ESPORTS | The Game Changer (4/4) – Market size and Business model

Market size

Of course, health considerations are no different for esports players than for many youngsters and young adults. Moreover, although the vast majority of esports followers are young males, the demographic of gamers across the global population is less specific to age or even gender.

According to a 2015 report by the Entertainment Software Association, the average age of a video game player in the US is 35 years old, while only 56 per cent of gamers are male. Forty-four per cent of gamers are over the age of 35, providing a further indication of the potential size of the esports market in years to come.

“If we compare esports to computer or video games – software only – it looks pretty niche,” Stewart said, referring back to Deloitte’s analysis of the market. “We are predicting gaming software sales of $95bn in 2016. At $11bn globally, tablet gaming alone is about 20 times our expected revenues for all of esports.

“We predict esports will be a sub-billiondollar business this year. Traditional TV is over $400bn globally. Movies are over $40bn. The much-abused newspaper industry is almost $150bn globally. Live music sales are over $30bn. Esports is growing faster than all of those, but it is not yet in the big leagues. The main reason esports isn’t yet in the major leagues is the total dollar value. Getting larger audiences and monetising those audiences needs to go hand-inhand with having more marquee events.

“Esports has annual tournaments that draw tens of millions of viewers. But the NFL, for example, has 16 games per week, for 18 weeks, each of which draws millions of viewers. Although esports draws large audiences to a few tournaments a year, they don’t have the equivalent of regular-season games that draw large audiences and are worth so much money in admissions and video rights.”

For those at the heart of esports, there is a feeling that investment from big business in the sector will help to establish a stable structure in competitive gaming. This will in turn give smaller teams the chance to establish an infrastructure that will allow them to grow.

Business model

Despite the tumultuous broader landscape, esports enterprises are developing serious business models. Teams comprise players and coaches on the gaming side, and are supported by marketing, administration and sales staff on the business side.

Throughout the year there are a number of tournaments, which are organised by the game’s publishers, such as Riot Games, or tournament organisers like the ESL. Usually the competitions have qualifying and knockout phases, and the major events take place in stadia and arenas that can attract tens of thousands of on-site attendees and millions of online viewers.

Players are paid a salary, sometimes by both the team and the publisher, and earn prize money that is split between the players and teams. Playing contracts usually run for one year.

Esports enterprises are developing serious business models

However, some gamers find it more lucrative to stream their online contests. Professional League of Legends player Wei Han-Dong retired from the multi-player battle arena game to stream his performances through Zhanqi TV and has earned more than $800,000 per year by doing so, according to Portrait Magazine.

There are more agents operating in the sector than before, particularly in North America, and there are even transfer windows in competitions such as League of Legends. In December 18-year-old Jian ‘Uzi’ Zihao switched from OMG to rival Chinese team Qiao Gu after a battle emerged to meet his buyout clause, reportedly worth $7m. With teams keen to open up new revenue streams to remain competitive, they have become increasingly creative. Fnatic, for example, launched a new branded hardware product line in November called Fnatic Gear.

“Many electronics companies have created esports teams – like Samsung and Roccat – but this is the first time an esports team has created its own electronics,” Kelly said. “Fnatic Gear launched at the end of 2015 following the acquisition of a peripheral company. We redesigned the core aspects of each product to make them simple, gamer-orientated and clean.”

Opening up new revenue streams has become a core part of the business model of the likes of Fnatic, which was established in 2004 and has attracted more than 2.4 million ‘likes’ on Facebook.

“We compete in over 80 tournaments a year,” Kelly added. “These are growing both in terms of prize money and viewership. Fnatic is already a leader in its field in terms of longevity, success and fan numbers. We plan to grow into a lifestyle brand. We expect esports to be in the same leagues as traditional sports and for Fnatic to be the leading esports lifestyle brand.”

Although esports has undoubtedly benefited in some regards from the lack of regulation so far, in other ways – and for the likes of Fnatic – a stable, regulated industry would drive further growth. Jas Purewal, a lawyer and business advisor to digital entertainment and technology companies, said that long-awaited regulation could provide “a potential bottleneck to growth” in the short term.

“There are systemic issues in terms of industry regulation in esports and my firm is advising a lot of companies right now about this,” he said. “It is very early days, but there is hockey-stick growth that very few creative mediums can match. It is irrelevant really whether it will one day become as big as football. It’s about whether there will continue to be return on investment, and there will.”

Watson, who will be assisting the expansion of the industry through Sportradar, highlighted the challenges that lie ahead. “There is increased responsibility with all this growth and all these opportunities,” he said. “Stakeholders are relying on those leading within the ecosystem to create the structures, processes and priorities that will keep everything efficient, effective, honest and investable. How esports will grapple with this responsibility is genuinely anyone’s guess.

“Some of the biggest organisations are taking this area on and are doing what they can to protect the integrity of what they oversee at least. Their hope is undoubtedly that others will follow their lead and that, organically, the ecosystem will start integrating all those structures, processes and priorities which will keep esports on track.”

Stewart’s analysis of esports at Deloitte suggests that the sector must exploit two areas of opportunity to fulfil its potential.

“They need to be able to generate more dollars per fan,” he said. “The audiences for esports are already about the same magnitude as traditional sports, but the dollars per viewer are often 90 per cent lower. I am not sure we will see the same in ticket prices or video subscription rates as traditional sports in the near term, but I suspect the gap can be narrowed.

“They also need to expand the audience. Right now esports appeals almost exclusively to hardcore gamers. The audience of people who play video games or even watch YouTube gaming content is much larger than the audience who are regular consumers of esports.

“Crossing over into the mainstream is an important next step. There isn’t much evidence that process has started yet, so we will need to see what happens in 2016 and 2017. The value of the sector could be well over $3bn by 2025.”

As the esports movement attempts to enhance its credibility, it has been difficult to ignore the hyperbole spouted by supporters. However, according to ESL chairman Hilgers, not only is the hype justified, but that those sneering at the industry are those who are really detached from reality.

“Esports evolve and things are boring if they don’t get better over time,” he said. “Traditional sports won’t make that effort.” In acknowledging the inevitable growth of this industry, therein lies a lesson for all sports.


To continue reading the Esports Focus, please click the links below:

The Game Changer (1/4) – Esports Focus

The Game Changer (2/4) – Comparisons and Expertise

The Game Changer (3/4) – Growing pains and Challenges

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