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Press start: esports is a huge industry about to break out

March 26, 2021

Press start: esports is a huge industry about to break out

Synopsis
5 Minute Read

Esports is a growing industry with incredible business potential, but most people are in the dark about what it is and how esports works. Learn more in this esports primer.

Reece Hiland
Reece Hiland, CPA, CA
Partner, Assurance & Accounting

Video games are now a widely accepted part of modern life. From consoles like the PlayStation and Xbox, to traditional PC gaming, to the recent rise of mobile gaming, video game culture has vaulted its way to becoming a major part of pop culture.

But many people still look at esports – the competitive side of video games – with skepticism. It’s often dismissed as a fad that won’t last.

The numbers tell a different story:

  • Newzoo, a video game analytics and market research firm, says esports revenues exceeded $1 billion in 2019. The majority of revenue came from media rights, advertising, and sponsorship.
  • Fortnite, a popular video game that can be played on all platforms, hosted an in-game concert with Marshmello, a DJ, and attracted 10.7 million viewers.
  • Well-established brands like Nike, Toyota, Coca-Cola, and Red Bull have signed partnerships with various esports leagues.

While no one can definitively say whether esports is built for the long-term, the facts are striking. There’s real interest and significant investment behind esports. Let’s look more at what this industry is and why you and your business should be paying attention.

Defining esports

What is it?

At its core, esports is about competitive gaming. People compete in leagues, representing a team, and playing a game against other teams. The winning teams earn more money. The term esports covers all kinds of competitive gaming and the associated technology that makes the industry possible.

How did esports start?

Esports has been driven primarily by the people who have created the games, known as publishers. Riot Games is the publisher of the game League of Legends and owns the League of Legends esports leagues.

What games fall under esports?

Many games are considered esports, but there are a handful that stand out from the pack. Counter-Strike: Global Offensive, League of Legends, and Dota 2, are some of the biggest titles in the industry. Each game has its own series of competitions.

How do fans participate?

Fan participation revolves around supporting teams and players as they compete for championships. Fans typically watch competitions through streaming platforms like Twitch and YouTube, though major sports networks like ESPN and TSN have started airing some competitions.

How do esports companies make money?

Some revenue sources are traditional, like tickets for live events, purchasing team merchandise, and selling broadcast rights.

The largest revenue source is advertising and sponsorship. According to Newzoo, advertising and sponsorship revenue totaled $338 million.

Esports has created newer revenue sources too. Fans watch their favourite individual players on Twitch and can donate money to them through Twitch’s platform.

Esports is on a positive trajectory

Skepticism of the esports industry is fuelled by the media stories about teams folding and leagues going bankrupt. One of the original esports leagues, Championship Gaming Series, jumped onto the scene in 2007, but folded in 2008. They couldn’t get the economics to work.

Traditional sports stumbled too. The National Football League (NFL) is the biggest North American league by nearly all metrics. However, the early NFL days featured constant ownership changes, frequent franchise relocation or closures, and rival pop-up leagues. After decades of work, the NFL finally find its footing.

Esports is following a more sustainable, traditional sports model now: franchises owned by separate groups, competing in a league. Franchises pay to participate in leagues, and the entrance fee can be significant. The cost for an expansion franchise to join the Overwatch League in 2018 cost between $30 million and $60 million.

Revenue, viewership numbers, and investment continue to rise

In 2019, esports revenues were expected to surpass $1 billion. The revenues have risen every year over the past decade. While the pandemic eliminated the majority of live events — a key part of esports culture — it pushed more people to important streaming platforms. Twitch saw a 20 percent increase in viewership during the lockdown, according to MarketWatch.

The increase in viewership tracks with recent trends too. In 2017, esports reached 335 million consumers globally, and Business Insider predicts that number will rise to 600 million by 2023.

Another positive indicator: investment. Esports is seeing major investment from both venture capital firms and celebrities. In 2018, investment totalled $4.5 billion and celebrities like Michael Jordan, Drake, and Ashton Kutcher put their money behind the sport.

Where esports goes from here

Esports will continue to grow. There are multiple facets of the industry that are constantly evolving, including publishers, technology, teams, tournaments, betting, and venues. There are so many different opportunities, all supported by an ecosystem that has access and deep commitment.

New business opportunities exist here in Canada. In February 2021, OverActive Media announced their plans for a $500-million entertainment facility, built on the Exhibition grounds in Toronto. This venue would host major esports events year-round, and possibly host other entertainment events as well.

Esports represents a new sector of the entertainment industry. For businesses with an eye on growth, it’s a situation worth monitoring.

“Esports offers incredible entrepreneurial opportunities. The sector is dynamic and fast-paced, providing an exciting environment for driven people with strong visions,” says Reece Hiland, CPA, CA, Partner, Technology, Media, and Telecommunications.

 

To learn more about the esports industry, contact Reece at 647.943.4048 or [email protected], or David Campbell, Senior Manager, Technology, Media, and Telecommunications at 647.480.8437 or [email protected]

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