Game On! A Look at the Economics of eSports

When I was a teenager growing up in the early 1990s, I had a friend who would watch me play Street Fighter II, a video game in which cartoon combatants battle it out.

I could never understand his fascination with watching me play the popular game; to me, that was akin to torture. I always wanted to be the one in control, not the one spectating.

That's why the explosion of eSports, or electronic sports, was initially baffling to me — and likely to many others of my generation who grew up with controllers and joysticks in their hands.

eSports, in a nutshell, is organized computer gaming that's competitive, professional and attractive to millions of viewers and/or fans who fill arenas and watch online streams of competitions.

Games analysis firm Newzoo expects the global market for eSports to be worth at least $1.8 billion (all figures U.S.) by 2022. Goldman Sachs, meanwhile, says revenue will triple from 2018 to nearly $3 billion in the same time frame.

The organizational aspect largely mirrors that of professional sports. Leagues and tournaments attract teams of professional gamers, who in turn have have their own owners. Teams compete against each other for prize money, usually in shooter-type video games such as Counterstrike, Overwatch, Call of Duty and League of Legends.

Big Business

The world of eSports has become serious business.

In fact, Los Angeles-based Riot Games' League of Legends World Championship Finals was the most-watched eSports tournament of 2018, with 81.1 million hours streamed, according to Newzoo. Together with that year's other top three events — the eLeague Major: Boston, The International 2018 from Dota 2 and the Overwatch League Finals — there were an incredible 190.1 million hours streamed overall.

Meanwhile, the biggest live event so far — a series of tournaments held in Katowice, Poland over 10 days in March — attracted around 174,000 fans. That number rivals many well-established sporting events. Last year's five-game baseball World Series between the Los Angeles Dodgers and the Boston Red Sox drew a total attendance of about 239,000.

Newzoo estimates there were about 380 million eSports viewers worldwide in 2018, a number that is expected to surge to more than half a billion by 2021.

Here in Canada, the world of gaming is also on the rise. According to 2018 stats from the Entertainment Software Association of Canada, 61 per cent of Canadians define themselves as "gamers," up 24 per cent from 2016. And in British Columbia, the country's first-ever professional gaming stadium is set to open this year.

Not surprisingly, investors are piling in. U.S.-based Cloud9 became the world's most valuable eSports team last year after raising $50 million in Series B venture-capital funding, with the team's valuation estimated at $310 million. According to Forbes, there were at least nine teams worldwide worth at least $100 million.

Celebrities and big-names are also trying to get a piece of this burgeoning jackpot. Basketball legend Michael Jordan joined the ownership group of Team Liquid in October, while New England Patriots owner Robert Kraft has spent $20 million to establish a Boston-based team.

Brands are also stampeding in with advertising and sponsorships. Eager to appeal to the millions of viewers – primarily millennials – the likes of Intel, Coca-Cola, T-Mobile, Gillette and Mercedez-Benz have signed deals to get their logos onto everything from the jerseys worn by players to the computers and other gear they use.

Those sponsorship deals are paying off handsomely for many players, with some earning hundreds of thousands of dollars or more. Kuro "KuroKy" Takhasomi, a 25-year-old expert in the game Dota 2 from Germany, is believed to the be the richest eSports player in the world, with career earnings of more than $3.5 million so far. Not bad for doing something that many parents have stereotypically chided as a waste of time.

*This article was updated on May 29 to clarify references made in the first sentence.