ESPORTS DISCUSSION An update on the esports market July 2021 - Aalto Capital
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ESPORTS DISCUSSION An update on the esports market July 2021
INTRODUCTION
Esports Update
This report will give an update on the esports Finally, the report will extend the analysis to
• The esports market is market from our previous report in 2019. 2020 recent developments with esports organisations
expected to reach $1.5bn was an unprecedented year, in which most and what makes them attractive to investors. Like
by 2023 (Newzoo) industries were affected in some way as a result of most industries, the dominant players are seeing
COVID-19. new entrants that threaten their position.
Focusing on the success in professional esports is
• The Asia Pacific region
The esports industry saw several developments not enough to guarantee financial success.
represents more than during 2020. As lockdowns were implemented Successful teams will need to find the right balance
50% of the esports and around the world, most forms of in-person between being both an esports company and
gaming audience (Juniper entertainment were cancelled overnight. The entertainment company. To find the right balance
research) esports industry had a unique advantage over and to manage multiple revenue streams and
traditional sports, and there was an evident cross- monetise their audiences, esports organisations
over between the two sectors. will become better organised and adopt a more
• Latin America may also professional approach to managing their
become a key region for The report will also give an overview of the businesses.
growth. It is projected to different investors that are involved in the esports
ecosystem and the reasoning for investing. The
produce over 130 million
esports industry has historically attracted
esports and game attention from high net worth investors. We are
streaming viewers by now seeing an uptick in in the number of
2025 (Juniper Research) institutional funds who wish to gain exposure to
the esports industry. With the increase in capital
allocated to esports, it is a matter of time before
• Emerging regions and an esports team reaches unicorn status.
markets are projected to
maintain double-digit
growth beginning 2021.
This will be driven by the
popularity of mobile
gaming in Latin America,
Asia, the Middle East, and
Africa (Newzoo)
2
MARKET UPDATE
Global Gamers (billion) 2021 esport Audience
4
Global Gamers (bn)
3
Total viewers
Occasional esports
2
1
Viewers
240m
49
474 million
51 Enthusiasts
234m
0
15
16
17
18
19
20
21
22
23
20
20
20
20
20
20
20
20
20
Figure 1 - Source newzoo Figure 2 - Source newzoo
esports industry demonstrates its resilience
Since our last esports report, the market has Although in 2020 the global esports audience was
• esports enthusiasts are continued to go from strength to strength. 2020 close to 500 million according to research by
classified as watching was a year that no one could have predicted, and Newzoo and is expected to grow to 1 billion by
professional esports it had far-reaching impact on most industries. 2025, the gaming market is considerably larger
content more than once a Overnight, in-person entertainment stood still due with the number of global gamers in 2020
to lockdowns implemented across the world. The estimated to be 2.78 billion (growing to 3.19
month esports gaming market however saw a positive billion in 2023), a huge market for traditional
impact due to the online nature of the industry. sports, fashion, music and other entertainment
• Occasional viewers are However, initially professional tournaments were genres to tap into.
classified as watching suspended as contestants could no longer travel
to tournaments and compete with the same Traditional sports and sports personalities getting
professional esports
connectivity. The industry did however show its involved in some way with gaming is not a new
content less than once a resilience and by adapting to the changing phenomenon. Our last report touched on FaZe
month landscape. Blizzard Entertainment, one of the Clan signing up Juju Smith-Schuster, a wide
world's biggest game publishers, worked on plans receiver from The Pittsburgh Steelers. What has
• In 2019, over 15% of to allow some of their leagues to go ahead online changed due to COVID is the increase in sports
and to make sure there was no delay for stars getting involved which is a natural
millennials watched
participants as well as observers and progression as many sports stars have grown up
esports on a monthly commentators. As the nature of esports is digital, with gaming as a part of their lives. They now see
basis (Newzoo) most of the infrastructure was already cloud- it as a way of communicating with their fans by
based. creating their own streaming profiles where fans
can watch or even play alongside them. This
Another development during COVID was that theme will likely continue and grow long after
• In 2020, 33% of millennials traditional sports leagues such as the NBA and COVID lockdowns.
watched esports on a Formula 1 used gaming to connect with their
monthly basis (Newzoo) audiences. Traditional sports teams have More recently, to show how far the esports
historically shown interest in esports with several industry has come, FaZe Clan was featured on the
NBA teams having invested in League of Legends cover of Sports Illustrated. There is no denying
• By 2025, the number of
teams. However, during COVID, traditional sports that companies like FaZe Clan are defying the old
esports viewers will reach leagues turned to virtual competitions to keep pop culture stereotypes of gamers.
1 billion (Juniper fans, media and sponsors engaged in order to
Research) supplement lost revenue.
3
ESPORTS INVESTORS
Fundraising in esports
$1,200 70
Number of Transactions
Value of Transactions (m)
$1,000 60
50
$800
40
$600
30
$400
20
$200 10
$0 0
2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4
Value of Transactions (m) Number of Transaction
Figure 3 - Source: Quantum Proprietary Research
Broadening investor interest
The esports market is fragmented. Many There has also been increased interest from the
• The estimated value of investments in esports over the years have owners of traditional sports teams. Jeff Vinik,
the global esports been made from the fear of missing out rather owner of the Tampa Bay Lightning, Peter Guber,
industry in 2020 was than than by informed investment decisions. co-owner of the Golden State Warriors, and Ted
$947.1 million (Newzoo) This theme has been changing in recent years, Leonsis, owner of NHL’s Washington Capitals,
with leading consultancy firms engaging with formed Axiomatic. Axiomatic is an esports-
investment companies to understand the focused investment company. Axiomatic holds a
• In 2021, global esports esports ecosystem. In 2020 esports companies controlling stake in Team Liquid, which was
revenues are expected to raised $2.3 billion over 200 transactions, up recently valued as the third most valuable esports
reach $1,084 million, 116% in value from $957 million in 123 deals in organisation in 2020 at $310 million by Forbes.
2019. Jeff Vinik told Sporttechie, “We think bringing our
representing a year-on experience from traditional sports and
year growth of 14.5% It is helpful to map out who the principal entertainment worlds to the esports industry is
(Newzoo) backers are of esports and their reasoning for very applicable.” Esports organisations leverage
getting involved in this market. their “on the field” esports performance with
gaming and lifestyle content to communicate with
• The global esports market
The first broad category is traditional sports their fans through social media in order to be
combined with streaming teams. For example, Sporting Lisbon, FC successful, with the majority of revenues coming
is expected to be worth Schalke, Wolfsburg, and Manchester City have from publishing through social media channels,
$2.1 billion in 2021 and all got involved in esports to a varying degree. brand deals, content and product licencing and
more than $3.5 billion by The main reason is for these clubs to engage in merchandising. Traditional sports teams rely
esports is to try and reach a wider audience of primarily on TV rights, ticket sales and
2025. This represents a merchandising to be successful. Although there is
football fans. Traditional sports teams are
70% growth in the next getting involved in completely unrelated some overlap, combining teams from each
four years (Juniper esports titles. The Golden State Warriors, the industry should provide synergies; esports
Research) Houston Rockets and the Sacramento Kings attracting online fans and revenues and traditional
have invested in League of Legends teams sports bringing investment, management expertise
seeing this as a way to reach out to esports and legitimacy.
fans and diversify their audience.
4
ESPORTS INVESTORS
Broadening investor interest (cont.)
One of the more interesting partnerships was Other notable celebrity backers include Drake and
According to Foley & the US Air Force’s sponsorship of Cloud9’s Will Smith, who have invested in 100 Thieves and
Lardner: Counter-Strike team. According to Major Ross Gen.G, respectively. Both of these teams have
McKnight, head of the national events branch at been ranked in the Top 10 most valuable esports
• 73% of stakeholders the Air Force recruiting service, the Cloud9’s companies by Forbes.
Counter-Strike team had the ”same level of
believe the pandemic will discipline, rigor, and achievement” that they The last broad category of investors includes
generate more value in members of the Air Force. More venture capital and private equity firms. Given the
investment and deal recently, FTX Exchange, a cryptocurrency firm, traction the esports ecosystem has seen in the
activity in esports announced signing a naming rights deal with US previous few years, venture capital and private
professional esports organisation TSM for $210 equity companies have for the most part stayed
million. The deal will see TSM expand its on the sidelines. A desire to take advantage of the
• Meanwhile, 49% expect operations and enter new markets in South growth in esports is changing this and has led to a
traditional professional America and Asia under the name TSM FTX. significant rise in the interest in esports. An
sports teams, athletes The key takeaway is that the esports market is example is Artist Capital Management which
attracting a diverse set of corporate backers. It raised $100 million to establish a fund to provide
and celebrities to increase
seems beneficial for esports organisations to its institutional investors with exposure to
their investment in have corporate backers who have experience in different themes, one of which is esports, by
esports in 2021 scaling up businesses and moving into new investing in 100 Thieves. Hiro Capital launched a
markets. $100 million fund to invest in innovators in the EU
• Additionally, 40% expect and UK’s video games, esports and digital sports
Another group of investors that have shown ecosystem in the UK. The team behind Hiro
increased investment interest in the esports industry are celebrities. Capital have co-founded and invested over $9
from venture capital and These celebrities are likely to have less input in billion in games, sports and technology companies.
private equity firms the day-to-day management of esports
organisations, but they bring in publicity and Private equity and venture capital becoming
sponsorship opportunities to teams and brands. involved in esports will create a host of
They will also help esports organisations opportunities for the sector.
become more mainstream as more and more
“A-List” celebrities get involved in the industry.
In 2020, David Beckham, arguably one of the
most recognisable sports personalities in the
world, was announced as the co-owner of Guild
Esports.
5
TEAMS OVERVIEW
esports Teams by Prize Money ($m) & Social Media Followers
30 40
25 35
30
20
Social Media Followers (m)
25
Prize Money ($m)
15 20
10 15
10
5 5
0 0
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In
YouTube Instagram Twitter Facebook Twitch Prize Money ($m)
Figure 3 – As of June 2021
New team entrants challenging the more established teams
• As of January 2021, the top The graph above shows the top 10 most It could be said that LOUD’s success has been
live streaming platforms in successful esports organisations regarding prize similar to how FaZe Clan became successful. FaZe
terms of the number of money won and their social media following. FaZe Clan enjoyed success in Call of Duty, a
hours watched are Twitch Clan and LOUD have also been included to show mainstream game that is easy to follow. Most
(1.6 billion hours), YouTube the evident disparity between social media casual esports viewers and the broader global
following and prize money won. FaZe Clan is gamer would have played Call of Duty at some
(517 million hours), and
currently ranked 14th and LOUD ranked outside stage. This made it relatively easy for FaZe to
Facebook Gaming (280 the top 200 in prize money. In our last report, create a following as many gamers could relate to
million hours). (Stream FaZe Clan was by far the most dominant esports them.
Hatchet) organisation in terms of social media following.
This is not the case anymore, as LOUD has seen a In 2020, LOUD was the first esports organisation
• As of the latest data, 26.5 meteoric rise in their online presence since being to reach 1 billion YouTube views. Even more
million visitors come to founded in 2019. impressive is that they achieved this within 16
Twitch daily (TwitchTracker) months of starting their YouTube channel. FaZe
LOUD has positioned itself as a lifestyle brand. Clan, considered to have the most prominent
Despite little success so far in tournament prize social media presence, only reached 1 billion
• Current streaming statistics
money, it has created a vast social media following. YouTube views in 2021, having existed for nearly
show that Twitch controls LOUD has taken advantage of its founders’ 10 years.
around 72.2% share of the experience working as game developers,
live gaming streaming market publishers, agencies and as content creators. LOUD represents a success story within the
(StreamElements) According to Datareportal, in January 2021, the esports space that existing and new entrants
number of social media users in Brazil was should take note of. LOUD also focused on their
2020 Global Smartphone equivalent to 70.3% of the total population, one of local Brazilian market first and formed
Users (m) the highest percentages worldwide. Brazilians partnerships with celebrities with a social media
consume high levels of digital content, primarily presence.
297 through their mobile phones demonstrated by the
325 success of Free Fire, a mainstream mobile game
that, according to ActivePlayer, consistently has an
540 average monthly player count of over 300 million.
2,013 In contrast, Dota 2, which has the highest all-time
prize money, has an average of 500,000 average
443 monthly players.
North America Latin America
6
Europe Middle Eas t
Asia-PacificGAME PARTICIPATION
Total Prize Number of Team Evil Vici Natus Team Invictus FaZe
Game OG Fnatic Virtus.pro Newbee LOUD Nordavind
Money ($m) Tournaments Liquid Genius Gaming Vincere Secret Gaming Clan
Dota 2 231.86 1,496 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
CS:GO 112.06 5,535 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Fortnite 102.38 687 Yes Yes Yes Yes Yes Yes Yes Yes Yes
League of
83.19 2,528 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Legends
StarCraft II 34.70 6,066 Yes Yes Yes Yes Yes Yes Yes Yes
PUBG 32.86 327 Yes Yes Yes Yes Yes Yes Yes Yes
Overwatch 26.75 747 Yes Yes Yes Yes Yes Yes
Hearthstone 24.56 914 Yes Yes Yes Yes Yes Yes Yes Yes
Arena of
24.09 62 Yes
Valor
Heroes of
18.19 475 Yes Yes Yes Yes Yes
the Storm
Table 1
Investment considerations and the consolidation game
There are a number of esports organisations sense for two successful teams like Team Liquid
Despite COVID-19, Dota 2
looking for investment. Those teams that and Fnatic to merge as they participate in the
surpassed the $40 million consistently win tournaments, due to having a same games. Most likely they will also have
prize pool mark for the first strong player roster, field teams in the most overlap in their social media following which will
time in 2020 popular games and enjoy commercial success by result in less synergies than if they competed in
leveraging the online gaming community will be different games. It would make more sense for a
the most sort after by investors. The top games successful team in terms of prize money to merge
Up and coming esports by prize money are the best games to compete in with a team that does not participate in the more
team: and are highly competitive with high barriers to established games. Loud would be a great target
• Nordavind is a Nowegian entry for the younger less well capitalized for a team like Team Liquid, Fnatic or Faze Clan.
organisation established in organisations; buying into a Call of Duty and However smaller teams could also be good
Overwatch franchise can cost between $25-$40m. partners for the major esports teams. We have
2011 as BX3 esports club included Nordavind in the table above to
Some teams have earned their way into these
which rebranded on 9th popular leagues through promotion, but it can be demonstrate this. Nordavind is an up-and-coming
February 2018 in a lengthly process. esports business from Norway which could give
collaboration with the an established US or UK team exposure to a new
The franchise model in sport is successful in the set of fans and a more progressive way of building
Norwegian football club
US demonstrated by leagues such as the the NFL its social media following, thereby increasing its
Vålerenga Fotball and MLS. The advantage of this model is that it reach with little chance of overlap.
removes any potential for relegation allowing a
• Nordavind aims to team to develop a fan base in their segmented Whichever way teams decide to build their
harmonize traditional market. We would expect US investors to prefer businesses, they need to remember that being
investing in esports companies that own franchise successful in different games is only part of the
Scandanavian design puzzle. They need to have an online presence in all
spots, as they better understand their
virtues with iconic monetisation model, and will perceive it as a forms of social media to reach and monetise their
imagery and technological lower-risk investment. fanbase. Once esports companies get to Series B
shrewdness, while investment and onwards, financial results become
Another way of participating in the more increasingly important in order to attract
bridging the gap between
established games would be through a merger investment. The focus of Investors is not
traditional and electronic with another team participating in these games. necessarily on profitability but on a team's ability
sports When analysing which teams could merge, it's to monetise their audience by diversifying its
important to note that most games do not allow revenue streams as well as being cash-efficient.
• They compete in 8 games, organisations to field two teams in the same
league. Thus, on the face of it, it would not make
4 of which are in the top
10 all time prize money 7THE FUTURE LANDSCAPE
Conclusion
It could be said that 2020 was a defining year for Successful esports organisations in prize money
• Whilst esports is the esports ecosystem. Overall, esports and the won have been identified, but these don’t
continuing to grow bigger wider gaming community were a shining light for necessarily lead to a higher social media following.
each year, physical sports many people during lockdowns implemented Teams need to have a healthy combination of the
are still quite far ahead in worldwide. It was a way for people to stay two to be considered a dominant esports
connected with one another. Another theme was organisation. As the esports market is becoming
revenue. The European
the crossover between traditional sports and more mainstream, investors are becoming more
football market is esports. With in-person events cancelled, sports knowledgeable about the industry. This means
estimated to be worth such as basketball, football and Formula 1 had no that as we advance, teams looking for investment
£25.1 billion in 2020 alternative but to turn to esports to cushion their will need to justify to investors their valuation.
(Deloitte) losses. There was also an uptick in sports players Ultimately, teams will need to have multiple
themselves creating their own twitch accounts to revenue streams and the ability to monetise their
connect with their fans. All these developments audience as they develop.
• Just like the streaming will likely lead to higher growth in esports in the
wars, media companies future as the line between traditional sports and
like Disney, Comcast and esports is becoming more blurred.
Netflix will compete for
esports in the future. The
CEO of Netflix even said
that he’s more afraid of
Fortnite than he is of
Disney (Sportscasting)
8Aalto Capital
Esports Discussion
July 2021
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