DOTA 2, LoL, Hearthstone, PewDiePie, Suma1L, Dager, Evil Geniuses…Do any of these words mean anything to you? If they do you are probably up to date with the world of eSports. If not, hopefully this post will pique your interest in a world traditionally only available to ‘gosu‘ in the PC Bangs of downtown Seoul or ‘gamers’ in their dark-lit bedrooms.

Gaming is now big sport with growing viewership worldwide thanks to platforms like Amazon’s Twitch. Just this month, the 2016 edition of the The International, DOTA 2’s (a game) biggest tournament of the year, was held in Seattle. The total prize money for the tournament was US$20 million. To put that into perspective, the Australian Open Tennis total prize money this year was US$31.1 million. This is a sport that may seem very niche but one that is fast becoming recognised (at least in prize money) as a spectacle comparable with traditional athletic pursuits and other content.

Media and telecommunications companies in Australia and globally are beginning to seriously consider eSports as a media property and growing business. However, is it all it seems to be? How big is it? Why invest in it? This article looks at these questions and others to uncover the business of eSports.

Gamers and Esports viewers 

It is important to consider alignment to core audience or growth audiences if looking to invest in eSports. So – who plays and/or watches eSports? According to Activate Inc. Tech and Media Outlook this market is 75% millennial (ages 18-33) and 82% male – Probably not surprising. This is an attractive market segment for many media and telecommunication companies. Globally it is estimated that there are over 150 million regular and occasional viewers of eSports which according to Deloitte’s 2016 TMT Predictions is up ~25% from 2015. Much of this fan base is in South Korea, China and US but it is expanding with large tournaments being held in Australia.

Viewer value

With a large viewership also comes the value associated with it.

eSports prize money is growing.The top ranked DOTA 2 player in 2015,  Peter Dager, earned over US$2 million, nearly double that of the top ranked player in 2014.The revenue from viewership is also growing.

In 2016, it is expected that the revenue generated by eSports viewership from rights, subscriptions and ticket sales will be in the order of US$500 million. This according to Deloitte is up ~25% on the 2015 figure and according to at least one analyst heading for $1.2 billion by 2018. This is a growing market – one that is growing faster than any other ‘sport’ in the world.

Companies looking to take advantage of this growth should consider where and how they can create and capture value. There have already been a number of high profile acquisitions and investments in the eSports market mostly in digital viewership platforms or viewing spaces/theatres . Amazon acquired Twitch for just under $1 billion in 2014, while 2015 saw Swedish media company Modern Times acquire a majority stake in ESL, the oldest eSports company for $87 million. Russian investors have committed $100 million. Canadian motion picture exhibitor Cineplex is spending $15 million to acquire an eSports company and create a new gaming league that will take place in its theatres, and the first dedicated eSports venue has been opened in the UK in partnership with a cinema chain.

Growing but comparatively a very small market

Despite the attractiveness of eSports in terms of demographics, prize money and viewer numbers the total revenue (US$500 million) is by global standards comparatively small. European soccer and all major league sports in the US are expected to eclipse eSports revenue in 2016. Soccer, which has been a significant investment for cable and telecommunication companies in Australia (Foxtel, Optus) and worldwide (BskyB, BT) is expected to generate US$30 billion in revenues and NFL Football, the largest of the US sports, is expected to generate US$11 billion.  The NHL, the smallest of the US sports, is US$4 billion – nearly 10 times the size of eSports. Looking forward – even if eSports grows to $1.5 billion in revenue, as some predict it will, this represents one percent of global sports revenues of over $150 billion. A small drop in a large ocean.

So what to make of the business of eSports?

As a phenomenon, eSports is intriguing – to get a sense of the hype just watch a PewDiePie video or a Twitch channel. As a business it has challenges. Organisations expecting to generate the kinds of returns they obtain from other sports or content may be underwhelmed. However, there some adjacent upsides to consider. These include the ability to reach millions of people on a regular basis in an attractive demographic, the different revenue models available in gaming formats (e.g. subscriptions, ‘freemium’, in-app purchases), and the relationship between gaming and exponential technologies like Virtual and Augmented Reality. Companies that are able to capture value from eSports’ adjacent applications will have the best chance of capitalising on this billion dollar niche.