Investing in Esports: 5 Things Investors Should Know
28 October 2019
Over the past years, we have watched the continued rise of video gaming and esports, and learned more about what’s shaping the industry and what’s to come. Here are five key points that we believe are crucial to helping investors understand this growing industry.
1. Video gaming revenues are bigger than what many investors may expect.
Did you know that the video gaming industry as a whole is expected to generate over $150 billion in global revenues in 2019?1 According to Bloomberg, that is more than what the robotics industry ($89 billion) and the cybersecurity industry ($99 billion) generated in 2018.
Not only are industry revenues strong, they have also been growing consistently over the past few years. Since 2015, video game revenues have seen an annualized growth rate of 13%.2 Newzoo estimates that by 2022, video game revenues should hit $196 billion.
Global Video Game Revenues
Source: Newzoo. Projected revenues for 2019-2022.
2. Video game publishers are diversifying their revenue streams.
Video game publishers, with the help of technological innovation, are continuing to push the envelope to find new ways to generate revenues. Twenty years ago, the thought of playing video games against friends around the world through a handheld device was fantasy. Today, mobile gaming represents 36% of global video gaming revenues.3
The rise of the “game as service” model is also helping to boost the bottom line of many video game companies. Instead of paying a one-time, upfront cost, many of the most popular games are free to play, with smaller in-game fees for ongoing services like subscriptions and skins for players to personalize their game. These serve to extend the purchasing cycle of a game.
2019 Global Games Market (Projected Revenues)
We expect to see further diversification into new areas of potential revenue, including cloud gaming and virtual reality, as publishers and developers continue to explore what is technologically possible. Video games are deeply rooted in scientific, technological progress and research. The first video game created solely for entertainment was invented at a nuclear research facility in New York as part of an open house exhibition for visiting scientists, and that tradition of innovation continues today.
3. Esports and video game streaming are here to stay.
Esports have become a bona fide cultural phenomenon, fueled by public and private investments as well as the proliferation of social media communities centered on specific games and online streaming personalities.
The number of people watching esports and online game streaming around the world is staggering. In 2019, roughly 454 million people are expected to tune in to watch others play video games competitively.4 Nielsen Media Research has developed a new metric for esports viewership numbers—which has been a contested data point within the investment and esports communities—and this new rating is designed to provide an apples-to-apples framework for comparing esports and traditional television events. This is a crucial development for the young industry, helping it gain further legitimacy and earn the trust of potential and current advertising partners.
Competitive video gaming is only a piece of the puzzle. Online social media communities built around gamers and streamers are connecting millions of people around the world. These are active, highly engaged communities where gaming enthusiasts are not only playing games, but also becoming content creators themselves. Online streaming personalities like Ninja and Dr. Disrespect, while not technically esports competitors, have built huge online followings and can reportedly command seven-figure paydays to play new video games (like Apex Legends) on their streams.
4. Private investments drive the media story, but public investments may offer more accessible investment opportunities.
With all the attention on video gaming and esports right now, potential investors may be trying to figure out how to get involved. The opportunity set can be broken down into two broad categories: public and private.
|Examples of Private Investments||Examples of Public investments|
|Video Game Publishers (Valve)||Video Game Publishers (EA, Activision)|
|Esports teams (Cloud9, Team Liquid)||Console Makers (Nintendo, Microsoft)|
|Competitions/Community (XY Gaming)||Streaming/Community (Amazon, HUYA)|
The media narrative tends to be driven by private investments, such as high profile coverage of teams securing multi-million dollar sponsorship deals. These investments are not accessible to the majority of people who are reading the articles and are generally less liquid, less diversified and require more capital to participate. Publicly traded stocks are usually more liquid, with a much lower dollar threshold to participate. Additionally, publicly traded companies are historically more diversified because the individual companies tend to have multiple business lines supporting a much larger total market cap.
5. For public investors, publishers and hardware companies present pure-play opportunity.
At VanEck, we are focusing on providing investors access to the publicly-traded companies that are participating in the video gaming and esports industry. We believe video game publishers and related hardware makers are set to benefit the most going forward, in part because video game publishers have been growing their revenues and diversifying successfully, as noted above.
Another factor is that video game publishers have positioned themselves to take over a majority of esports revenues. Esports leagues were originally third-party organizations, unaffiliated with the publishers of the games played in competition. Recently, publishers have launched their own leagues. By developing and owning esports leagues, publishers can maximize their sources of revenues, which may include media rights (TV and internet distributions), franchise fees and league sponsorships.
Hardware makers (such as semiconductor companies) are also set to capitalize on growth in the industry. Advances in semiconductor technology fuel innovation in the video game industry, and certain semiconductor companies generate a majority of their revenues by creating hardware that drives the video gaming experience. When announcing its cloud gaming platform Google Stadia, Google explicitly stated that Advanced Micro Devices (AMD) will be creating custom GPUs that would define the end-user experience.
Investing in Video Gaming and Esports
Predicting which games will become hits is difficult. A diversified basket of stocks may allow investors to express a view on the sector without having to know which specific stock will outperform over the future. The index methodology that guides VanEck Video Gaming and eSports UCITS ETF (ESPO) provides exposure to companies in the video gaming and esports industries.
Currently, the MVIS® Global Video Gaming and eSports Index is heavily tilted towards video game publishers (including the publicly traded companies that operate the largest esports leagues) and semiconductor companies. As the esports industry matures, smaller esports names, such as streamers like HUYA and Modern Times Group, may grow to become a meaningful part of the Index. In the interim, the index captures the esports phenomenon as part of the broader evolution of video gaming, creating awareness of the industry’s potential to reshape how people spend their time and entertainment dollars.
To learn more about ESPO and the high growth potential of the global video gaming and esports industry, visit vaneck.com/ucits/esports/.
1 Newzoo Global Games Market Report, 2019.
2 Newzoo Global Games Market Report, 2019, 2018, 2017, 2016.
3 Newzoo Global Games Market Report, 2019.
4 Newzoo Global Esports Market Report, 2019.
This commentary originates from VanEck Investments Limited (“VanEck”) and does not constitute an offer to sell or solicitation to buy any security.
VanEck’s opinions stated in this commentary may deviate from opinions presented by other VanEck departments or companies. Information and opinions in this commentary are based on VanEck’s analysis. Any forecasts and projections contained in the commentary appear from the named sources. All opinions in this commentary are, regardless of source, given in good faith, and may only be valid as of the stated date of this commentary and are subject to change without notice in subsequent versions of the commentary. Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of VanEck. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur.
No investment advice
The commentary is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment decision. This commentary has been prepared by VanEck as general information for private use of investors to whom the commentary has been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored investment advice, and does not take into account the individual investor’s financial situation, existing holdings or liabilities, investment knowledge and experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.
Before acting on any information in this publication or report, it is recommendable to consult one’s financial advisor.
Forecasts, estimates, and certain information contained herein are based upon proprietary research and the information contained in this material is not intended to be, nor should it be construed or used as investment, tax or legal advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security. References to specific securities and their issuers or sectors are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities or gain exposure to such sectors.
Each investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.
This commentary may be based on or contain information, such as opinions, recommendations, estimates, price targets and valuations which emanate from: VanEck portfolio managers, analysts or representatives, publicly available information, information from other units or Companies of VanEck, or other named sources.
To the extent this commentary is based on or contain information emerging from other sources (“Other Sources”) than VanEck (“External Information”), VanEck has deemed the Other Sources to be reliable but neither the VanEck companies, others associated or affiliated with said companies nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.
Limitation of liability
VanEck and its associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this commentary. In no event will VanEck or other associated and affiliated companies be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication or report.
The risk of investing in certain financial instruments, is generally high, as their market value is exposed to a lot of different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual shares, the investor may lose all or part of the investments.
Conflicts of interest
VanEck, its affiliates or staff of VanEck companies, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in this commentary.
To limit possible conflicts of interest and counter the abuse of inside knowledge, the representatives, portfolio managers and analysts of VanEck are subject to internal rules on sound ethical conduct, the management of inside information, handling of unpublished research material, contact with other units of VanEck and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for example to ensure that no analyst will abuse or cause others to abuse confidential information. This commentary has been prepared following the VanEck Conflict of Interest Policy.
This commentary is not intended for, and must not be distributed to private customers.
No part of this material may be reproduced in full or in part in any form, or referred to in any other publication without express written permission of VanEck. ©2019, VanEck.
VanEck Video Gaming and eSports UCITS ETF is a sub-fund of VanEck® UCITS ETFs plc., organised under the laws of Ireland. Any investment decision must be made on the basis of the prospectus and the key investor information document (“KIID”), which is available at www.vaneck.com.
MVIS® Global Video Gaming and eSports Index is the exclusive property of MVIS (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Video Gaming and eSports UCITS ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.All indices named in the commentary are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
VanEck UCITS ETFs plc. is an investment scheme which is registered in Ireland and which, as an umbrella fund, is subject to the European regulation of collective investment schemes under the UCITS Directive. The sales prospectuses for the VanEck UCITS ETFs contain a comprehensive description of the risks and conditions governing the fund. The sales prospectus, the Key Investor Information Document (KIID), the Articles of Association and the current annual and semi-annual reports are available free of charge from the following agents, contact details of whom may be found on www.vaneck.com.
Austria: Paying Agent -- Erste Bank der oesterreichischen Sparkassen AG
UK: Facilities Agent -- Computershare Investor Services PLC
Germany: Information Agent -- VanEck (Europe) GmbH
Spain: Designated Distributor -- Allfunds Bank S.A.
Sweden: Paying Agent -- SEB Merchant Banking
For informational and advertising purposes only.
This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.
All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KID before investing.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck (Europe) GmbH
14 June 2023
06 September 2022
14 June 2023
06 September 2022