e-Sports: A Boost to Video Gaming

07/31/2017 2:50 am EST


Monty Guild

Founder, Guild Investment Management

The unexpected demographic broadness of video game appeal is helping drive sales and engagement; we also see e-sports as another aspect of video gaming that’s garnering investors’ attention, notes Monty Guild, money manager and editor of Guild Investment Management.

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E-sports is on the way to becoming a huge business, rivaling established sports leagues both globally and in the U.S.  

E-sports refers to multiplayer online games, such as League of Legends, Call of Duty, Counter-Strike, Overwatch, or StarCraft, as competitive sports -- complete with leagues, professional players, spectators, sponsors, and box office and advertising revenues.  

How big is e-sports now? Numbers are hard to come by for many events, but the 2016 League of Legends World Championship had 43 million unique viewers for its final game -- compared to 40 million for game seven of the 2016 baseball World Series.

Direct e-sports market revenues -- including sponsor and advertising revenues, as well as ticket revenues -- were $900 million in 2016.  

The growing clout of e-sport will be a boon for game companies.  Titles that gain popularity as e-sports venues will see extended game and franchise lifespan and higher sales; e-sports will become one of their main promotional tools.

For the companies that broadcast and promote events, e-sports will create new sources of monetization through sponsor and advertising revenue, as well as through direct sales of event tickets and merchandising.  

If the 2016 numbers for League of Legends are an indication, e-sports are nearing a critical inflection point.

In our opinion, investors who want to benefit from the rapid rise of e-sports should concentrate in two areas: first on the game studios themselves, and second on the platforms that will bring e-tournaments to the new masses of fans.  

The largest pure-play gaming companies are Electronic Arts (EA), Take Two Interactive (TTWO) and Activision Blizzard (ATVI).  

Hong Kong-based Tencent (Hong Kong: 700HK) is the major gaming company in China, getting about half its revenue from gaming, supported by its other robust social and communications platforms.  

Amazon (AMZN), Alphabet (GOOG), and Facebook (FB) are positioned to be major platforms for e-sports viewing, and we would currently favor them above established cable broadcasters.

The main online outlet for e-sports viewing is Twitch.tv, bought by Amazon in 2014, accounting for about 20% of all e-sports online viewing time in 2015.  Alphabet’s YouTube won ESL broadcast rights early this year.  Facebook struck a deal to live stream Valve’s Counter-Strike.

For disclosure, we note that Guild’s principals and clients currently own ATVI, EA, GOOG, and FB.

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