Welcome to Foley & Lardner’s Technology MarketTrends newsletter. In each issue, we will offer insights into the latest tech developments and best practices. This edition covers the esports and video gaming sectors.
Gaming Enthusiasts: An Unexpected Profile & Growing Audience
Once viewed as the dominion of teenage boys, today’s gaming enthusiast is more likely to be a 34-year-old woman who regularly joins online friends in multiplayer games for seven hours a week and in-person teams for six hours a week. And she’s not alone. Sixty-six percent of Americans aged 13 or older self-identify as gamers, and spend about six hours a week on average playing games. Worldwide, there are more than 2.3 billion gamers, representing a global market of $137.9 billion.
Esports enthusiasts make up a growing portion of this market. Esports—defined as competitive gaming in an organized format (tournament or league) with a specific goal/prize, such as winning a championship title or prize money—has grown from small amateur tournaments to professional and international leagues, with an estimated global monthly audience in 2018 of 167 million. This audience is larger than for Major League Baseball or the National Hockey League. By 2022, the estimated esports audience is expected to reach 276 million—comparable to the current audience for the National Football League.
Virtual Games, Real Returns
The growing audience for esports has brought increasing numbers of investment opportunities—the majority (around 82%) coming from endemic and non-endemic brand investments—vying for a share of a market that will exceed $1 billion in revenue in 2019. These opportunities include investments not just in gaming developers and publishers, but also in social media, sports broadcasting, advertising, online gambling, and consumer merchandising. Last year, for example, investors poured more than $200 million into event coordinators and tournament operators, chasing after tournament revenue that earned nearly $55 million on ticket sales alone, not to mention advertising and broadcasting license fees. It is predicted that the $897 million from 2019 brand investments is expected to increase to $1.5 billion by 2022.
This growth has been consistent over the past several years and is accelerating. From 2013 to 2017, more than $3 billion of venture capital investment was funneled into esports-related startups. This significant increase, driven primarily by investments made in the Chinese online video platforms Douyu and HUYA, is attributed to two industry trends: 1) the improvement of live-streaming and its effect on monetizing esports and 2) the popularity of esports in Asia. While North America is estimated to take in 37% of esports market revenues in 2019, the combination of China and South Korea represent another 25%, providing great opportunity for overseas investors.
Beyond revenue, esports is also responsible for the fastest-growing sector in the sports betting market. 2016 saw $5.5 billion in total annual amount bet, but the estimated 2020 bet is expected to hit $12.9 billion, a 134% increase in only four years. The Supreme Court’s 2018 decision in Murphy v. National Collegiate Athletic Association opened the door to legalizing esports gambling, as it was determined that the Professional and Amateur Sports Protection Act violated the anti-commandeering principle of the U.S. Constitution. As a result, states now have the ability to decide whether or not they will permit sports gambling within their borders and, if so, how they would like to regulate sports gambling within their respective states. It is important to note that gambling across state lines remains illegal; however, it is certainly possible this may change in the upcoming years.
The eSports Arena: Build it and They Will Come
The vast majority of esports events are watched remotely, via streaming services such as YouTube and Twitch, but there is a growing interest in live attendance. For example, while the 2017 League of Legends World Championship had a peak online audience of almost 100 million, a sold-out crowd of 40,000 filled Beijing’s Olympic “Bird’s Nest” stadium.
To provide the social experiences and additional interactive features desired by esports fans, custom-built arenas are springing up around the world, including the HyperX Esports Arena Las Vegas, Allied Esports properties in California and China, a yet-to-be-named facility at Caesars Atlantic City, and a soon-to-be-launched Orlando arena dubbed the Fortress. Venues can range in size—the Fortress is expected to be 11,200 square feet; HyperX Esports Arena Las Vegas is 30,000 square feet—but that’s not the only variable in the design.
Unlike a traditional sporting event environment, esports arenas follow a highly social, free-roaming, festival-like approach that begins the moment a visitor steps into the building. The technological demands of the space are comparable to your average data center. Design plans can include network-quality television production studios with dozens of cameras and multistory LED TV walls, gaming stations that can accommodate VR console and PC players, even augmented reality displays. The end goal? Creating the iconic esports version of Yankees Stadium, Lambeau Field, or the Staples Center.
Designers view the retrofitting of shuttered big box stores, vacant malls, or other discontinued retail space as a feasible option for smaller cities to attract esports teams, talent, and revenue. Esports experts applaud the intersection of the industry’s emphasis on community and the neighborhood revitalization via arena construction. The city of Arlington, Texas (population: 400,000) recently opened the largest purpose-built esports stadium (100,000 square feet; $10 million) and expects to host more than 30 annual events. As the esports industry expands, it promises to offer a positive impact on those cities that adopt its pioneering platform.
