The DXRacer RV131 is the choice of champions, says a salesman at the Tokyo Game Show. Crafted from the finest high-tech materials, contoured for performance and precision-built for victory under the most unforgiving conditions. To the uninitiated, however, it appears little more than a brightly coloured comfy chair.
Yet in the blistering crucible of esports, video game tournaments for professionals and amateurs where a $10m top prize can be won or lost on the click of a mouse, the right chair is as important to the superstar players of Overwatch or Dota 2 as Roger Federer’s tennis racket or Lionel Messi’s football boots.
“Perception is everything,” says Alex Lim, secretary-general of the International e-Sports Federation, and point man for an audacious bid to have the genre recognised as an Olympic event by 2024. “One generation grew up kicking a ball in the back yard, the next grew up with choices that included games. We live in a digital culture that most people accept is redefining a whole range of things: sport is one of them.”
This assertion, though questioned by some broadcasters and sports promoters, comes with potentially huge commercial implications. The global games industry, according to several forecasts, is on course to exceed $100bn in annual revenues this year and it continues to grow faster than the broader entertainment sector. And while esports currently lacks a comprehensive business model, there are many who believe its commercial trajectory is primed to surprise — especially if mainstream broadcasters come to see esports content as an asset that can lure viewers back from their smartphones and PCs.
Mr Lim believes that within five years broadcasters, technology groups and advertisers will divide into two camps: those who view the RV131 as a glorified office chair and those that see a $350 piece of sports equipment.
The first group, he suggests, will miss out on an industry that generated more than 6bn total viewing hours last year and has already begun to transform mainstream sports entertainment, by driving eye-catching corporate deals and creating international celebrities and team tribalism that could translate into a multibillion-dollar industry.
Early projections suggest that esports revenues will come via three main channels: the sale of content rights to broadcasters; direct payments from live streaming services — some live tournaments can attract tens of millions of online spectators — and advertising revenues initially from the games industry, but ultimately from broader product placement.
Esports is the first major global entertainment trend to take its lead from Asia — largely pioneered in South Korea, China now provides the largest bloc of viewers — rather than the west. But its early days have been beset by organisational mayhem.
Esports in numbers:
The money
$100bn
In annual revenues is forecast to flow into the global games industry this year . . .
$693m
. . . of that total comes from esports, a figure set to double to $1.5bn by 2020
11.1bn
Esports videos were streamed last year in China, 2.7bn in North America
Pietro Fringuelli, head of the media and sports group at the London-based law firm CMS and a veteran of early esports deals, admits that the industry had a chaotic start. But, he says, its audiences — pro-players and viewers are predominantly in their teens and early 20s — should be attractive to advertisers and sponsors. More than a third of gamers in the US, says Mr Fringuelli, are high earners and already pay for content from the likes of HBO and Spotify.
Many games publishers and event promoters have already bought into the idea that the money will come. Plans are under way to build dedicated esports arenas at two of the largest casinos in Las Vegas. In Japan, students at the Tokyo College of Anime are taking a course to prepare them for careers as professional esports commentators. Amazon paid just shy of $1bn for Twitch in 2014, a live-streaming video platform that has become a favourite forum for watching gamers do battle.
Now several other platforms are vying for the attention of esports fans, from YouTube Gaming and Facebook, to Activision Blizzard’s Major League Gaming. Traditional broadcasters like Sky in the UK are also actively exploring ways to get into the market to attract a younger audience.
Revenue streams:
Ticketing for live events
Esports began as a way for publishers to build awareness of their games. And while marketing is still a significant driver, companies such as Activision Blizzard and Riot now see tournaments and leagues as money-spinners in their own right. Tickets for Friday’s League of Legends world finals in Beijing cost $41 to $185 — similar to a typical Major League Baseball match. On top of that comes the merchandising: fans of teams such as Cloud9, Fnatic, and Immortals can buy branded shirts, mouse pads and even dedicated chairs. In Activision Blizzard’s new Overwatch League, it splits the revenues from media rights, merchandise and sponsorship with its teams.
The advent of 5G mobile services, say analysts, is likely to produce a fresh wave of content and distribution deals. But as one UK-based TV executive puts it, “this is all happening without a clear sense of where the big money is to be made”.
The best players — such as Faker, KuroKy and Neo, to use the in-game monikers by which they are best known — can make millions of dollars each year from competition. But they are also on the steepest learning curves.
Chris Hopper, head of league operations at Riot Games, the Tencent-owned publisher behind League of Legends, which with more than 100m monthly players according to the company,is the leading e-sport title, says star gamers have been thrust into a limelight for which neither they, nor the industry, were fully prepared.
“Five years ago, every one of our players came from obscurity, playing in the [college] dormitory or their apartment. When LeBron [James] stepped on to the NBA court for the first time, he had been on the cover of Sports Illustrated several times and been media trained since he was 10,” says Mr Hopper.
Esports in numbers:
The players
100m
People play the multiplayer battle game League of Legends monthly
53%
Of esports fans in the US, UK, France and Germany consider gaming a sport
57%
Of esports viewers come from China with at least 6m university students taking part
Scandals that have erupted around the non-prescription use of the attention-deficit drug Adderall, and cheating to exploit secret software glitches in particular games, have entrenched the view that esports is going through a dangerously unregulated, “wild west” phase. Yet others say its ethical problems are not much different from traditional sport.
“We think esports . . . can have truly global appeal,” says Mr Hopper, underscoring much of the bullishness in the industry, “there isn’t anything inherently sociocultural that would make it appeal more in one region than another.”
The success of live esports tournaments, that generate massive audiences tuning in to watch particular matches and players, has surprised broadcasters — the media bosses never thought of it as a mass-spectator event. But its popularity has coincided with declining audiences for traditional US sports including professional football.
“Regular players use the same characters and play on the same field as the stars,” says Ariel Horn, formerly of NBC and now head of global esports content at Riot, explaining the attraction. “No other sport has that except maybe golf.”
Revenue streams: Media/broadcast rights
For games publishers most of the value will come from those watching online. Almost 400m people viewed last year’s League of Legends world championships, making it the esports equivalent of football’s World Cup.
“Esports is the first digital-native sport,” says Pete Vlastelica, chief executive of Activision Blizzard’s Major League Gaming. Publishers and esports tournament operators are hoping to push esports into the mainstream by helping broadcasters capture that elusive audience by selling rights to their leagues. For instance, Riot, League of Legends’ publisher, has a $300m licensing deal with BAMTech.
In a further sign that the phenomenon is here to stay, Nielsen has created an esports research business that found that 53 per cent of esports fans in the US, UK, France and Germany considered competitive gaming a sport and more than two-thirds believe it will soon become mainstream. Newzoo, the games industry researcher, predicts that the global audience for esports will approach 580m by 2020.
“Broadcasters, traditional sports, advertisers they are all going to have to get used to the idea that these games and these tournaments are not just a niche activity, but the way that a generation that grew up with very different choices [compared with] the previous one think about entertainment,” says Mr Lim. “You have a generation that grew up with games, that now has an income, and is thinking ‘what is a sport?’”
Anecdotal evidence supports Mr Lim’s optimism, and his assertion that esports are an expression of a deeper change in the way entertainment is distributed and consumed.
Ari Segal, former chief operating officer of the Arizona Coyotes, the NHL hockey team, and now president of Immortals, an esports team based in Los Angeles, believes that the online version offers a potential for entrepreneurialism that traditional sports does not.
“There is a real correlation between game participation and esport popularity thriving over time,” he says. “At the scale these sports are consumed, I think there are potentially big dollars at stake.”
Esports in numbers:
The business
$300m
The size of the licensing deal between Riot, the League of Legends’ publisher, and the internet video provider BAMTec
$340m
The forecast esports earnings from media rights by 2020, up from $95m in 2017
600
The number of esports sponsorship deals struck since the beginning of 2016 with Red Bull and Coca-Cola among the new recruits
Sources: IHS Markit; Macquarie Research; newzoo
About 20 US universities have made esports official varsity programmes. In 2016, Japan surprised many by agreeing to allow visiting esports tournament participants to enter the country on visas normally reserved for athletes. The 2022 Asian Games, to be hosted in the Chinese city of Hangzhou, home of online retail giant Alibaba, will include esports as a medal event.
Manchester City, Paris St Germain and Ajax are among more than 20 European football clubs that have created esports teams to compete in international tournaments in the football simulator game Fifa 18. Teams in the US NBA and NHL are planning similar moves in basketball and ice hockey, respectively.
But it may not be long, say analysts, before the gamers handpicked to represent traditional sports teams end up competing in esports that have nothing to do with football or basketball or ice hockey. Manchester City could, for instance, eventually find itself fielding a world-class League of Legends team.
Newzoo analysis from earlier this year forecast that the esports economy — including media rights, advertising, sponsorship and ticket sales (but not betting and in-game revenue such as the purchase of virtual weapons upgrades) will be worth $696m worldwide by the end of this year. By 2020, it predicts that total revenues will more than double to $1.5bn — driven by a large influx of sponsors from outside the games industry, where Intel, Logitech and Samsung are among the existing backers.
Revenue streams:
Advertising/sponsorship
“To some extent you are reaching an audience you wouldn’t otherwise,” says John Bonini, general manager of VR, gaming and esports at Intel, a lead sponsor for the Overwatch League. Many early esports sponsors had existing ties to the games industry, including PC manufacturers and peripherals makers such as Razer and Logitech. Now, more traditional brands are starting to join in. Procter & Gamble’s razor brand Gillette sponsored the ESL’s Extreme Masters, alongside Intel, in Poland this year. According to Nielsen, more than 600 esports sponsorship deals have been struck since the beginning of 2016.
The fastest-growing revenue stream, say the report’s authors, is media rights, which they expect to generate $340m by 2020, up from $95m this year, as traditional sports broadcasters such as Sky and ESPN are expected to start bidding against Twitch, Facebook and YouTube.
The strongest dissenting voices about the growth of the sector are to be found in an unexpected place: the “traditional” video games industry, particularly the Japanese groups Sony and Nintendo — whose console businesses feel threatened because the most popular esports titles are, by and large, played on a PC. Although they are interested in esports, the business model is still too unclear to justify heavy investment, they say.
Reggie Fils-Aimé, the chief operating officer at Nintendo of America says that while the company is a believer in the draw of competitive esports, he remains unconvinced that monetising the content sold to TV broadcasters and city-based franchises such as Blizzard’s Overwatch League is a realistic plan. “There needs to be a fully formed business model for [the future value and potential of esports] to come to bear,” he says, “there needs to be some sort of affinity for the team . . . Do we think that’s going to work with video games, especially when they are being played through the internet?”
Given events over the weekend, the temptation is to see Nintendo and others as behind the curve. On Friday the grand final of the League of Legends World Championship took place before an audience of 40,000 at the Bird’s Nest stadium, built for the 2008 Beijing Olympics. Broadcast to tens of millions of viewers in two dozen languages around the world, the all-Korean final attracted heavy online betting and was won by the Samsung Galaxy team who took the lion’s share of the $5m prize money on offer. Traditional sports should take note. The Beijing esports crowd, organisers were keen to point out, was about the same size as the one that watched Manchester United beat Ajax in the UEFA Europa Cup in May.
Copyright The Financial Times Limited 2017
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