A market for the future – following other global sports

Today, esports is at a crossroads. We believe that the next phase of the journey will be where esports follows the path of other growing global sports through history – and reach a higher level of commercialization. .

By 2022, analysts predict that the esport industry will be worth at least USD 1.8 billion. The fast growth for esports is raising several questions, like how the so called monetization will look like and if the growth rate can continue. While it isn’t possible to answer all questions with certainty, a look at the historical development of traditional sports shows that there’s still huge potential in the market with a clear path toward greater commercialization.

The maturity curve we see in esport today is not uncharted territory. In fact, esport is following a similar trajectory to traditional sports like baseball, soccer and American football. The biggest difference is that the playing field is now digital. Esport has already pushed well past the hobby phase and into professionalization. And if they continue to follow the same path as traditional sports, the future looks bright.

The industry’s future growth will be driven by three factors that have radically changed traditional sports over the last fifty years:

 

  1. Sponsorship
  2. Media rights
  3. Fan monetization.

1. Sponsorships – bringing in the biggest global brands

Sponsorship revenue already represents the single biggest slice of the global esport market today – USD 456.7 million in 2019. But it’s clear from traditional sports, like soccer, that there’s still room for growth. Sponsorship has been key to soccer’s development into a global game, with kit branding emerging from early tie-ups with local businesses into today’s monumental sponsorship deals. Sponsorship is set to play an equally important role in esport.

This is already happening. Global brands from a range of industries are flocking to sponsor esport. Some examples: luxury fashion house Louis Vuitton sponsor the League of Legends World Championships in a major multiyear deal. DHL and Intel sponsor of ESL, and Samsung has a partnership with DreamHack. Just to mention a few.

2. Media rights – changing the game and winning new audiences 

In 2019, Media rights represented the fastest-growing revenue stream within esport in 2019, amounting to USD 162 million. The expected annual growth rate is almost 40 percent until 2022.

Still, that is nothing compared to the media deals seen in traditional sports like soccer, Formula 1 and American football. Looking back, we believe history in these cases indicates the future for esports:

  • Soccer. City Football Group (which owns Manchester City FC) was valued at USD 4.8 billion when Silver Lake acquired 10 percent of the company in 2019 – largely because of the multibillion-dollar prices broadcasters and internet groups are willing to pay for Premier League media rights.
  • Formula 1. There was a a dramatic increase in fans when Formula 1 began to be regularly broadcast races on major television channels. When cameras were added to the cars, the novelty, pace and excitement of the TV coverage attracted even more enthusiasts. With a greater fan base came the inevitable raft of new advertisers.
  • American football. The same can be said for the NFL, whose unprecedented USD 1.6 billion deal with Fox in 1993 changed the way we watch sports. The entertainment value rose and a straightforward ball game turned into a cultural phenomenon with a reach far beyond its traditional fan base. Just think of the 110.8 million people that tuned in to watch Beyoncé perform at the Super Bowl halftime show in 2016.

In sum, esport has a clear opportunity for continued revenue growth, together with access to a growing audience – just like traditional sports.

3. Fan monetization – still early days 

Esport prize pools already surpass traditional sports. For example, Epic Games set aside USD 100 million for 2019 tournament winnings. The 2019 Fortnite World Champion received USD 3,025,900 – compared with the 2019 Wimbledon Champion’s USD 2,983,748 prize. That is remarkable, given that this legendary tennis tournament is one of the world’s most widely watched sports event. And there’s one area that forcefully could accelerate the growth of esport – offering more relevant products and services to fans, exploring the full commercial potential. Three facts points in the direction for increased so called fan monetization.

Low relative monetization. Esport fans are today monetized at USD 5.45 per person, according to analyst estimates. This figure lags far behind the average fan of Major League Baseball or NFL. These fans are currently monetized at around USD 90 each.

Potential for new offerings. Taking traditional sports as a benchmark, there is a real opportunity to monetize esport fan engagement. This will be done by offering services and products they are willing to pay for, like merchandise, paid streaming subscriptions, live events and concessions.

Strong spending power. Esport has one of the fastest-growing global audiences in pro sports, with an average age of just 32 – more than twenty years younger than the typical baseball fan. This youthful fanbase also has strong spending power. A recent Swedish study found that 75 percent of esport enthusiasts work full-time, while 60 percent earn an above-average salary. This is higher than traditional sport fans.

To summarize: The potential is significant. With esport already catching up with traditional sports in many areas, fan monetization will be one of the most interesting areas to watch as the industry continues to mature.

Learning from each other 

In many ways, esports and traditional sports are on a path of convergence. We see many overlaps starting to emerge between these previously separate worlds.

As for MTG being the home of esport and gaming entertainment, we will have front row seats for the show.