By all accounts, 2018 was a monumental year for investment in esports. According to a report published by Deloitte and The Esports Observer in April 2019, investments in esports increased from $490 million in 2017 to $4.5 billion (!!) in 2018. Also in 2018, 53% of the industry’s 380 million-person global fan base was comprised of fans aged 21 to 35. This is one reason investors are attracted to the market, as this demographic is widely considered a valuable audience for advertisers.
Additionally, investors also see this as an opportunity to get an early stake in an industry that is growing at an unprecedented rate and is expected to continue to mature in a similar manner. In February 2019, NewZoo’s 2019 Global Esports Market Report projected that revenues for the esports industry would increase from its estimated $1.1 billion in 2019 to anywhere between $1.8 and $3.2 billion by 2022. The report also anticipates the total audience to nearly double by 2022 to 645 million fans. With projections like these, it is understandable that investors are pouncing on opportunities within the industry in as many ways as possible. But who are these investors and what are they investing in?
Who are the investors?
According to the Deloitte report, private equity and venture capital groups were responsible for 60 esports investments in 2018. While these groups undoubtedly dominated the investment market within the esports industry, interestingly, a significant subset of individuals involved in the private equity transactions were athletes and entertainers.
Over the past few years, athletes and entertainers have consistently continued to grow their stake in the burgeoning space. In 2015, former NBA player Rick Fox, co-founded Echo Fox, an esports organization that has grown to become one of the more popular brands within the industry. Since then, dozens of athletes (both former and current) and entertainers have joined in some capacity, including Michael Jordan, Stephen Curry, Alex Rodriguez, Drake and Diddy. In addition to their capital infusions, athletes and entertainers are in a strategic position to help grow the target of their investment by leveraging their fanbases and current brand partnerships.
What are the Investment Opportunities?
By far, the most popular investment opportunity for all investors is in esports organizations. For the unaware, esports organizations comprise multiple teams competing in several titles, most frequently under single branding. According to Deloitte, $193 million was reportedly invested into this category in 2018. This is primarily because investors see this as an opportunity to own a stake in an early stage sports business that hopefully could be as valuable as a traditional sports team in time.
Investing in existing teams has become a common approach for some professional athletes and entertainers, but others have taken a similar approach to Rick Fox by running their own organization. Los Angeles Rams lineman Roger Saffold (Rise Nation) is one of the most publicized examples, but NBA players Jonas Jerebko (Detroit Renegades) and Jeremy Lin (J.Storm) have purchased their own esports teams as well. However, running an organization may not be the most viable option for the vast majority of athletes and entertainers, as it requires them or their business partners to spend a lot of time handling day-to-day operations.
Other Opportunities: Developers, Media Platforms, Agencies, Esports Funds, etc.
While team investment may appear to be the easiest and most popular way to obtain ownership interest in esports, it is by no means the only way. As with any other industry, the esports landscape provides an assortment of opportunities. Developers, like Riot (League of Legends), Activision Blizzard (Overwatch, Call of Duty), and Epic (Fortnite), are often considered to be attractive investment opportunities, given that they essentially own the intellectual property (i.e. “the football”) behind their respective esports ventures. Individuals may look to invest in a lesser-known developer in hopes of finding the next League of Legends or Fortnite.
Additionally, media platforms have grown to be an appealing investment play within the industry since Amazon acquired Twitch for $970 million in August 2014. Recently, an up-and-coming social broadcasting platform that distributes esports, gaming, and music content, Caffeine, received a $100 million capital infusion from Fox. Though many of these investments are made by larger businesses or funds, athletes and entertainers could look to leverage their unique combination of stardom and capital in return for equity in budding platforms like Caffeine, which was cofounded in April 2016.
Some athletes have even jumped in on other big-picture plans as their way of getting involved in the esports industry. In 2018, Kevin Durant, Odell Beckham Jr., and the St. Louis Cardinals participated a $38 million funding round for Vision Esports, a holding company set up to invest in a collection of esports businesses. This is not a bad option for those individuals who may not know exactly what to invest in, and trust the industry knowledge of those individuals running the investment fund.
The examples described above are only a fraction of the endless amount of investment opportunities available within the esports industry. From teams to technology to third party tournament organizers, there is an option for every type of investor who is looking to get involved in the space. Unfortunately, as with any new industry, there are a significant number of con-artists seeking to obtain investment on false pretenses, which may be difficult to detect by those not involved readily involved in the esports industry. If you have any questions regarding potential investment opportunities or how to structure a particular transaction, please feel free to contact us.
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