Tapping Into Video Games and Esports

Upon the release in 1970 of the very first home video game console, the Magnavox Odyssey, few would have guessed that its arrival heralded the birth of a multibillion dollar industry. And yet, humble and crude though its technology seems by today’s standards, the Odyssey was nothing short of revolutionary. It foreshadowed the introduction by Atari of its smash hit Pong in 1973, which laid the foundation for increasingly accessible, user-friendly, and popular video games enhanced by technological advancements.

Today the video game and esports, or competitive video gaming, industry is an economic powerhouse. In 2017, the video game market’s revenues grew 10.7%—even faster than expected—reaching $116 billion.¹Esports, a still-nascent entertainment category, has been registering staggering growth—averaging over 40% revenue growth per year since 2015²—and is estimated to reach an audience of 380 million people worldwide in 2018.³

The Rapid Rise of Video Gaming and Esports

But what exactly is esports, and what does its growth portend for the video game industry overall? Collectively, the term “esports” refers to professional competitive gaming. Players can participate in contests for prize money (Kuro Takhasomi, the world’s highest-earning player, has earned $4.1 million⁴in his professional career so far) and, increasingly, audiences are attending live events and tuning in to live streams to follow their favorite gamers and teams.

Although some of the first video game tournaments took place in the 1980s and 1990s, many consider the dawn of modern esports to be the 1997 Red Annihilation tournament for the first person shooter (FPS) “Quake,” where over 2,000 participants competed for a Ferrari previously owned by the lead developer. Major League Gaming (MLG), launched in 2002, was the first professional esports organization to broadcast on American television, with a Halo II tournament in 2006. Today, MLG is the largest and most successful gaming league in the world. A 2013 MLG tournament awarded gamers more than $170,000 in prizes.

U.S. Sports Viewership vs. Esports Unique Viewers

Source: Sports Media Watch, Statista.com, dotesports.com, lolesports.com.

Incredibly, the 2017 League of Legends World Championship attracted more viewers than the deciding games of the MLB World Series, the NBA Finals, and the NHL Stanley Cup that same year.⁵Esports gained another credibility boost in July 2018 when the International Olympic Committee hosted its first Esports Forum to build a better understanding of esports and explore future engagement with the industry.

Clearly, esports is here to stay. Though still in its infancy, esports is growing rapidly, and is projected to generate approximately $906 million in revenue in 2018, an astonishing 38% increase over 2017’s $655 million.⁶By 2021, revenues are projected to reach upward of $1.7 billion.⁷In the context of all of this growth, the future certainly looks bright for the video game and esports industry, with total revenues projected to be as high as $165.9 billion by 2020.⁸

Esports Average Revenue Growth

Source: Newzoo Global Esports Market Report, 2017, 2018. 2018 is projected.

With a demographic largely made up of a relatively young and affluent audience, high revenue potential, and growing acceptance and recognition beyond a niche audience, we believe the video game and esports industry may present an exciting investment opportunity.