Why You Should Invest in Esports

American Football, running back getting tackled

No, that’s not a spelling mistake. ‘Esports’ are a real thing.

Just like email is the digital equivalent of postal mail, esports are the digital equivalents of physical sports — professional video gaming.

There are a lot of professional ‘athletes’ — and I use that term loosely — that compete to be the best at playing games. It may sound strange, but it’s just as competitive as traditional sports and just as demanding on the players.

Most of them train upwards of 10 hours per day, honing their abilities and perfecting their teamwork. The elite players aren’t couch potatoes either. Esports is serious business, with organisations, coaches and even health experts all trying to get the most out of their players.

In fact, a lot of these teams live and play together in huge mansions, all paid for by companies with multi-million-dollar investments and sponsorship deals. They aren’t living in their parent’s basement, they’re getting paid millions to compete.

It’s why esports is the fastest growing spectator sport in the world.

Let me put it in perspective. Tomorrow Melbourne will host one of Australia’s premier sporting events — the Melbourne Cup. Last year, the ‘race that stops a nation’, in fact only stopped just over 10% of Australians. 2.8 million Australians watched the race last year, and we’re likely to see similar figures tomorrow.

Similarly, in the US, the Major League Baseball World Series finished up last week with just over 15 million viewers tuning in for the final as the Boston Red Sox won their ninth World Series title.

Meanwhile on Saturday, 106.2 million people tuned into watch the League of Legends World Championship final.

Why it’s worth taking Esports seriously

That figure doesn’t even include the more than 40,000 fans that packed into the Beijing arena to see the game live.

For the record, team Samsung Galaxy won 3­­–0 over team SK Telecom T1 in a best of five. The winners, Samsung Galaxy, will share US$1.73 million between them. While runners up SK Telecom will also pocket a tidy US$341,000.

And that’s just the prize money. Players at the top level also receive a salary. Just like regular sport stars attract huge deals, so too do their esport peers.

It’s speculated that one of the top players in League of Legends makes an estimated US$98,000– US$147,000 a year. That figure doesn’t include any prize money from tournament winnings. Which,  as you can see, can range from hundreds of thousands to millions.

This player isn’t even in the top 10 of esports earners. He ranks in at number 36 with just over US$1.1 million in prize money. The top dog is German player Kuro Takhasomi. He has raked in over US$3.4 million in prize money alone, playing a game called Defence of the Ancients 2 (Dota 2).

In fact, the top 35 esports earners by prize money alone all play Dota 2. Which is thanks to the games huge prize payouts, like the Dota 2 International, the biggest Dota 2 tournament held annually.

In 2017 the total prize pool for the Dota 2 International was just shy of US$24.8 million. With the winning team taking home a cool US$10.8 million alone. What might surprise you is that a lot of this money comes from the fans.

Valve, the company that owns Dota 2, only put up US$1.6 million of their own money. The remaining US$23.2 million came from fans through the sale of an in-game item — a unique method of monetisation that is found only in esports.

It’s why esports is attracting a lot of attention. There are millions of fans that are captivated by these games, and millions of dollars up for grabs. Then you throw in other forms of revenue, such as sponsorship deals and advertising on top.

The money is just flooding into the scene.

The companies profiting from it all

Naturally, a lot of this money is being fuelled by tech companies. Just look at the League of Legends team names I mention earlier: Samsung Galaxy and SK Telecom T1. Galaxy is backed by Samsung Electronics Co Ltd [KRX:005930] and SK Telecom T1 is similarly sponsored by SK Telecom Co Ltd [KRX:017670].

But it’s not just about the players. It’s about where they play, what sort of computer they use, what mouse, keyboard or headset they need. Every single aspect can be monetised.

Because when all these fans tune in to watch their favourite player or team compete in a video game that they likely play themselves, they want to emulate it. So when they see their favourite player using a specially designed, $70 gaming mouse, they’ll probably want one for themselves.

That’s a big source of revenue for companies like Logitech International [VTX:LOGN] and BenQ Materials Corp [TPE:8215], who provide these specialised products. And competition is ramping up.

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Another supplier, Razer, plans to go public soon and, as Bloomberg reports, it’s looking to offer up a tenth of the company, in order to raise US$400 million on the Hong Kong stock exchange.

It’s also big business for the companies that own these games. Take US gaming developer Activision Blizzard Inc [NASDAQ:ATVI] for example. They’re a big-name developer of popular video games like Call of Duty and World of Warcraft. But now they’re looking at capitalising on the growth of esports.

One of their games, Overwatch, is proving extremely popular and the company is pushing to make it an esport. It’s already made some landmark deals, at least that’s what Blizzard’s Senior Vice President, Mike Sepso is saying, with the launch of the inaugural season of the Overwatch League in January.

To make it happen the company has partnered with HP Inc [NYSE:HPQ] and Intel Corporation [NASDAQ:INTC], two big household names in computing. With Sepso commenting:

These two deals with HP and Intel represent the largest deals I’ve ever seen in the space,

‘[they are] true partners, not just advertisers. Both have put a tremendous amount of resources, both financial and personnel, into the relationship.

It’s about ensuring that they can get a slice of the growing esports market. With Blizzard, HP and Intel all banking on the success of the Overwatch League. They’ve already received a lot of interest from various teams and it’s not cheap to get in.

The entry-fee into the league is US$20 million. And yet teams are desperate to get in, and some of the big names behind the sport are recognising the potential. Robert Kraft, owner of the American football team New England Patriots, has bought in. As has Stan Kroenke, who owns the Los Angeles Rams and has a majority holding in company that oversees the Arsenal Football Club.

Esports is incredibly popular, so popular that it might even become an Olympic sport in just over a decade. But that’s a story for another time…

I just want you to understand that esports is big. Too big for anyone to dismiss.

Regards,

Ryan Clarkson-Ledward,
Editor, Tech Insider

Tech Extra

PS: Tech can be a seriously lucrative market for savvy investors. If you’re interested in taking a risk on some other highly lucrative stocks, check out Sam Volkering’s free report to find out which three stocks he thinks have huge potential for 2018. You can find this report here.

Ryan Clarkson-Ledward

Ryan Clarkson-Ledward

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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