Esports Investment Opportunities: Get in the Game
As the popularity of esports grows by leaps and bounds, investors are being presented with a host of opportunities.
Yes: people make money from playing video games. And yes: people spend time watching others play video games. In fact, when it comes to watching video games, Amazon’s Twitch saw over 3 billion (with a “b”) hours watched in just the first quarter of 2020, and 5 billion hours watched in the second quarter of 2020.
While most traditional sports gained popularity in North America before spreading overseas, esports has its roots overseas and is now gaining a bigger presence in North America. Accordingly, esports is by no means a “new” industry, but the surge in investments from institutional investors, including music artists and traditional sports athletes, teams and team owners, has put North American esports in focus over the past few years.
Esports provides a host of investment opportunities, including professional teams and leagues, real estate, media production/exhibition, technology infrastructure and a host of other avenues. Further, brands are allocating much larger portions of their marketing budgets toward esports given that they can reach a lucrative target demographic (39% of viewers are between the ages of 25-34).
Due to the global nature of esports, investment opportunities are not sequestered to specific regions. Esports organizations often own several teams that compete across various games, and teams under a single organization can be located in different countries worldwide. For example, OverActive Media, a Toronto-based esports organization, owns the Toronto-based teams in Activision Blizzard’s Call of Duty League (CDL) and Overwatch League (OWL), and it also owns the MAD Lions, a team based in Spain that competes in Counter-Strike: Global Offensive and League of Legends. Additionally, while traditional sports have struggled to expand overseas despite significant marketing efforts, such as the NBA hosting tours in China and the NFL holding games in Mexico and London, the CDL and OWL already have teams located in London, Paris, Seoul, Shanghai and Guangzhou.
In addition to global investment opportunities, esports “hubs” are developing across cities throughout North America, thereby creating significant opportunities for local esports investments. The CDL and OWL have adopted the geo-located franchise model, similar to traditional sports, meaning teams play in their respective home cities. For example, the prominent esports organization FaZe Clan owns the Atlanta-based CDL team, which has helped Atlanta develop as an esports hotspot and benefit from an increase in local investment. With teams moving to their respective cities, opportunities are arising for local real estate developers as esports teams look to build arenas for league competitions, in addition to state-of-the-art facilities (equipped with the latest technologies and equipment for their players to train), along with local production and media companies to support the esports organizations’ efforts to produce media content and accomplish other objectives.
Greenberg Glusker’s Brandon Jackson recently moderated a panel, “Sport of the Future: Investing in Esports,” during the virtual ACG Member Summit.
Other potential revenue streams in esports, and therefore opportunities for investment, include IT infrastructure and merchandising.
Given the virtual nature of video games, IT infrastructure is critical to esports, and as 5G technology is rolled out over the next few years, the video game industry will see significant benefits. Even when competitions are held in person at arenas, there is still a need for powerful IT infrastructure to support balanced competition, as a mere connectivity difference of milliseconds can impact the outcome of a match. Additionally, several game publishers and other companies are racing to create streaming-based video game platforms (i.e., the “Netflix of video games”) as 5G technologies become commonplace. While consumers are willing to wait for a YouTube video or Netflix show to buffer, video game competition requires no delay resulting from poor connectivity.
Merchandising presents investment opportunities in both the physical world and the virtual games. Teams and esports-related brands can sell jerseys and clothes boasting their logos. Teams often do merch “drops” where they sell a limited supply of unique merchandise, and there have even been major brand collaborations, such as FaZe Clan’s collaborations with the NFL and Manchester City Football Club. Separately, there is in-game merchandise, including game “skins” that incorporate a team’s or brand’s logos and other intellectual property. A skin is a visual graphic that changes the appearance of the user’s in-game avatar, such as the avatar’s outfit, the color of its weapon, or an “emote” (e.g., a character’s on-screen action, such as a dance move). Accordingly, a team can create an in-game uniform or theme for their avatar that players can buy. Given the virtual nature of video games, the creativity that brands can bring to merchandising is endless.
While this is a small sample size of the vast number of opportunities that esports and gaming offers to those looking to invest in the space, it also shows the broad range of areas that esports captures. Accordingly, investors across sectors with no specific experience in the video game industry itself can find ways to seamlessly dive into the industry nonetheless.
Brandon Jackson is a Corporate and Intellectual Property attorney at Los Angeles-based law firm Greenberg Glusker, where he is part of the firm’s Video Games, Streaming & Esports Practice Group. Brandon represents clients in a wide variety of general corporate and transactional matters, including mergers & acquisitions, equity financings and outside general counsel work. His clients include media networks such as Anthem Sports & Entertainment and AXS TV.