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Activision Blizzard Wades Deeper Into the E-Sports Waters

Last month, yours truly here cheered Activision Blizzard (NASDAQ:ATVI) for responding to the surprise video game hit Fortnite by adding a similar free-for-all element to Call of Duty: Black Ops 4, scheduled for release in October. It’s still not a perfect equivalent to melee-oriented Fortnite, but it’s pretty close.

Now I get to cheer Activision — and encourage owners of ATVI stock — again by lauding another savvy response to its competitors, Electronic Arts (NASDAQ:EA) in particular. This past weekend, it was announced that Activision is allegedly aiming to create an e-sports league for its popular Call of Duty franchise.

In light of Call of Duty’s popularity in unsponsored, unofficial e-sports leagues, Activision may find that actually getting behind these tournaments accelerates interest in the CoD franchise… and purchases of the game itself.

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e-Sports are professional video-gaming, if you’re not familiar. Yes, it’s a thing. In fact, it’s a big thing. NewZoo, which keeps close tabs on the gaming business, believes e-sports revenue will surpass $900 million this year.

And that’s just the business driven directly by tournament-style events (ticket sales, ad sales, etc.) Not counted in the figure is all the ancillary revenue generated by this kind of game-play. Much like the sale of replica jerseys won by their favorite athletes, top professional gamers — many of whom easily make a six-figure income — also have their loyal fans. Aspiring professional gamers are also willing to, of course, buy the video game that gives them the best shot at breaking into the world of video-gaming-as-a-career.

The world of sports (actual sports, played for real) has taken notice too, helping to establish e-sports as legitimate entertainment in its own right. The Philadelphia 76ers, for instance, also own an e-sports team, and market it just like it does its professional basketball team.

And well it should. Viewership of professional video gaming can and often does exceed viewership of actual professional sports.

The Next Natural Progression

While the parallels to professional, traditional sports are interesting, e-sports is still a proverbial wild west. That is, though leagues are set up around one particular video game, that game’s maker may or may not be all that involved with the establishment of that league.

Not being involved is a missed opportunity.

ATVI stock holders that have followed the advent of e-sports closely will likely know that Activision-Blizzard has already embraced the idea. Last year, it built an official league around its popular Overwatch game, which is much like Fortnite in that it pits teams against one another in a fantasy gunfight.

That, however, was and still is largely is the extent of its involvement in the business.

But that doesn’t mean Call of Duty games aren’t being played in a competitive setting. Indeed, CoD is already one of the video gaming market’s most popular e-sports leagues. But, it’s become a battleground outside of Activision’s involvement. If Activision establishes and sponsors the league — as has been suggested is in the works — it can better monetize the effort.

The rumors are certainly credible, particularly in light of recent hiring. In March it poached three executives from the traditional sports world to head up its then-new e-sports division, and just a few days ago the company hired former NBA executive Jack Harari to oversee its e-sports sales team.

Bottom Line for ATVI Stock

This is an interesting development to be sure. But, it may not necessarily be a reason in and of itself to step into an ATVI stock position.

There’s no denying that e-sports has a future. Likewise, there’s no denying the future may look considerably different (in a good way) than the present. The e-sports industry remains fragmented and inconsistent from one game to the next. A little more structure and organization with the backing of a gamemaker can only help.

Following that intervention, what e-sports will still lack, however, is scale.

Newzoo predicts that by 2020, the e-sports industry will generate $1.4 billion in direct revenue. Not bad. And, it will certainly generate much more revenue that can’t be specifically attributed to e-sports events, as the events will prod spending before and after tournaments, in ways that can’t be easily measured. That’s why Activision Blizzard hired Nielsen Holdings PLC (NYSE:NLSN) in April… to help it determine exactly how much new revenue these video gaming leagues were actually creating.

Still, even if the upside of e-sports radically exceeds Newzoo’s modest figure, Activision Blizzard has generated $7.3 billion worth of sales over the course of the past twelve months. It would take a lot to move the ATVI stock per-share earnings needle with professional video-gaming and all that goes with it; there are a lot of video gaming leagues out there to dilute market share.

Either way, the official Call of Duty league — if one actually takes shape — is a story worth watching unfurl. Its long-term prospects could be big, even if not entirely clear just yet.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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