This article was first published by MyWallSt.
As a gamer, I've witnessed the growth of esports firsthand. To most investors, however, esports remains a mystery. Terms like League of Legends, Fortnite, and Overwatch are typically not part of an investor's vocabulary.
When you delve deeper into this high-growth industry though, you will see that esports has a lot in common with traditional sports: highly skilled players, competitive teams, and a huge amount of money generated from sponsorships and endorsements -- in 2017, total prize pools came to $1.1 billion.
Esports growth is explosive
While you may have never seen a game of esports, the growth is certainly there. In 2018, esports viewership grew 13.8% to 380 million people worldwide. Esports analyst Newzoo expects this number to reach 557 million in 2021.
The growth in revenue is there to match, too. In 2018, revenue for the industry grew 38.2% to $906 million. In 2019, it is expected that revenue will exceed the $1 billion mark. If this trend keeps up, analysts forecast revenue of up to $3.2 billion in 2022.
That revenue figure is broken down as follows: 40% comes from sponsorships, 19% from advertising, 18% from media rights, 13% from game publisher fees, and 11% from merchandising and tickets, with media rights being the fastest-growing of these revenue streams.
Who is benefiting from this growth?
There are many companies that are benefiting from the growth of esports.
Some of the most obvious beneficiaries are video game publishers such as Activision Blizzard (NASDAQ: ATVI) and Tencent Holdings. These companies publish esports-friendly games such as Overwatch and League of Legends, respectively, which promote recurring user spending on high-margin in-game products, thus increasing the longevity of these games.
Eventbrite (NYSE: EB), on the other hand, simply takes a cut from the event. The ticket seller also reported that after going to an esports event, attendees are 47% more likely to purchase new content for the game. So not only can you buy a jersey of your favorite esports team, but you can also buy a matching digital skin for your in-game character. This has been reflected in revenue figures, with Activision Blizzard's online revenue at five times its retail revenue.
The increasing awareness of esports is also beneficial to gaming as a whole. Companies responsible for consumer-level gaming hardware such as NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) have partnered with popular esports teams such as Fnatic and G2 to promote their products. These partnerships are significant as 67% of esports fans play video games for 3 or more hours a day and are likely to be customers of NVIDIA or AMD.
Who wants to watch people play video games?
The rise of esports brings with it a unique marketing opportunity. Eventbrite reported that 82% of attendees were male and 75% were under the age of 34, giving companies the ability to market to a very specific millennial audience.
In 2018, $534.54 million in revenue came from direct sponsorships and advertisements, with some of the biggest sponsors being Intel (NASDAQ: INTC) and Monster Energy (NASDAQ: MNST). Although most sponsorships come from endemic brands -- brands whose products are used specifically in the playing of esports -- many non-endemic brands are also noticing the potential.
In the U.S., companies such as Berkshire Hathaway's (NYSE: BRK-B) Geico and Match Group's (NASDAQ: MTCH) Tinder have sponsored esports events in an attempt to capture the younger esports audience, while Tencent's King Pro League in China and Korea have also been sponsored by numerous big-name non-endemic brands such as McDonald's (NYSE: MCD) and Volkswagen (NASDAQOTH: VWAGY).
What really gives esports its potential is its worldwide appeal. People from all around the world can watch esports online through Amazon.com's Twitch streaming platform. In June 2019 fans watched 23.2 million hours of League of Legends esports alone.
Whether you are a gamer or not, as an investor, you should definitely be paying attention to the rise of esports.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in 2U and Chegg. Read our full disclosure policy here.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Activision Blizzard, Amazon, Berkshire Hathaway (B shares), Match Group, Monster Beverage, NVIDIA, and Tencent Holdings. The Motley Fool owns shares of Intel and has the following options: short September 2019 $50 calls on Intel, short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.