’ exposure to new esports titles. Fewer new games are appearing in the market, and this is where Europe has a chance to take back that spot.

"The US is a natural growth opportunity for esports because of the strong gaming culture here, the ties between gaming and sports, and the country’s natural inclination toward competitive endeavors. The same is true of Western European markets, particularly the UK, Germany, and France." - Paul Verna, principal Analyst at eMarketer

But apart from professional Esports, there's another big opportunity in Europe: building the underlying ecosystem that supports the Esports community.

A fantastic example is PlayVS, a US-based startup providing infrastructure to high schools across the country, and giving students the chance to compete for a state championship.

"Hey, this is not a real sport!"

Esports outsiders are questioning whether this is a sport or not. After all, gamers sit still in a chair for hours on end "just playing games".

I could say that the US government has recognized full-time League of Legends players as professional athletes. Or I could point to chess, darts or golf.

I could, but I’m not going to.

Instead, I'm going to say this: who the f*ck cares. An industry that is projected to make $1.4 billion by 2020 is unlikely to require the approval of naysayers.